Actual problems and limiting factors in the development of the Russian military-industrial complex

Research background: The completion of the ideological confrontation of socio-economic systems that occurred in the early 90s of XX century after the collapse of the USSR did not radically affect the development of the global defense industrial complex (DIC). Taking into account the place and role of national DICs in the economies of the world’s leading powers, we can only talk about the modification of their development in the new historical conditions. The defense industry complex in Russia, as before in the USSR, is one of the priority areas of the country’s development.
Purpose of the article: The aim of the article was to study the current state of the Russian DIC, to analyse problems, limitations and prospects for its development. The hypothesis was put forward that the condition of the Russian DIC is currently determined by the whole complex of factors, both internal and external, and therefore the solution of these problems should also be comprehensive.
Methods: The study was based on statistical analysis of information from both official databases (SIPRI, World Bank, Federal Government Statistics Service) and other open sources.
Findings & Value added: The analysis showed that all corporations of the Russian DIC have positive dynamics in the value of their assets and generally demonstrate good financial stability under difficult external and internal economic and political conditions. At the same time, a number of problems requiring prompt resolution pose a threat to the successful development of the Russian defense industry in the near and distant future. The scientific value of research is determined by the comprehensive approach itself.


Scientific and technological lags, insufficient funding of R&D
Russia's position in the market of high-technology products and services can be assessed on the basis of analysis of defense industry priority areas which include: aircraft industry, space industry, arms industry and shipbuilding.
According to World Bank (fig.2), the share of R&D costs to GDP accounted for 1.10% in 2017.For comparison, we show data for other countries.In the USA for 2017, the share of R&D expenditures in GDP is 2.8%.In Germany -3.03%,China -2.12%,Japan -3.2%, South Korea -4.5%, Israel -4.5%. a 20-30% increase of the share of Russian military transport aircrafts in the global market;  sustenance of a 20% share of Russian warships and naval equipment;  insurance of Russia's presence in land weapons market, including anti-aircraft warfare and radio-electronic systems of various applications.
 significant growth of technology and emerging technology products of non-military nature produced by Russia's DIC. delays in technical and production processes.

Outdated hardware
All this may create the risk of SDO failure.

Delays in conclusion of SDO contracts
There is also another set of problems:  duplication of control function of authorized bodies,  lack of proper legal regulation of interaction between banks and general contractor or contractors,  the need to introduce criminal liability for violation of the terms of the contracts,  misapplication of funds, etc.
 pricing issues: pricing requirements do not consider steadily rising prices of energy, metal, services of infrastructure monopolies, as well as prices charged by OEM suppliers.
 the change of economic and political policies.

Pricing problems
Price formation is accompanied by a set of problems:  specific features of product costing;  production accounting procedure;  calculation of labor intensity with insufficient transparency of legal and regulatory acts.
Calculation of production cost at military-industrial enterprises has its specifics.There are some financial restrictions imposed by government contracts:  the most important problem of pricing formation is calculation of proportion of labor used in military goods production.
 the enterprises of defense industry have high mobilization costs.

Conversion and diversification problems at military-industrial complex enterprises
Currently, defense industry has two priorities:  increase of civilian production.
It is necessary to analyze the limitations which prevent the diversification of arms industry, even when conducting public procurement, and then make a starting order, which will allow enterprises to enter the initial stage of production diversification.
It is estimated that local companies will be able to use accumulated experience, scientific, technical and production capacities to produce their own civilian products rather than import them from abroad .Some defense industry enterprises produce civilian goods which are in great demand among consumers and occupy a leading position in the market.For others civil market is rather unstable.This leads to a lower quality of products and production inefficiency in general.However, it is obvious that reduction of military production to a critical level is unacceptable.That is why, high-tech military products ought to be produced along with civilian products.

Fig. 1 .
Fig. 1.Production index for high-tech economic activities, % to the corresponding period of the previous year

Fig. 4 .
Fig. 4. The degree of wear of fixed assets in the RF end of the year,%