According to data provided by Rosstat, the defense sector, as well as other areas where orders are placed due to the ongoing war in Ukraine (although no mention is made of this) are benefiting from production rates students. The above also refers to mixed sectors, where civilian and military manufacturing productions cannot be clearly separated, such as aerospace, radio, radar or shipbuilding. Other areas that have a stabilizing effect on the industry include the mining and nuclear power component manufacturing industries.
War and Oil – Pulling the Economy
Officially, the recorded decline was 0.2% compared to April, and 1.7% if we take into account an annual variation (compared to the circumstances before the crisis of May 2019). The Center for Macroeconomic Analysis and Short-Term Forecasting (CAMAC), using a more realistic data set, obtained a monthly coefficient of 1.3% and an annual value of 4.2%. When it comes to long-life cycle goods, such as consumer electronics or housewares, or other hardware, a 52.1% drop was recorded in April and a 58.5% drop was recorded in May 2019. This clearly shows that mining or food industries, which were expected to increase production, are enjoying prosperity – alongside the defense industry. The first two had to increase their manufacturing production, for lack of imports.
The aerospace and defense industry remains a silent hero, which continues to keep the Russian economy alive. The sector is rarely mentioned in official communications. This does not refer to new products, as it rather applies to overhauls, repairs and deliveries of spare parts for equipment used in combat. Another sector that is advancing “at full steam” is that of ammunition manufacturing. This does not apply to modern weapons, but to artillery and firearms ammunition, which are used in large quantities.
Embargo and consumption – A Gordian knot
The problem with modern weapons, or platforms such as the T-90M or T-72B3 MBTs, or the Su-30SM and Su-34 combat aircraft, is caused by the limited stock of key components, most of which were imported. Russia doesn’t always have a replacement in stock, and if that happens, manufacturing levels are limited. This mainly applies to microelectronics and optoelectronics. Not only are ongoing repairs a challenge, but overhauls that take place as a result of heavy use are also difficult.
It will be remembered that Russian equipment, especially aircraft, is operated on the basis of pre-established life cycles, and not according to actual wear and tear, as usually happens in the west. The quality of many components is also found to be low, resulting in the need for frequent overhauls. This is a factor that has led to a situation in which modern weapons are rarely used, during the war in Ukraine which has been going on since February 24. This is particularly evident in the Air Force, where Su-25s fly most sorties, while modern Su-34 bombers are rare – and the latter platform was seen frequently early in the conflict. Most likely, the flight hour reserves have been exhausted and the Fullbacks need to undergo overhauls. The above problem was not present in Syria, but the number of aircraft used was limited to a few copies per type. In Ukraine, the fighting is much more intense and drags on. In a sense, the Russian Air Force and Army are exhausted when it comes to the newest equipment, and therefore they are looking for legacy reserve assets, which are less demanding in terms of maintenance.
Another problem arises in the huge shortage of ammunition, in the current “industrial” phase of the war, involving many means of tubes and artillery, as if it happened 7 decades ago. US-based analysts concluded that the annual manufacturing output in the ordnance department would not suffice for more than 2 weeks in such an intense conflict. It’s hard to assess Russian inventory and manufacturing, but it’s certainly been maxed out. A further increase in production is expected by the authorities implementing special legal means.
Manufacturing law in wartime, without war?
The Russian State Duma is currently working on a government bill “On amending certain legislative acts of the Russian Federation, on issues related to supplying the Armed Forces of the Russian Federation, other items, military formations and agencies, in the counter- Terrorist and other operations, outside the territory of the Russian Federation”. Prime Minister Mikhail Mishustin signed the act drafted by Deputy Head of Government Department for Industrial and Defense Complex Danil Konokhik. The first paragraph of the document reads as follows:
In the conditions under which the Armed Forces of the Russian Federation, other military elements, formations and bodies conduct counter-terrorism and other operations outside Russian territory, in particular special military operations in the Republic People’s Republic of Donetsk, Lugansk People’s Republic and Ukraine, an increased demand for overhauls of armaments and military equipment and supply of material/technical assets has been observed. The need to respond quickly to such requests, especially in connection with the introduction of means of limitation affecting citizens of the Russian Federation by foreign states and international organizations (…) would require a temporary increased effort in certain sectors of the economy, the imposition of the load on the manufacturing assets of the defense industrial complex, including mobilization assets, and the organization of resource support for deliveries, within the state defense organization.
Fragment of the law
That deep, unclear sound. But that boils down to forcing the maximization of manufacturing on industry and its contractors, with that manufacturing dedicated to the Ministry of Defense, Rosgvardia, the Federal Security Service and the Ministry of Emergency Situations. What means could be used for this purpose? Make legal the fact of obliging industrial employees to work at night and during holidays. 7 days a week, 3 shifts, if deemed necessary.
All of the above is encompassed by the term “special means within the framework of the economy”. Since this set of means contradicts the Russian Labor Code, it must be adapted to meet the requirements of industrial mobilization. As the new regulations contradict the Labor Code, amendments to this Code have been proposed by the government.
The changes in contract enforcement are also very interesting. If a company is requested by the competent authorities, it would not have the right to reject applications, regardless of its organizational or legal form, which means that the regulations would also apply to manufacturers and suppliers outside the public sector. In addition, as the execution of the contract progresses, the contractor may adapt the contractual provisions, for example by increasing the quantitative format of the order or by modifying the value of said order. In short, the authorities would be authorized to force public and private establishments to adopt a 3-shift system, working 7 days a week, freely modifying the value and quantity of contracts, within the framework of “special means within the extent of the economy”.
Not only the above applies to the aerospace and defense sector, but also to contractors and other companies providing services and delivering goods to Rosgvardia, the Armed Forces or the FSB. The only regulation is subject to vague interpretation – it would therefore also include facilities dealing with the overhaul of MBTs, those manufacturing ammunition or even those supplying military units with cans or bread. The regulations may also be applicable in the case of companies which, until now, were quite far from the manufacture of weapons.
This method could be used by the Kremlin, not admitting that the war in Ukraine is aimed at exhaustion, to obtain the right to put industry into war mode. Without it, maintaining a similar operational tempo would be a major challenge. This applies in particular to the delivery of ammunition, but also to the revisions of vehicles and artillery units. Barrels are exposed to wear that is in step with the amount of ammo fired at range. A separate problem that needs to be solved is related to the replacement of components sourced from abroad and used in the latest modern types of equipment. This cannot be solved by a “tsar’s decree”. Even if this decree would be applicable in the case of private companies. One cannot rule out a scenario in which, at least in part, the Kremlin would try to use the new legislation to involve private entities in defense contracts – this referring to companies that so far have not supplied components for the defense industry, yet were active in other branches of high-tech industry.