New research shows that the revenues of Russia’s top defence contractors outpaced those of their United States and European counterparts last year, as they increased weapons production more effectively than their Western rivals.
The figures, released today by the Stockholm International Peace Research Institute (SIPRI) in its annual report on the world’s top 100 defence companies, raise questions about the West’s ability to supply Ukraine with the weapons it needs to defeat Russia’s invasion.
While Russia’s leading defence firms enjoyed revenue growth of 40 percent, top US and European defence contractors’ revenues grew by 2.5 percent and 0.2 percent, respectively, against a global average of 4.2 percent.
Even though the nominal turnover of the top US and European defence contractors was larger by orders of magnitude – $317bn and $133bn respectively to Russia’s $25.5bn – SIPRI’s findings show that Russia has weaponised its economy more effectively in a time of war to meet supply challenges at the front.
Only two Russian companies made it into the top 100: Rostec, a state-owned holding company whose subsidiaries manufacture aircraft, armour and electronics, and United Shipbuilding Corporation, because they were the only ones publishing financial information, said SIPRI.
“Transparency on Russian arms production began to decrease markedly after Russia annexed Crimea in 2014, and most arms companies stopped publishing financial statements after the full-scale invasion of Ukraine in 2022,” the think tank said.
According to Joseph Fitsanakis, professor of intelligence and security studies at Coastal Carolina University, “Russian military production is currently outpacing that of the US and all of NATO member states combined. This may be hard to believe, but Russia is obligated to do it if it is going to outpace the support given to Ukraine.
“Such gargantuan spending has essentially created a war economy, which has prevented the onset of a major economic recession,” Fitsanakis told Al Jazeera.
In a separate April report, SIPRI had estimated that Russia had raised its military spending by 24 percent last year to $109bn, representing 5.9 percent of its economy. This may not seem high, but average NATO military expenditure stood at 1.9 percent of gross domestic product.
In addition, defence is where nearly half of Russia’s economic growth came from.
The Bank of Finland this year estimated that defence companies accounted for 40 percent of Russian growth in the first half of 2023, making it by far the highest-performing sector of the economy.
This military-intensive economy has since deepened.
Russia’s combined 2024 defence and security expenses rose another 70 percent this year and have been estimated at $157bn. Another 25 percent defence expenditure hike is expected next year and possibly until 2027.
US Defense Secretary Lloyd Austin has estimated that Russia has spent a total of $200bn on the Ukraine war alone.
Yet Fitsanakis doubted whether Russia’s war economy is sustainable.
“Due to shortages and crippling sanctions, Russian defence contractors face interest rates that at times exceed 20 percent,” he said. “Despite their increased revenue, most are struggling to turn a profit. There is even concern that most of Russia’s defence sector will go bankrupt within less than two years, thus forcing the Russian state to nationalise it or bail it out.”
Intra-NATO supply problems
At $1,341bn, NATO’s defence spending dwarfs Russia’s. Yet it seems ineffective in quickly turning spending power into firepower in a crisis.
Europe’s 27 contractors in the top 100 performed poorly for structural reasons.
Recent research by the European Parliament has shown that European Union members divert 78 percent of their procurement spending to third countries, including 63 percent to the US – percentages that have grown during Russia’s war in Ukraine.
European contractors do not benefit from increases in national defence budgets, in contrast to Russia, which produces its military equipment domestically and is working to onshore its supply chains.
France is a case in point. Its top defence performers suffered an 8.5 percent drop led by a 60 percent fall in Dassault Aviation’s order book for the Rafale multirole fighter, as European militaries pass it over in favour of Lockheed Martin’s F-35 as their next-generation jet.
Yet US technological superiority over both Russia and Europe did not give it extraordinary growth, either, because supply chain problems prevented it from turning a lengthening order book into production and revenue, said SIPRI.
“The production and delivery of missiles and aerospace equipment for export were particularly affected by supply chain problems in 2023. Arms revenues from exports fell by 5.4 percent,” it said.
In the case of Lockheed Martin, for example, backlogs grew in missiles and fire control systems by 12 percent, while revenues fell by 0.6 percent.
In fact, said SIPRI, revenues at Lockheed Martin, the world’s largest defence equipment manufacturer, fell for a third consecutive year because of such problems, to $60.8bn last year.
RTX, formerly Raytheon, the world’s second-largest defence contractor, also saw revenue fall for similar reasons.
“Despite higher demand for their weapons and military equipment, they were unable to ramp up production capacity sufficiently due to persistent supply chain challenges – especially in the aeronautical and missile defence segments, which have particularly complex supply chains,” said SIPRI.
“There isn’t a single expert I know who believes that the US has enough precision-guided or long-range munitions to sustain a defence of Taiwan for longer than 10 days. Moreover, I am not aware of any concrete plans to expand the scope and production pace of America’s defence industrial base,” said Fitsanakis.
Apart from Russia’s top two companies on the top 100 list, growth was highest among South Korea’s top four companies at 39 percent, and Japan’s top five companies at 35 percent – both rearming in preparation for the kind of scenario Fitsanakis described.
In contrast to US companies, Russian companies’ sharply increased revenues were precisely due to increased production of such weapons as missiles, aircraft and UAVs.
Ukrainian President Volodymyr Zelenskyy recently estimated Russian use of long-range weapons at 600 UAVs and 200 missiles per week.
A production comeback?
The defence industrial base lies at the heart of Europe’s ability to help Ukraine, and the EU has made efforts to reinvigorate it.
In June 2023, to deliver on a promise to provide Ukraine with a million artillery shells within a year, the EU passed the Act in Support of Ammunition Production (ASAP), pumping 500 million euros ($526m) into the production of artillery shells and explosives in the EU.
The EU has also passed a separate act incentivising member states to buy critical defence articles such as ammunition and missiles jointly from EU suppliers.
But the EU stumbled early this year, when its internal market commissioner, Thierry Breton, failed to convince members to float a 100- billion-euro bond to supercharge investments in European defence industries.
That may change.
The European Commission assuming office for the next five years has its first defence commissioner, whose job is to defragment and deepen EU industrial capacity.
“In total, by the end of the year, we will deliver more than 1.5 million rounds of ammunition to Ukraine,” Josep Borrell, the EU’s external affairs chief, recently told European Pravda. The EU is expected to reach an annual capacity of two million shells in the second half of next year.
In an interview with RBC-Ukraine, Ukraine’s deputy commander of missile and artillery forces, Serhiy Musienko, recently said Ukraine fired three million artillery shells in 2023. It will likely need more if it is to go from defence to reclaiming territory next year.
Ukraine is not waiting for the EU to get its act together.
This year it has invested 7 billion euros ($7.36bn) in developing its own defence industry and seeks to triple that in 2025.
