Arms Odds and Ends (June 3, 2016)

Canada

Sometimes Canada gets good press, and sometimes bad.  The decision of the liberal government to continue a sale of armored vehicles to Saudia Arabia is turning into quite a political scandal. (LINK) Arms sales are fascinating precisely because of the highly political nature of these sales and the very real economic and security issues (domestically) that play into arms export decisions.

Nigeria

Nigeria has lost over $15 billion dollars due to arms acquisition corruption (LINK).  I wrote about Russia's own fraud problem a few years ago with some nice graphs.  Check it out (LINK)!

Russia

A good analysis of the effect of the economic crisis on Russia's military modernization process (LINK).

Another article examines problems within the Russian arms industry.  Some of this stems from corruption, some from incompetence.  (LINK)

On an unrelated (but not completely) note: more evidence that Russia is very concerned about the perceived legitimacy of its annexation of Crimea domestically (LINK). The political effects of the sanctions would be much worse if there wasn't a rally effect based on a widely-shared belief that Russia's actions were righteous and justified.

Russia's Internal Arms Consumption

Russia is trying to re-equip its own army (LINK).  This has been going on for awhile.  P.M. Medvedev announced recently that the goal for new equipment in the Russian military is being raised to 75 percent new equipment by 2020.

There are a few implications for this, both internally and externally.  The first is that this is a move that is both about the military and about the militarized economy.  One of my favorite books about the subject of Russia's military economy is by Gaddy and Ickes (2002) [1].  This book talks about the distortions caused by the Soviet Union's militarized economy.  Russia's economy is still riding the oil and gas boom, but employment in those sectors is still small.  There are numerous factory towns (large and larger) whose existence and employment base was dependent on the militarized economy.

Vladimir Putin has elevated arms sales to the same level of state enterprise as the oil and gas industries.  The reasons for this are plentiful. One reason is that arms still are symbolically important.  The more states that use Russia's weapons, the greater Russia's perception of its own uniqueness and importance.  A second reason is hinted at above - Putin needs to employ individuals.  One way to do that is to continue to ride the distortions of the Soviet economy (to a lesser scale) by emphasizing the military industrial complex.

There have been some reports that Russian firms are unable to produce arms sufficiently to meet their obligations to external customers, let alone to fulfill such an ambitious rearmament agenda.  However, by emphasizing internal purchasing of weapons the Kremlin is sending a strong signal that these industries will have the continued support of the state - and that may goad them into ramping up production through hiring, streamlining processes, etc.

This will be an interesting phenomenon to keep an eye on.  To what degree will the Russian military re-arm itself in the coming years?[2]
____________________________________
[1] Gaddy, Clifford G., and Barry W. Ickes. 2002. Russia’s Virtual Economy. Washington  D.C.: Brookings Institution Press.

[2] I did not tackle the issue of corruption in this post. I have addressed it earlier (here and here). That will be an even bigger issue as more funds are funneled into the defense sector.

Note: It has been a while since I've posted anything here.  This is not a widely-read forum in general (and for now I'm okay with that), and has been more of a way for me to keep my thoughts together and to have a little fun doing side projects.  I have finished my dissertation and am in the process of moving to a visiting professor position at UNLV.  I may not be writing much over the summer either.

Deals, Corruption, and Leader Involvement in Arms Sales

There have been a number of interesting stories piling up in my reader over the past few days.  I have wanted to get to them, but have also been trying to finish up the last chapter of my dissertation.  Priorities are fun.  This is what I'm doing on my break.

India

As a follow up to my post last week (here) about Russian corruption is an interesting story out of India.  India made a deal for helicopters with Finmeccanica (Italian firm), which now appears to be the result of bribes paid.  Now the Indian government is threatening to cancel the rest of the contract if the allegations prove true. (Read more here)

(And more here)

More from India.  India wants to start producing more of its own arms, particularly aircraft.  However, it is having difficulty because the firm that could potentially produce arms is so inefficient as to make this an untenable prospect.

James Hardy, an analyst at the defence consultancy IHS Jane's, says that HAL is "overextended", expressing an opinion largely shared by observers at home and abroad.

More here

Russia and Syria
Russia is continuing to supply the Syrian government with weapons from contracts that were already in place.

The head of Russia's arms exporter Rosoboronexport, Anatoly Isaikin, said Russian deliveries to the Syrian regime of President Bashar al-Assad included air defence systems but not the advanced Iskander missiles sought by Damascus. 

"We are continuing to fulfill our obligations on contracts for the delivery of military hardware," Isaikin was quoted as saying by the Interfax news agency.

Link

But Russia is not smuggling tank parts into Syria. (Link)

France and India

As part of my dissertation I am looking at the involvement of state leaders in arms deals.  I got a special gift from France's president Hollande on Valentine's Day.  The French President led an entourage to India to "clinch the world's biggest defense deal" in India.  The deal is a $12 Billion sale of 126 aircraft.  Along with this deal there are negotiations about French involvement in to help build a nuclear power plant in Maharashtra.

Link

Russia's Defense Fraud is Larger than Most States' Defense Budges!

File this under horrifying comparisons.  A report today from Moscow (link to news story) about the amount of fraud in the defense industry is simply staggering.

The Russian Audit Chamber has identified waste and misappropriation totaling almost 117.5 billion rubles – just over $3.9 billion at today’s rate – in the area of national defense, the first deputy head of the State Duma's Defense Committee, Viktor Zavarzin, told reporters, after a closed-door committee meeting attended by officials from the Defense and Finance Ministries, the Prosecutor General’s Office and other agencies.

That is a lot of money.  In order to put this into context I put together a quick visual using 2011 defense spending data from SIPRI. I had to download the data in an excel file and clean it up a bit.

Russian corruption in the defense sector is more than the median military spending by most states in the international system.  Average military spending is highly skewed by the US and China, which are not included in the graph above because of the way they ruin the scale.

What does all of this mean?  It means that it can be very lucrative to be involved in the defense sector in Russia!

None of this information by itself is really surprising and I've alluded to problems of corruption in previous posts.  The sheer scale of that corruption when put into context is simply staggering.

*NOTE:
Click on this link to obtain a zip file that has the SIPRI data for 2011 in a CSV file along with the STATA .do file I used to create the graph.    -Replication Materials-

And Now Corruption in Arms

Transparency International has come up with a new index of corruption in the defense sector.  I haven't had a chance to dig too deeply into the details yet.  Unsurprisingly Russia ranks high (low?) on corruption in the study.

The report can be found here.
A press release can be found here.

This critical passage comes from the press release:

The Index shows that only 15 per cent of governments assessed possess political oversight of defence policy that is comprehensive, accountable, and effective. In 45 per cent of countries there is little or no oversight of defence policy, and in half of nations there is minimal evidence of scrutiny of defence procurement. 

The study also finds that citizens are frequently denied basic knowledge about the defence sector. Half of the countries’ defence budgets lack transparency entirely, or include only very limited, aggregated information. In 70 per cent of the countries, citizens are denied a simple indication of how much is spent by their government on secret items.

The patterns of corruption from the front page of the report are not entirely unexpected.

 I am surprised there was not data on Canada in the study. Australia and Germany are the exemplar states for openness in defense reporting and relations.

I'll need to dig into this a bit further as a factor in arms transfers.  The ability of certain actors in society to enrich themselves through arms deals that are notionally being used to enhance the defense capabilities of the state is an interesting variant of the principal agent problem.

This is definitely an area that could use some further examination.

Are they related?

In today's mystery music show we examine two news items from the Russian press and ask the question: are they related?

The first is a stringent denial that Russia has lost a bid to supply India (its second largest customer for arms after China)* heavy helicopters:

MOSCOW, November 28 (RIA Novosti) – Russia’s state arms exporter Rosoboronexport denied on Wednesday media reports that it had lost tenders on the delivery of heavy-lift helicopters and aerial tankers to the Indian air force. 

“Rosoboronexport denies media speculation about Russia’s loss in both tenders as these reports are false,” the company said in a statement. (Link to full article)

The second is a story related to the ongoing corruption scandal in the Russian military.

MOSCOW, November 28 (RIA Novosti) – Companies controlled by the Russian Defense Ministry embezzled more than a combined 10 billion rubles ($257 million) this year, investigators said on Wednesday. 

The alleged sum included 6.7 billion rubles ($215 million) suspected to have been stolen via a corruption scheme that cost Defense Minister Anatoly Serdyukov his job earlier this month, Investigative Committee spokesman Alexander Sorochkin said. The sum in the high-profile case was previously reported to be 3 billion rubles. (Link to full article)

Russia's intertwined military industrial complex may be eating itself.  If the corruption within the system increases to a point where Russia cannot competitively sell its arms to longtime partners, the entire house of cards could come crashing down.

Verdict: Possibly related.


* Here is a fun graph I made to show this relationship:

Corruption investigations in the MoD - Filed under: Speculation

This is just a kind of tidbit - a nugget of joy - along with some wild speculation.  For what it's worth.

There has been a story developing about corruption among Russia's Defense Ministry's property department.  That has led to what appears to be a full investigation with documents and other items being seized today in Moscow.

From the article in RIA:

Oboronservis was set up in 2008 and carries out repair and services for Defense Ministry properties as well as repair and maintenance of military equipment and provision of services to military garrison towns. 

A law enforcement source told RIA Novosti that no detentions are planned in the near future as part of the ongoing investigation. 

Defense Minister Anatoly Serdyukov was informed of the investigation and arrived at one of the locations being searched, law enforcement sources said on Thursday morning. 

Russian President Vladimir Putin’s spokesman Dmitry Peskov said Putin met with Serdyukov and instructed him to ensure interaction with investigators on the Oboroneservis case. 

Presidential administration head Sergei Ivanov said it will be up to the court to rule who is guilty. 

“Only the court may determine whether a person is guilty or not. All the rest is vibrating air and propaganda,” Ivanov told journalists.

More details about the latest seizure and ongoing investigation can be found here.

Speculations

Now for the wild speculation.  It does not seem that any large and visible investigation such as this one is every done without the knowledge/approval of the Kremlin.  This investigation, and its timing, may indicate the model of having civilians as a part of the ministry of defense, and part of the defense and security structures within Russia, is under attack.  Many in the military have been unhappy with the civilian head of the Defense Ministry.  A good bio can be found at Wikipedia.

This may be more "Clan" maneuvering among Russia's elites, especially given the fact that Ivanov's held the position of Defense Minister prior to moving over to be head of the the Presidential administration in 2007.  If Kremlin watching is back in vogue, this makes for compelling television.