Russia drops out of the world’s top five military spenders for first time since 2006

Russia drops out of the world’s top five military spenders for first time since 2006
Russia's Amarta main battle tank on display during the May Day parade is considered one of the most advanced tanks in the world. / wiki
By Ben Aris in Berlin April 30, 2019

The military phase of Russia’s development has come to an end. It began in around 2012 when President Vladimir Putin began rearming in preparation for a showdown with the west that climaxed with the annexation of Crimea in 2014, as bne IntelliNews has reported. With some two thirds of Russia’s military now using modern weapons, according to the Kremlin, military spending has been slashed, or at least investment programmes have been extended as Russia enters a new phase and concentrates its investment on the real economy again. In March Putin launched a programme to “transform” the Russian economy that is enshrined in his May Decrees. RUB25.7 trillion ($390bn) investments planned for the 12 national projects with two-thirds going into the social sphere and another third to be invested into mega-infrastructure projects.

Although details remain somewhat hazy as up to a third of Russia’s budget is classified, Russian military spending fell to $61.4bn in 2018, or 3.4% of GDP, which was down 3.5% y/y.

Between 2009 and 2018 military spending grew 27% and had been running at a steady 3.9% of GDP until last year. Russia was the fourth biggest spender on the military in 2017 but fell back to the sixth biggest spender last year, a report from the Stockholm International Peace Research Institute (SIPRI) said on April 29. 

The US continues to lead the world in term of the amount it spends on the military, parting with $649bn in 2018, or 3.6% of GDP. Between 2009 and 2018 military spending fell by 17%, but in that period the US conducted enormously expensive wars in Iraq, Libya and Afghanistan, all of which it is winding down now.

“US military spending grew — for the first time since 2010 — by 4.6%, to reach $649bn in 2018. The USA remained by far the largest spender in the world, and spent almost as much on its military in 2018 as the next eight largest-spending countries combined. The increase in US spending was driven by the implementation from 2017 of new arms procurement programmes under the Trump administration,” says SIPRI director Dr Aude Fleurant. 

China is the next biggest spender on the army, parting with an estimated $250bn in 2018, or 1.4% of GDP. Saudi Arabia is in third place with an estimated $67.6bn in 2018. And India moved up from fifth to fourth place in 2018 with $66.5bn spent on arms. Russia remains ahead of the UK, which spent $50bn on arms in 2018.

China, the second-largest spender in the world, increased its military expenditure by 5.0% to $250bn in 2018. This was the 24th consecutive year of increase in Chinese military expenditure, according to SIPRI. Its spending in 2018 was almost 10 times higher than in 1994, and accounted for 14% of world military spending. Growth in Chinese military spending tracks the country’s overall economic growth. China has allocated 1.9% of its GDP to the military every year since 2013.

"In 2018 the USA and China accounted for half of the world’s military spending," said Nan Tian, a researcher with the SIPRI Arms and Military Expenditure (AMEX) programme. "The higher level of world military expenditure in 2018 is mainly the result of significant increases in spending by these two countries."

Stratfor argued in a recent note that the Russian arms industry is in trouble as it fails to modernise, partly affected by the falling military spending.

“The Kremlin's efforts to promote import substitution policies are not succeeding and the defence sector is unlikely to bolster its bottom line by shifting to produce products for the domestic market,” Stratfor wrote. “The Russian defence industry's inherent weaknesses could become self-perpetuating; the failure to find markets for Russian products will increase the costs of production and, therefore, military modernization.”

However, arms remains one of Russia’s top exports with the state exporting some $15bn of weapons a year, often tying the arms deals to energy supply contracts.

Stratfor reported the performance of Russia's aerospace sector has been declining precipitously. In 2018, for instance, Russian aircraft and spacecraft makers produced 13.5% less than in 2017. And in the first two months of this year, aerospace output plummeted 48% year-on-year, the US based think tank said, without citing the source of its data.

Stratfor blames the reduction in spending on the military on lower oil prices and argues that Russia can no longer afford to invest in developing its military. However, as bne IntelliNews has argued elsewhere the winding down in military spending is more likely due to the fact that the Kremlin, satisfied with the state of the military, has changed its priorities and has redirected investment into the real economy to head off growing popular discontent with the austerity imposed by the Kremlin since 2012 when all spare resources were redirected into modernising the armed forces.

The April 29 SIPRI report also said that spending in Central and Eastern Europe (CEE) was up in 2018 as countries invested into deterrents, provoked by Russian aggression. In total SIPRI found that global military spending was up to $1.8 trillion in 2018.

SIPRI found that spending by Ukraine rose 21% to $4.8bn last year, in line with similar percentage rises in Bulgaria, Romania, Latvia, and Lithuania, each up by between 18% and 24%, SIPRI's Trends in World Military Spending 2018 said as cited by RFE/RL. Poland’s expenditures rose 8.9% to $11.6bn. Russia continues to spend 13 times more on its military than Ukraine.

Countries with the highest relative increases in military spending in 2018 included Armenia (up 33%), Bosnia & Herzegovina (26%), Bulgaria (23%), Ukraine, Romania (18%), and Kazakhstan (16%).

Armenia's total expenditure, at $609mn, was 4.8% of gross domestic product (GDP), making its military spending burden among the top 10 in the world, along with Russia at 3.9%.

Iran’s military spending declined 9.5% in 2018 to $13.2bn as the country’s economy and its currency suffered in the face of renewed financial sanctions imposed by the US.

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