Russian Industry Wearing Out and Falling Ever Further Behind Rest of World, Statistics Show

Paul Goble

            Staunton, January 11 – Unlike in 1991, 1998, and 2008, Russia today lacks the industrial capacity left over from Soviet times that it would need to engage in import substitution and compete with other countries, according to Russian government statistics; and this lag is hitting ever more sectors including now the military-industrial complex critical to the Kremlin’s agenda.

            In a commentary on the Kasparov.ru portal, Aleksandr Nemets examines these statistics and the analysis of experts to provide a devastating picture of an economy that has been cannibalizing itself for so long that it no longer has much hope unless it radically changes its relations with the West or its policies at home (kasparov.ru/material.php?id=5692C9D39C572).

            He cites one Russian economic expert to the effect that throughout the 1990s, enterprises built up under the Soviets continued to function and even add value. As a result, they were capable of producing things, albeit in ever declining amounts. But “today’s crisis is much more dangerous. It is a default of the entire pipeline economy.”

            Nemets says that a few months ago, an economics journal in the US asked him to write an essay on the social-economic crisis in Russia, but his essay was rejected, he says, with the note that “there are too many negative facts; there aren’t any positive ones,” an apparently un-ironic comment about reality.

            Three-quarters or more of the machine tools needed for the production of passenger cars in Russia now must be imported; and if Russian firms can’t import these or many of the components of these cars, they can’t produce them, as the figures over the last three years clearly show.

            The situation in other branches in the same or worse.  According to Rosstat, Russia produced 34 million semi-conductors in 2014, while its foreign competitors produced “several hundred billion” of these. As a result, “the Russian Federation had to satisfy 99.99 percent of its demand [in this sector] with imports.”

            Another comparison is if anything even more devastating, especially as it too is offered by the official Russian government statistical agency. In 2014, Russia produced “no more than 4,000” units of metal processing machinery. In the same year, China produced “more than 600,000” such pieces of equipment, 150 times as many!

            But this is not something that just happened, Nemets writes. It has been going on for some time.  “Between 2005 and 2014, the number of enterprises involved in producing industrial equipment – and this is the most important branch of industry – contracted by a factor of two” in Russia.

            “In 2013, industrial production and especially that in high tech branches had not returned to the level of 1990-1991,” and the future is ever more bleak because about half of the machines Russian firms are using now are left over from Soviet times and have lasted longer than their projected periods of use.

            That is why Russia cannot diversify its exports and why its GDP is condemned to stagnate, Nemets says.  Even in the better-off sectors, there is far too little research and investment.  Gazprom, Rosneft and Lukoil currently spend on that 400 million US dollars, 200 million US dollars and 100 million US dollars respectively. Volkswagen, in the same period, spends 9.5 BILLION US dollars.

            Such figures, Nemets suggests, naturally provoke the question: “’How then can Russia as before produce contemporary military jets, rockets and ships, nuclear arms and military electronics?’” The answer is that it can’t and doesn’t – except by importing many of the advanced components it needs.

            For many of these weapons systems, Russia produces “only” the bodies and has to import all the working innards. Many of these purchases are made from US firms. Most of the time, Moscow has no problems buying what it needs; and “in essence,” he writes, “America is transferring to Russia [the capacity for] its own death.”

            The Russian economy is rapidly degrading, Nemets concludes, and the reason for that is “simple: the core nature of the criminally corrupt Putin system has noting in comment with contemporary science and technology.”

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                On a lighter note  but in some ways symbolic of Russia’s problems in the defense sector, Russian inmates at a Sverdlovsk prison camp have made a missile with launcher out of snow and ice and painted it to look like a real one. The picture now on the Internet is likely to go viral (apostrophe.com.ua/news/world/ex-ussr/2016-01-11/v-rossii-zeki-sdelali-izo-lda-raketnyiy-kompleks-opublikovanyi-foto/46626).