Weapons Sales: The Peace Dividend's Evil Twin By Lyuba Pronina St. Petersburg Times ST. PETERSBURG -- India signed deals worth $10.8 billion. China placed an order worth $2 billion. Malaysia, Iran and Syria may come up with their own multimillion-dollar contracts shortly. And these are agreements for Russian-built weapons and other military hardware that are scheduled for delivery some time down the road. Deliveries made this year on previous orders are expected to net Russia up to $4 billion, more money than the sector has earned since 1991, government officials say. As the more-recently signed contracts are filled over the next decade, annual revenues could jump to $6 billion. The government predicts that this year Russia will grab second place after the United States on the world arms market. But there is a wild card. The terrorist attacks in the United States led U.S. President George W. Bush to issue an ultimatum late last week that countries can either be for the United States or be considered to be for terrorism. The United States has frowned on some of Russia's choices in arms customers. As such, deals with countries such as Iran, Syria and Libya could be placing Russia at a crossroads where it must choose whether billions of dollars worth of contracts are worth the price of isolation. THE $6 BILLION QUESTION Usually tight-lipped about their arms sales abroad, Russian officials have of late shown no qualms about throwing around big figures. Annual delivery estimates range from $3.5 billion to $5 billion. Deputy Prime Minister Ilya Klebanov, who since 1999 has overseen the defense sector, said last year that "the annual potential of this [arms sales] market for Russia is no less than $5 billion." In August and early September this year, arms-sales officials discussed their deals to date with glee. Rosoboronexport - the state-controlled arms-sales agency that accounts for more than 80 percent of Russia's weapons-export deals - declared at the Moscow Air Show in mid-August that it was well ahead of its earnings plan. Rosoboronexport's first deputy general director, Sergei Chemezov, said that in the first seven months of this year the agency brought in $2.8 billion in revenues, or 87 percent of the year's $3.2 billion target. In 2000, Russia received $2.84 billion in arms-export revenues, with deliveries amounting to $3.68 billion. Of this, Rosoboronexport's share was $3.1 billion. Chemezov added that Rosoboron export has had orders worth $13 billion on its books since November, when it was formed as the successor of three other agencies, Rosvooruzheniye, Promexport and Rossiiskiye Tekhnologii. Of the $13 billion, some $6.5 billion worth is being filled, while another $2 billion worth has been suspended due to a lack of intergovernmental agreements, Chemezov said. Rosoboronexport chief Andrei Be lya ninov said that Russia may well reap $4 billion by the end of this year, a figure many arms experts here agree is plausible. Klebanov, however, is now voicing even brighter forecasts. While touring Novosibirsk defense enterprises in early September, Klebanov said Russia will for the first time take second place after the United States in arms exports in 2001, surpassing both France and Germany. He also said that Russia will be selling $6 billion of arms annually in the near future. Currently, 70 percent of all exports are aircraft, but in two to three years warships will also be among the top products, he said. Some local defense analysts derided the estimates, saying it was premature to stick the No. 2 tag on Russia and promise such revenues. "Russia has never been and never will be in second place in arms exports. That's absolutely unrealistic," said Konstantin Makiyenko, deputy head of the Moscow-based Center for Analysis of Strategies and Technologies, or CAST. Moscow-based independent defense analyst Pavel Felgenhauer agreed, saying there is little chance of reaching the $6 billion target unless China and India boost their orders significantly. According to the Arms Markets magazine published by the World Weapons Market Analysis Center, also in Moscow, Russia would need deliveries of at least $7 billion to $9 billion a year to move into second place. "The most Russia can hope for is $4 billion to $4.5 billion annually for the next three to four years," said Igor Korotchenko of the Independent Military Observer weekly. This figure would beat those of the two peak years of the past decade - 1996 and 2000 - when Russian deliveries stood at $3.6 billion and $3.68 billion, respectively. But it's still well under the Soviet-era figures of about $20 billion, although most of the sales back then were to satellite states that either did not pay in cash or didn't pay at all. In 1989, Russia exported $21.8 billion worth of arms but received a meagre $1.7 billion in cash, according to the World Weapons Market Analysis Center. ALREADY IN SECOND PLACE? Despite Klebanov's declaration that Russia may become the world's No. 2 arms exporter for the first time this year, one U.S. government organization already gives Moscow that ranking. The Congressional Research Service, an arm of the Library of Congress, announced that finding in a 90-page report titled "Conventional Arms Transfers to Developing Nations, 1993-2000," which was published in mid-August. The report, which is prepared for the U.S. Congress, is updated annually. According to the author of the report, national-defense specialist Ri chard Grimmett, the United States ranked first last year in worldwide arms transfers, with $18.6 billion out of a world total of $36.9 billion. Russia, he wrote, had arms transfers worth $7.7 billion, nearly double its previous year's amount. In third place was France with $4.1 billion. The top three accounted for about 82 percent of the world's conventional -arms sales. Germany was in fourth place with exports of $1.1 billion, followed by Britain with $600 million, China with $400 million and Italy with $100 million. Overall, worldwide sales jumped 8 percent from the year before, the report said. Sales to developing countries comprised 69 percent of all worldwide sales and continued to be the primary focus of weapons suppliers. Last year, those countries accounted for $25.4 billion, the highest since 1994. In 2000, U.S. sales to developing countries stood at $12.6 billion, while Russia sold $7.4 billion and France $2.1 billion. According to Grimmett's report, Russia increased its market share from 13.6 percent in 1999 to 29.1 percent in 2000 in arms transfer agreements with developing countries. Among Russia's 2000 sales, Grimmett mentions a $500 million deal with the United Arab Emirates for a Pantsir-1 air-defense missile system and a $3 billion agreement to produce 140 Su-30MKI fighters under license in India. Moscow-based analysts said some of the findings appeared flawed. Maki yen ko said that the report seriously "disagrees with the official data, which looks more credible." Felgenhauer said that calculating arms exports by contracts rather than deliveries could be misleading. "The contracts vary in their maturation," Felgenhauer said, adding that a $3 billion Su-30MKI contract with India that was cited in the report would not be completed for 15 to 20 years. He suggested that throwing around impressive figures for Russia could be America's way of whitewashing its own sales figures to developing countries. "Selling weapons to poor Third World countries does not look politically correct. So in order not to look bad itself, America is inflating figures for Russia," he said. THIS YEAR'S HIGHLIGHTS With arms deliveries and payments continuing from previous years' contracts, Russia signed off on a number of significant long-term deals this year and has a few more up its sleeve. In February, Russia concluded a contract with India to deliver 124 T-90C battle tanks and to sell the country a license to produce 186 more. The deal is thought to be worth $800 million. In June, the two countries signed a nonbinding protocol for the delivery of $10 billion of military hardware through 2010. That deal included submarines, ships and aircraft defense systems. Reports surfaced in July that Russia had struck a $2 billion deal with China for the delivery of 38 Su-30 MKK ground-attack jets in 2002 and 2003. Other big deals expected this year include a contract with Malaysia, whose Prime Minister Mahathir Mohamad was to visit Moscow on Sept. 12. The visit was postponed following the terrorist attacks in the United States, but is expected to take place before year's end. Military cooperation with Malaysia began in 1993, and in 1995 Russia delivered the Asian country 18 MiG-29 jets worth $600 million, paid for in part with palm oil. Malaysia was expected to buy a second batch of jets, but curbed its plans during the Asian financial crisis in 1997. In 1999, Malaysia received two Mi-17-1B helicopters from the Kazan Helicopter Plant, and officials are looking to buy 10 more. Last year, Malaysia voiced interest in Tor-M1 air-defense systems, patrol boats, armored personnel carriers and Be-200 planes. In June, a contract was signed for Metis-M anti-tank missile complexes, the Russian media reported. Klebanov, speaking after a July meeting with Malaysian Foreign Minister Sayed Hamid Jafar Albar, said Russia may sign a contract for the delivery of Su-30s. Industry sources say discussions are being conducted for 18 planes. © St. Petersburg Times, 2001. All rights reserved.