Dmitry Baranov: ‘Ramping up the production of civil goods, enterprises of the Military and Industrial Complex will attract investors’

A leading expert of Finam Management about the problems of Russia’s Military and Industrial Complex in the new conditions

Dmitry Baranov: ‘Ramping up the production of civil goods, enterprises of the Military and Industrial Complex will attract investors’
Photo: Roman Khasayev

Enterprises of the Military and Industrial Complex of Russia making civil products too need state support, claimed Vladimir Putin at a meeting with Udmurtia’s Governor Alexander Brechalov last week. The president of the country noted that the capitals of these enterprises and loan burden of the sector require special attention from the federal government and regional authorities. “It is necessary to lend these enterprises a helping hand where needed,” Putin said. This is especially topical amid the foreign restrictions that have influenced enterprises of the Military and Industrial Complex (MIC), writes leading expert of Finam Management Dmitry Baranov in an op-ed column for Realnoe Vremya.

MIC enterprises amid sanctions

Enterprises of the Military and Industrial Complex are an important part of the Russian economy, they not only ensure the state’s security but also make a lot of civil products, create a part of export incomes exporting sophisticated products, provide companies of other sectors with orders.

MIC enterprises provide tens of thousands of people with job, replenish all budget levels, make a noticeable contribution both to the production of gross regional product and gross domestic product in general. They ensure the country’s high development level helping it to save positions among technologically developed states, which rouses interest from other states. We can claim that the enterprises of MIC are an important component of the country that influences not only on the economy but also society in general.

But as far as it is known, our life isn’t perfect, MIC enterprises have problems too that have an impact, impede development, which affects the companies’ financial state. First of all, it is necessary to name the restrictions and bans recently imposed by a number of states, which directly touched the enterprises of MIC.

It became impossible for them to attract financing from some countries, cooperation with companies from these countries was terminated, products cannot be exported there, supplies of different equipment and components to Russia were limited or completely halted.

Despite all this, the operation of Russian companies continues due to the availability of stocks of different spare parts and units, their substitution with their analogues from other countries or those made in Russia, state support.

Ageing staff and a lower interest in engineer and skilled jobs is another problem influencing the operation of MIC enterprises. Photo: Maxim Platonov

Staff hunger, loss of areas and wear of eqiupment

Ageing staff and a lower interest in engineer and skilled jobs is another problem influencing the operation of MIC enterprises. This happens because of a low salary compared to the market, the youth’s weak motivation, lack of information about the activity of MIC enterprises, their prospects. Pensioners work in many MIC enterprises, while there are ads with numerous words “wanted” in big print near the HR office.

As strange as it might sound, the location of MIC enterprises became another problem for them. Many of them were situated in cities on very attractive land parcels that drew the attention of both developers and local authorities, and enterprises didn’t always manage to keep their territory untouched. Some stopped existing, somebody managed to move to a new parcel, while others had to significantly cut their areas that led to a loss of employees, which means competences.

The enterprises didn’t always manage to keep their territory untouched. Photo: Maxim Platonov

Serious wear of equipment, insufficient development of infrastructure, which bring considerable expenses, worse financial situation, low effectiveness of the activity can be named another problem of MIC enterprises. Different innovations aren’t always quickly launched in the MIC, for instance, higher energy efficiency or lower harmful emissions. Yes, there is certain progress in the MIC, but it isn’t serious compared to other sectors where the competition is higher and the company’s competiveness, its incomes depend on the speed of launching something new. In the MIC, many companies mainly pay attention to their key activity because they depend on its results. Also, they don’t want to receive complaints from the state, its major client, argue with it. Perhaps, regulation needs to be change in the sector to stimulate the enterprises to launch novelties. This will allow them to launch new technologies, practices and so on more actively, which will make MIC enterprises more effective, financially successful with no harm to the main activity.

Falling public defence order

In spite of the problems, the Russian Military and Industrial Complex has prospects. They are associated with falling public defence orders and increasing production of civil products. In January 2018, the head of the state said that a gradual rise in the share of civil products in MIC enterprises was one of the key tasks. By 2025, it is due to be up to 30% and up to 50% of the total production by 2030.

A gradual rise in the share of civil products in MIC enterprises was one of the key tasks. Photo: Maxim Platonov

Later, Vice Premier of Russia’s government Yury Borisov said that MIC enterprises should run their activity in a way that public defence orders accounted for 30%, military and equipment cooperation held 30%, civil production did 30%. Head of the Russian Ministry of Industry and Trade Denis Manturov claimed in 2018 that public defence orders would fall and those who do them should change. So MIC enterprises will transform, become more attractive for investors too while the share of civil products will go up.

MIC enterprises can manufacture the products that stopped being imported to Russia

Perhaps, the current situation will accelerate this transformation. The imposed restrictions and bans can push MIC enterprises to make not only industrial but also civil products instead of those that stopped being supplied to Russia. Enterprises of the military complex have the necessary competences for this, firstly, considerable intellectual potential and other resources.

The prospects of MIC enterprises are also linked with further modernisation, automation and digitalisation of activity. This will allow raising the efficiency, simplify the employees’ labour, which will have a positive impact on the attractiveness of the companies as employers.

The prospects of MIC enterprises are also linked with further modernisation, automation and digitalisation of activity. Photo: Maxim Platonov

Also, the prospects of MIC are connected with the state’s further support whose amount shouldn’t go down, though requirements for efficiency of using support measures can increase. And the support should be provided not only because enterprises work for the country’s defence but also because they will gradually make more civil products, work to provide the Russian market. Enterprises shouldn’t refuse making products for MIC because nobody has cancelled the task of strengthening the defensive capacity, and the state won’t agree with it. But it is much more important that the production of goods for defence and security will give the companies the necessary resources to manufacture civil products, help to save competencies and staff. So no matter how MIC companies change, they will keep their positions, become important members of the Russian economy.

Dmitry Baranov
Reference

The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.