Russian Federation

Putin addresses expanded Security Council


President Vladimir Putin addressed an expanded meeting of Russia’s Security Council yesterday following a complete review of defence contracts and the current position of the Russian defence industry.

Most newspapers are concentrating on the president’s comments about modernising the way Stalin modernised the defence industry. He said “In short, we will have to modernise the entire defence industry and the way it works, and carry out the same kind of comprehensive and powerful modernisation drive that was achieved in the 1930s.”

A read of the full speech provides a lot more about the way in which Russia intends to organise its defence industry in the future and its relationship with foreign investors and defence contractors.

Below are some key excerpts from the speech and the full speech can be found here.


Let me say again that we are investing record amounts of money in the defence procurement and military modernisation programmes, with almost 23 trillion rubles [$750 billion] to be allocated over the course of the decade. We debated this long and hard, and all of the figures were the result of much tortuous and painstaking discussion. Naturally, as I have said before, we will not have more money or more time to carry out this ambitious programme, hence we must ensure that everything works as effectively as possible.

I draw to your attention that the results of each company and of the defence industry as a whole will be measured not by the amount of money invested and spent, but by the quantity and quality of the products delivered. As the specialists say, we need ‘the goods’, not the figures on paper, showing how much a company has spent.

We have carried out a thorough internal restructuring of the defence industry over these last years, forming 55 integrated organisations that now account for more than 60 percent of the sector’s production.

Furthermore, our position is that by creating a modernised and effective defence industry we can ensure a big growth potential for the entire national economy. The bulk of our advanced technology is in the defence industry, and civilian goods account for more than 30 percent of the sector’s total output. There is steady demand for these goods in the energy, metals, machine-building, communications and other industries. This is not some discovery we have made in this country, but is the way things work all around the world. The defence industry has always been an engine pulling the other manufacturing sectors along behind it.

First, we are to move fast to upgrade companies’ capital assets and carry out technological modernisation throughout the industry. As we have already noted, over the last 30 years, for a number of reasons, above all chronic financing shortages, our defence companies have missed out on several modernisation cycles. We now have to make up the gap. I agree that this is a very difficult undertaking, but it is not impossible and we must achieve it. This is essential for our country’s interests.

In short, we will have to modernise the entire defence industry and the way it works, and carry out the same kind of comprehensive and powerful modernisation drive that was achieved in the 1930s. We must develop science-intensive, fundamental and critical technology for producing modern and competitive goods. This will form the foundation for cutting-edge developments that can be put into series production and offer us the needed quantities and quality of modern weapons systems.

Contract prices should be fair and transparent. The state budget should not have to pay for ineffective work. The entire defence industry therefore has the task of modernising the way production is arranged, raising labour productivity, cutting costs, and introducing energy-saving technology.

In other words, what is needed is not just to modernise technology in the sector, but to improve all of its economic mechanisms, including its management models. This requires above all completing outside audits and evaluating the performance of each defence industry company and organisation.

The third thing I want to draw to your attention is that we must improve the private-public partnership mechanisms in the sector. We should break down a lot of old stereotypes here, such as that only special state organisations can work in the defence sector. We have successful examples of private companies developing and producing even the most complex, sensitive, and essential defence goods. As you know, just recently the Russian National Award was presented at the Kremlin to the heads of several such companies for developing and building modern radar stations.

We often hear that private investors do not understand the defence sector’s needs and cannot calculate the potential returns on their investments. This is true, but one possible solution would be to establish a common data base with information on the defence industry’s needs, and use it to help draw private investment into the sector.

Let me say a couple of words about opportunities for working together with foreign partners in this sector. Such cooperation is not only possible but also needed. In cases when our partners agree to work together with us in particular areas, of course we should make use of these opportunities. We should make use of their developments, knowledge and experience. This is nothing to blush about.

But at the same time, we cannot take the road of simply setting up assembly facilities to put together foreign defence industry models, using imported components and spare parts. This would be a dead end for the sector. We should develop complete production cycles, from development through to series production and supply of spare parts, here in Russia. This is the guarantee of our national, technological, and defence security.

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