Russia's Rostec doing brisk arms trades despite sanctions

Arms giant Rostec is seeing strong demand for its advanced anti-missile systems despite international sanctions against the Russian defence sector, chief executive Sergei Chemezov told AFP in an interview.

Chemezov, an ally of President Vladimir Putin, is nonetheless also charting a course to increase sales of Rostec's non-military products.

Since Russia's intervention in Ukraine in 2014, the world's second-largest arms exporter after the United States has been hit by several rounds of sanctions by Washington and the European Union (EU). Rostec and Chemezov himself have been specifically targeted.

"The sanctions are beneficial to US companies competing with us," the chief executive noted in an interview conducted via e-mail.

"At the same time, we are well aware of the negative attitude of many foreign companies, of our traditional foreign partners, to the sanctions."

An economist by training, Chemezov built a career in the import-export trade and met Putin when both were in Dresden, Eastern Germany, in the 1980s.

Chemezov worked for an industrial group, Putin for the KGB.

Now the head of the country's state-owned arms giant, Chemezov points to the S-400 air defence systems as an example of foreign demand for Rostec products despite the sanctions.

In late October, India agreed to a deal for multiple batteries worth more than $5 billion despite warnings from Washington.

"Currently, S-400 contracts are being implemented with Turkey and China," Chemezov added.

"We cannot yet tell about future plans, however, despite the active propaganda of the United States against Russian armaments, there is demand for the S-400, and it is big."

According to Bloomberg, an S-400 battery costs between $475-$625 million, compared with $550-$700 million for a US-made Patriot system, and boasts greater range and interception capabilities, and a faster set-up time.

The Rostec chief said the group was doing all it could to minimise the sanction's impact and argued that they were also detrimental to the US and EU.

Rosoboronexport, the Rostec unit charged with selling arms abroad, has outstanding orders worth more than $50 billion, he said.

- From Soviet ruins -

Rostec was created in 2007 to transform the arms industry inherited from the Soviet Union.

It comprised more than 400 businesses, many of which were in ruins, and was saddled with 630 billion rubles in debt, roughly equivalent to $9.6 billion today.

The group now oversees more than 700 businesses, from arms manufacturers to camera and plane makers. Total sales in 2017 were 1.6 trillion rubles, or a little more than $22.8 billion.

While Rostec is modernising its military production, it also aims to make civilian products account for 50 percent of total output by 2025, compared with 28 percent at present.

"If we want to continue our sustainable development and remain adequately competitive, we must focus on civilian products," Chemezov said.

"We are well aware that supplies of arms have boundaries and limits."

- The Kalashnikov example -

The group has also successfully opened some subsidiaries to private investors and presents Kalashnikov, maker of the renowned AK-47 assault rifle, as an example.

Now 75-percent controlled by private investors, once-ailing Kalashnikov has rebounded and recently announced 1,700 new hires to manage increased exports.

"The concern nowadays is a manufacturer of not only small arms, but also unmanned aerial vehicles, fast boats, electric motorcycles, other hi-tech civilian products," Chemezov noted.

Rostec might now allow investors to buy into the optical-electronic systems group Shvabe as well.

Shvabe recently attracted attention with news it would reboot manufacturing of the iconic Soviet camera Zenit in partnership with the German firm Leica.

In aviation, Rostec is taking over UAC, which groups leading Russian manufacturers of military and civilian aircraft, including Antonov, Tupolev and Sukhoi.

"We are ready to compete with Boeing and Airbus for the global aviation market," Chemezov said.

The group's efforts should propel Rostec among the world's 10 biggest industrial corporations in terms of revenue, he said.

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