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Dmitry Shugaev: ‘The countries of the Middle East and North Africa altogether make up almost 50% of Russian total defense exports’

In accordance with the law of the Russian Federation, activities in the field of military-technical cooperation (MTC) with foreign countries shall be controlled and supervised by the Federal Service for Military-Technical Cooperation (FSMTC of Russia) that, among other things, shall ensure implementation of basic principles of the Russian government policy in the field of MTC. Dmitry Evgenyevich Shugaev, the Director of FSMTC, discusses main directions and tendencies in development of military-technical cooperation between the Russian Federation and foreign countries, the peculiarities of Russian military purpose product exporters’ activities at the present stage in his interview to our magazine.

— Mister Shugayev, what are the principles, the system of cooperation in the field of MTC is based on today?
— Today the system of military-technical cooperation of Russia is built as a vertical relationship where Rosoboronexport is the only exporter of final military purpose products. Concurrently, there is also a number of entities in the field of military-technical cooperation of Russia that are authorized to provide service of the equipment previously purchased by customers, to upgrade it and to supply spare parts for this equipment. These, in particular, include such integrated structures of the defense industry as the United Aircraft Corporation, the United Shipbuilding Corporation, Almaz – Antey Air and Space Defense Corporation and others. They obtained this right to service their equipment supplied to foreign customers as they represent defense industry itself, they embrace the factories that manufacture spare parts, components, etc.
Federal Service for Military-Technical Cooperation is an agency that controls and supervises all the activities related to military-technical cooperation and issues licenses. From strategic point of view the FSMTC of Russia plays the role of government policy ‘conductor’ in the field of military-technical cooperation and acts as a controlling and licensing agency at the same time.
However, all decisions regarding final supplies anyway are made at the highest level in Russia. That is, either an appropriate ordinance or instruction of the President or the Russian government should be issued. That’s why I call it a ‘vertical type of relationship.’

— How can you describe the development and dynamics of Russian activities in the field of MTC?
— First of all, I’d like to note that Russia is second in the list of world top exporters of military purpose products. It is not a secret that last year our defense exports exceeded $15 bln. The major part of this export is aviation equipment; export of the equipment related to aviation varies in the range of 40-50% of the total volume. Of course, we positively appreciate this fact, and we wish exporters of other weapon types to achieve these figures as well.
At the same time we understand, that the market of military purpose products (MPP) is a very specific market having cyclic nature. A number of factors should be taken into account, including modernization programs of defense ministries, financial solvency of countries that in its turn depends on their general economic health. Therefore, defense exports can hardly be expected to soar. Russia is aimed at building long-term relationships that will provide for sustainable growth of our export supplies.
It is important to participate in long-term programs, providing technical support to our clients and creating maintenance stations with an understanding that many of our clients aspire to improve their own industry, for example.

— What is the share of the Middle East and North Africa in Russian defense exports and the country’s export order portfolio? What military and defense equipment is in demand among the countries of the region?
— The countries of the Middle East and North Africa altogether make up almost 50% of Russian total defense exports, which is a considerable share. Our country’s military- and dual purpose products are traditionally in great demand with the countries of the region. We are totally satisfied with the current state of our military-technical cooperation with these countries as well as with the pace at which we are moving forward. As for specific types of equipment that are popular with our partners in the Middle East and North Africa one cannot but mention armor materiel, air defense means, anti-tank missile systems and small arms.

— What main competitive advantages does Russian equipment have in terms of its operational capabilities in this region?
— No doubt, the main competitive advantage of the Russian equipment, from the point of view of any foreign customer, is its quality-price ratio. As for its operation in the countries of the Middle East and North Africa I will add another important factor highly assessed by our partners after many years of usage. This is high efficiency and excellent capabilities of our weapons and equipment in extreme climatic conditions. I believe these two major advantages altogether make our military purpose products so popular with regional customers.

— How long have Russia and the countries of the Middle East and North Africa been cooperating in the military-technical field?
— We have been developing military-technical cooperation with the countries of the region since the middle of the 20th century, that is for more than 50 years. Symbolically enough, the inception of interaction in the military-technical field with the countries of the Middle East and North Africa coincided with the period when our system of military-technical cooperation was established. For our regional partners it was the time they obtained independence. Thereafter our cooperation in the military-technical sphere has developed steadily and in a constructive manner.

— What can the Russian Federation offer today to the countries of the Middle East and North Africa in this regard?
— At present, some operators of our military equipment in the region are facing the necessity to repair and modernize the equipment produced in the USSR and supplied earlier. I can say with full confidence that all those products, as well as the Russian origin military equipment, have considerable potential for renovation. As an example, there are several large-scale projects on repair of domestic armored materiel and air defense systems under implementation that are quite successful. Our country is ready to offer a comprehensive service program of maintenance, repair and upgrade of our military products according to the highest quality standards.

— What current offers of the Russian aircraft equipment and other defense solutions, according to experts of FSMTC of Russia, are more promising for the countries of this region?
— Long-term experience of successful cooperation with the countries of the Middle East and North Africa and the relationship of trust at bilateral level give us a strong cause for optimism about the future of military-technical cooperation with these countries.
Armor materiel, air defense systems and aviation equipment are traditionally in demand here because they enable our partners to optimize the protection of special infrastructural objects, which is of paramount importance.
However the need for a more integrated approach to the issues of
national security amid security challenges and looming threats compels the countries of the Middle East and North Africa to actively diversify and modernize their national Armed Forces. Therefore, we consider the regional market a promising one for a wide range of military purpose products.

— Is Russia ready to consider JVs in the countries of the Middle East? Is there any existing positive experience of such cooperation?
— A number of our partners from the countries of the Middle East and North Africa show interest in establishing joint ventures (JVs). The Russian Federation is ready to consider different models of cooperation, including various forms of JV. Some projects are already under implementation. We hope that they will be successfully fulfilled to further promote cooperation between the Russian Federation with the countries of the region.

— There is much discussion about the positive influence the operation of Russian Air Force in Syria has had on Russian defense exports. Please, if you can, name any particular type of equipment that has been ordered by a foreign customer due to its successful implementation in Syria?
— Since the very start of the Russian Air and Space Forces counterterrorist operation in Syria, the demand among foreign customers for the Russian military-purpose products has significantly increased. At the same time one has to realize that signing a contract is a time-consuming multi-phased process with lots of preparatory work to be accomplished before a deal can materialize.
We are having a busy time marketing the systems that are successfully used in Syria. You might be aware that S-300 and S-400 air defense systems,
Pantsyr S-1 surface-to-air missile and anti-aircraft artillery weapon system, Kornet-E antitank guided missile system and other air-launched weapons are in the top wishing-list of our customers. Of course, the increased popularity of these weapons is to an extent due to their successful performance in Syria.

— Some of the systems used in Syria are the ones that have gone through comprehensive modernization with their performance substantially increased…
— Modernization of arms and military equipment produced in the USSR is a full-fledged area of military-technical cooperation of our country with its foreign partners. Competition with Eastern Europe, CIS and China has recently become rather tense. Nevertheless, the countries that use our equipment should well understand that high quality work on improving performance and ensuring safety of defense equipment can be only carried out by certified enterprises and under the supervision of Russian experts in relevant fields. At present Su-24 and MiG-29 aircraft, Mi-8 and Mi-24 type helicopters, T-72 tanks and BMP-1 infantry combat vehicles are being successfully overhauled and modernized in the region.

— What can you say about Russian Safe City Project and its defense export prospects?
— Well, Defense Ministries and their various agencies remain major customers of the Russian military equipment in the region. And there is no surprise about it since they require our state-of-the art systems to successfully carry out their basic function which is to protect their countries’ sovereignty and territorial integrity.
At the same time, there is growing interest in the military-purpose products from the Ministries of Internal Affairs and other security agencies. Despite the fact that so far it has been limited to procurement of small arms we hope that our cooperation with these agencies can turn out mutually beneficial and fruitful.
As for the Safe City, we have made our presentations and respective proposals to partners. Some of them have expressed much interest in the project. Still at this stage it is too premature to talk of any specific contracts on the Safe City.

— Are the countries of the region interested in producing Russian equipment under license and establishing joint ventures for maintaining and servicing Russian equipment on-site?
— It is no secret that many countries of the Middle East and North Africa are seeking to advance their defense industry. And, to our satisfaction, they consider Russia as a qualified and reliable partner that can help them do it.
Taking into account the volumes of equipment supplied to the armed forces of the region, Russia is pretty much interested in launching service centers for our equipment here. At present, we are exploring a number of projects on aviation and armor materiel, as well as air defense systems maintenance centers. Hopefully we will soon come up with some mutually beneficial solutions.
As for license production of Russian military equipment, we proceed from the premise that at first partners have to procure large consignments of finished products. Only after that we can start a reasonable discussion of production under license.

— Is Russia open today for new cooperation ties?
— Yes, we are open to new partnerships and we understand that this is the trend. Of course, the approach ‘buy it as it is or search for it elsewhere’ is becoming obsolete. Naturally, sales of the final product is our main priority, but our partners increasingly aim at building their national manufacturing facilities to develop their industries.
The relationship with partners within the pattern ‘end products only’ is being gradually replaced by comprehensive cooperation in the field of high-technology products. And we are ready for this kind of cooperation as a country that has built its own defense industry. We are ready for cooperation and we will help our partners to create systems they need today.

— Can you give any particular examples worldwide?
— A case in point is the joint venture to manufacture Ka-226T helicopter, which is registered in India in accordance with appropriate intergovernmental agreement. It will start its active work soon. Another example of technological cooperation is BrahMos joint venture established in India.
In addition, the establishment of a chain of maintenance stations in Latin America, in particular, in Peru and in Brazil can be invoked here too. We have a lot of cooperation projects with Chinese companies etc.
Therefore, our foreign partners can be sure that we are ready for technological cooperation based on many years of experience and strong reputation of Russian weapons in the world.

— Is it really strong?
— Yes, it is. Russian weapons and military equipment have made a good showing in the world. Today experts state that our weapons are: first, highly technological; and, second, proving their ‘mission survivability’. In addition, it is relatively easy to maintain our weapons. Combination of the above mentioned factors explains why our products are so popular in the world.
At the same time today we offer the best value for money in the global market. This is recognized by everybody, including our competitors. I state this proudly and not for the purpose of advertising, because it is not only our opinion, but assessments of experts of the global market of military purpose products.

— And did Soviet equipment prove its high efficiency?
— Yes, it did. And it is still doing so. For example, Vietnam has been our partner in the field of military-technical cooperation for a long time for one reason only: Vietnamese army uses soviet military equipment for decades and is satisfied with it and with Russian products supplied in replacement of older soviet equipment.

— Does it ring true amid the evidently growing competition in the weapon market…
— We live in the real world and we clearly understand that competition is strong. Russian manufacturers take into account the trends of the global military equipment market.
Today Russia is a manufacturer of a large number of advanced and very expensive weapons, including some most innovative pieces. But this is not to say that we shall offer exclusive solutions only. Russia is aimed at active expansion of its niches in the global market participating in many international tenders for both state-of-the art weapons and traditional products. This stimulates national industry to manufacture the best products at most competitive prices.

— During the Saudi monarch’s recent official visit to Russia the two countries reached agreement on such Russian weapons S-400, TOS-1A, AK-103, AGS-30, Kornet-EM). Is Russia open to technology transfer or is it just about finished products supplies?
— Yes, our countries have agreed on supplies of S-400 «Triumph» anti-missile defense system, TOS-1A anti-tank guided weapon system, Kornet-EM anti-tank guided missile system, as well as AGS-30 and AK-103. At present we are discussing the practical implementation of the agreements reached. And, to our full satisfaction, talks are proceeding in an utterly constructive and open manner.

— What is impact (if any) of sanctions of some Western countries on the MTC of Russia with foreign countries?
— Sanctions is a bad notion in principle, they contradict the logic of free market per se. Suffice it to say that WTO, of which Russia is a member, upholds freedom from any restrictions. Unfortunately, many international institutions intended to strengthen mutually beneficial cooperation are failing today. And in this particular case we are witnessing politically motivated and absolutely unjustified discrimination. However, being realists, we have to work and find solutions.
There is also a downside of the medal for European companies that are forced to follow the sanctions. It is not only that they are bearing considerable losses as a result of this. It will also be extremely difficult for them to return to the Russian market after the sanctions are lifted. Perhaps, it will be even impossible as all the niches they used to have already been taken by their rivals.
Our partners complain that they have a kind of a ‘fatigue’ about the sanctions. Everybody understands that this should be stopped, because nobody gains from it. We shall see how things turn out. The Russian Federation has never shut any doors or burnt down bridges. We take the situation in a pragmatic and unimpassioned way.

— So we are still to see who suffered from the sanctions more, aren’t we?
— Those who lost the Russian market have suffered most. In a longer term our industry can gain from sanctions. Russian manufacturers due to the imports substitution program and new cooperation ties are at minimum risk of contractors refusing to supply parts or equipment because of some politically motivated reasons. They are not at risk of having to delay supply dates or to negotiate new conditions with their customers. If a MPP is manufactured completely within the country, it is a guarantee for its national army that everything will be done in a time. And it is a big competitive advantage in the opinion of foreign customers.