Andrei Belousov: Goals and Priorities

One of Vladimir Putin’s least expected personnel replacements in the new Russian government was to appoint Andrei Belousov as RF Minister of Defense. Before this appointment Belousov held the post of First Deputy Prime Minister and was known for his staunch position in favor of stronger government regulation of the economy. When explaining his choice the Russian President pointed to the growing defense spending: in 2024, the total defense and security expenses will account for 8.7% [of GDP]. He also described Belousov as someone who well understands how the economy of the uniformed agencies can fit into the national economy. «These are highly important matters», Putin said.

Apart from purely administrative tasks as head of the Russian Ministry of Defense, Andrei Belousov faces some priority goals of macroeconomic dimensions:

1. Make Russia’s military industrial complex (MIC) better prepared for a major war. Based on the existing collaboration ties between the industry and the RF Armed Forces, the economy must assume a new configuration to support the army’s dynamic defense capabilities in a likely military showdown with NATO.

2. Develop research and industry potential. The Russian military industrial complex must become the vanguard of the national economy that drives forward civil industries in addressing import substitution (reverse engineering) challenges and facilitates a broader range of high-tech industrial products (machine-tool industry) critical for the development of civil aircraft engineering, engine building, production of components for digital equipment, computers and telecommunication facilities, including those for civil use.

Advanced technology solutions initially developed for defense purposes now become available to consumers almost immediately – in one or two years instead of ten plus years as was common practice in the second half of the 20th century.

3. Consolidate Russia’s position in the global economy. The modernized MIC, which is being built from the existing interoperability network of corporations and manufacturing facilities (the defense sector encompasses some 6 thousand enterprises, and another 10 thousand are «allied industries»), is expected to expand the Russian industry’s overall technology capabilities in producing second and third processing level products.

This type of products should also serve external industrial cooperation with partners and allies broadening the range of exports and strengthening Russia’s position in different global market segments.

Goalsetting in Historical Context

In the Soviet period the MIC was supervised mainly by the Military-Industrial Commission (State Commission of the USSR Council of Ministers on Military-Industrial Issues), which coordinated all projects by Soviet ministries, primarily the Ministry of Mechanical Engineering (space and rocket engineering), and the Ministry of Medium Machine-Building (nuclear component production).

The man who served as liaison in the transition from the old MIC management model to a post-Soviet one, was Yuri Maslyukov [1].

In the 1980’s Maslyukov held top positions in the Soviet economy-management agencies: First Deputy Chairman of the State Planning Committee, or Gosplan (1982-1985), Deputy Chairman and later First Deputy Chairman of the USSR Council of Ministers, Chairman of Gosplan (1988-1990), Chairman of the State Commission on Military-Industrial Issues (1985-1988 and 1991).

That period was marked by emergence of the key weapon systems and capabilities which are still operational: anti-aircraft and air-defense missile systems C-300P, C-300V, Buk-M1/M2, Tor-M1/M2, combat aircraft Tu-160, Tu-22M, MiG-29, Su-27, the A-50 radar surveillance and guidance aircraft system, and the Topol intercontinental ballistic missile system; work was advanced on strategic space missile defense systems: ground-based and space-based missile attack warning systems, the new generation À-135 ABM complex, the IS-MU anti-satellite system, space surveillance systems and capabilities.

In the post-Soviet years this headstart enabled Russia to win a strong position as second-largest global exporter of weapons and military equipment. According to the Center for Analysis of World Arms Trade (CAWAT), Russia’s arms export order portfolio has stabilized over the last few years at around $55 bn, with some increase in 2023. The accepted benchmark for long-term contract implementation time is four years. Based on this approach, the average annual export of Russian weapons can be estimated at $13.75 bn.

Notably, US sanctions have not produced a collapse of Russia’s export of weapons and military equipment expected by the collective West. Moreover, right now Russia is in the process of accumulating abundant, future-oriented export potential.

Defense products output by Russian MIC has grown multifold; this constitutes a potential for significant further increase in arms and materiel exports upon completion of all special military operation (SMO) objectives.

Speaking on May 25, 2024 at a meeting with heads of MIC companies, which was hosted by the Tactical Missiles Corporation in Korolyov near Moscow, President Vladimir Putin said: «Our volumes have been growing recently, as the special military operation proceeds. From 2021 through 2023, missile and artillery output grew more than 22-fold; electronic warfare and intelligence capabilities, 15-fold; munitions and engagement systems, 14-fold; automobiles, 7-fold; body protectors, 6-fold; aircraft equipment and unmanned aerial vehicles, 4-fold; and armament for armored fighting vehicles, nearly 3.5-fold».

Over a four year period following SMO completion, Russia’s annual defense exports may reach $17-19 bn [2]. 

This criterion, alongside hydrocarbon, grain and fertilizer market positions, provides a more accurate definition for Russia’s actual impact on the global economy than the global GDP share figure, which generally obscures the influence of the Russian Federation in the critical sectors of the global security system (defense, agricultural, natural resources).

The MIC is now moving to the forefront of the Russian industry-driven economy, employing around 500 thousand engineers and other highly skilled specialists.

Management of the modernized MIC now relies on the strategic partnership between the Defense Ministry (as customer), the Ministry of Industry and Trade (Minpromtorg) (as coordinator of manufacturers concentrated in the Rostec, Rosatom and Roskosmos corporations), and the high-level control and coordination network which includes Defense Minister Andrei Belousov, First Vice-Premier Denis Manturov, head of Minpromtorg Anton Alikhanov, President’s aid Alexei Dyumin (who oversees defense industry matters ex officio), and the newly-appointed Secretary of the RF Security Council Sergei Shoigu.

At the institutional level, operational decision-making is now the responsibility of the RF Military-Industrial Commission, reconstituted at the initiative of Yuri Maslyukov in June, 1999.

In 2014 the Military-Industrial Commission was reorganized to report directly to RF President Vladimir Putin. Its Collegium consists of some 60 representatives of uniformed agencies, MIC companies and various research arms of Rostec [3].

Hence it is expected that, with Andrei Belousov in charge, the Defense Ministry will establish a new technologic headquarters that will use the agency’s financial resources as the head MIC customer spending budget funds. Most probably we will very soon witness a production surge of a wide range of unmanned systems, space satellites, stratospheric communication stations, new composite materials, transportation systems, AI systems, innovative microelectronics, and thousands more of modifications of dual-use goods and components.

Clearly, any decision to be made in this complex managerial environment will require maximum use of intellectual skills and organizational competences, in-depth knowledge of technology and awareness of company-level situations. Belousov’s success will largely depend on the manning of his economic «headquarters» within the Defense Ministry and on the competence level of his staff, from deputy ministers to analysts of the expert council, which brings together some of the best science, industry and defense researchers and practitioners.

During his service as First Deputy Prime Minister of Russia, Andrei Belousov was not only knows as proponent of transition to an industry- and innovation-driven economy but also as a conscientious leader capable of managing those processes at the national economy scale. Belousov supervised three governmental programs (transport development; public finance and financial market management; development of innovation-driven economy) and a number of national projects, including Unmanned Aircraft Systems and International Cooperation and Exports.

The following example is illustrative. On the instructions of Andrei Belousov, by February, 2024 RF Minpromtorg completed a follow-up revision of the non-defense contractor qualification procedure for drone manufacturers.

In order to create a whole new sector of industry-scale manufacturers of Russian unmanned systems, as envisaged in the 2024-2026 non-defense government order plan, it was important to perform a comprehensive assessment of the companies’ technical capacity (possession of relevant equipment, production site and license, compliance with standards and availability of documentation) and scale-up readiness, while also applying financial criteria (no material tax arrears). The outcome of these efforts is an operational sectoral cluster of 26 manufacturers of unmanned aircraft and ground vehicles.

The Role of MIC in 2030 National Goals

The presidential decree «On the National Development Goals of the Russian Federation for the Period up to 2030 and Beyond to 2036» contains a number of points that address MIC directly [4]:

• ensure national GDP growth rates above global averages and, by 2030, rank 4th internationally in terms of gross domestic product based on purchasing power parity, in particular through labor productivity increase, while maintaining macroeconomic stability and low unemployment and reducing structural unemployment;
• reduce goods and services imports content of GDP to 17% by 2030;
• ensure technological self-sufficiency and new market development in such areas as bio-economy, public health, food security, unmanned aerial vehicles, means of production and automation, mobility (including autonomous driving vehicles), data economy and digital transformation, artificial intelligence, advanced materials and chemistry, future-oriented space technologies and services, innovative energy (including nuclear) technologies;
• take the necessary steps to place the Russian Federation among top 10 countries in terms of volume of research and development by 2030.

What is the military-industrial sector’s contribution to achieving these goals of the?

First of all, the Defense Ministry should be viewed as an important financial gear. According to Russia’s 2024 open source budget data, defense and security expenses stand at 6.7% of GDP (taking into consideration Vladimir Putin’s words cited above, this share is as high as 8.7%).

To better understand what this figure means, one should consider that it is equal to 38% of the total 2024 budget expenses (armed forces accounting for some 30%): 10.8 trn rubles in the National Defense budget item. This is 70% more than in 2023 and three times as much as in 2021.

Clearly, as one tries to interpret these indicators, some old stereotypes haunt the mind regarding the reasons behind the demise of the Soviet Union, especially the once-popular media narrative promoted by Western-minded economists that the ever-growing military expenditure in the 1980’s broke down the economy. In fact, this was just an outcome of more sophisticated processes. 

Investment in MIC today means economy-wide investment, which is structurally modeled as government-to-business partnership at all levels: from military camp construction contracts to microchip production. Defense sector is a major customer and buyer of advanced domestic products. Again, their range is very broad: from engine building to chemical industry (medium-scale and fine polymer chemicals) and procurement of machinery, specialty vehicles, textiles, food, recreational and therapeutic services, printing, etc.

It is not the particular defense contracts that matter but rather the impetus they generate encouraging Russian companies, from corporations to small and medium-sized businesses, to invest in their fixed assets.

Military orders and contracts with the Russian Defense Ministry and its entities add energy and momentum to all economic processes. The government expects that by 2030 MIC «injections» into the national economy structure, will enable Russia to rank number four globally in terms of GDP based on purchasing power parity.

Modern military-industrial complex can also be seen as «supply-side economy» in the making: higher efficiency of labor – hi-tech production increase – investment and revenue growth, resulting in final demand expansion. 

Within the range of MIC-produced goods and services, the main technological drivers of the Russian economy would be information and telecommunications technologies (development of satellite fleet and new frequency domains equipment) and scientific and engineering activities (strengthening the role of R&D in the economy and accelerating implementation of solutions from prototype to commercial production). In addition, financial impetus from defense industries may benefit the social services sector: participation sports for the younger generation (re-establishment of a system of patriotic summer recreation camps for pre-adolescents); public health system (development of rehabilitation medicine and traumatology), and expansion of health resort institutions.

One of the problems with global technological progress today is research and engineering stagnation in basic industries: machine-building, aviation and missilery, and transport infrastructure. The world is still manufacturing and operating machinery and equipment engineered some forty years ago. It is not only about end-use products, which can be subject to endless modifications without revolutionary change. It is also true to such areas as metallurgy, machine tool engineering, material science, and new principles of engine construction.

There is a major gap between hardware and digital capabilities. Digital electronics and programming have advanced to the verge of creating full-scale artificial intelligence that will operate thousands of unmanned vehicles, while the equipment itself originates from the technological leap of the 1970’s and 1980’s.

To maintain technological leadership in the coming 20 years, Russia’s military-industrial sector must prioritize the fundamentals of the new techno-economic paradigm. 

International Coordination

During the meeting focused on the development of the military-industrial complex, President Putin decided to put Secretary of the RF Security Council Sergei Shoigu in charge of «work with our foreign partners to ensure performance of contract obligations associated with weapons supplies to our partners in other countries» [5].

Addressing the issues around production and export of new weapons systems and equipment now depends on how successfully the Russian financial instruments will contend with 17 thousand restrictive measures are already introduced and will be further expanded and refined by European and US global economy regulators – for the purpose of restricting and blocking Russia’s foreign trade.

The well-known challenges include procurement of the required components and securing payments due to Russian manufacturers under completed contracts.

One solution would be to establish an external cooperation network with allies and partners who are interested in developing a new technological platform that will be immune from Western technologic and financial regulators.

Considering the direct impact of MIC on the production of non-resource, non-energy exports, it is likely that the national project entitled «International Cooperation and Export» will get second wind. New initiatives come from VEB.RF and the Russian Export Center for Production Engineering as a cooperative effort with international partners – primarily within the CIS/EAEU but also with partners outside the Eurasian region. So far this cooperation is limited to consumer goods but will eventually be expanded to cover the dual use product group.

From 2025, the Russian Minpromtorg plans to start infrastructure investment outside the country, prioritizing industrial parks, logistics centers and foreign seaport terminals (the first such project has been implemented in the Russian industrial estate in Egypt close to the Suez Canal). There are currently 12 similar projects under development, to be localized in countries participating in the North-South International Transport Corridor; a number of African and Latin American countries have applied as well.

One of the «external projects» is about Roskosmos cooperative effort to build space booster launch infrastructure in Equatorial Africa. This project is being discussed, in particular, with the Egyptian Space Agency and a number of African countries. 

Space vehicle assembly and launching in equatorial latitudes and establishment of ground-based space infrastructure will also require significant effort to secure the facilities and to create permanent seaport infrastructure under the Defense Ministry control. 

Working through its military-industrial complex, Russia consistently revisits the «alternative globalization» agenda based on its own standards and more democratic rules that would be free from any restrictions among the coordinating partners.

This model has a historic precedent, the Council for Mutual Economic Assistance (COMECON) that united socialist countries. To remind, in 1975 COMECON member countries accounted for up to one-third of global industrial output. COMECON documents dated 1970-1980 spoke of «developing the most advanced forms of economic integration – industrial cooperation and specialization, research and engineering cooperation, mutual coordination of economic development plans, and joint investment».

These statements sound very similar to the points found in the most recent Chinese documents related to the Belt and Road Initiative. Of course, the Beijing project is «socialist» in its form only, in fact, like the COMECON project, it anticipates a «world of global majority».  

The industrial and raw material potential of Russia and China, with SCO and BRICS countries participating, can become a new factor (configuration) of the global economy contributing to the development of engineering and technologic culture of the partners and extending the horizons of science and technology progress. The Russian military-industrial complex will be in the forefront of this process.