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Russia Defense Industry - Special Military Operation

The head of Russian state arms conglomerate Rostec, Sergei Chemezov, spoke 23 October 2024 before the Federation Council and warned about how the high cost of money, imposed to rein in price growth, is impacting manufacturers’ profitability. Though Russia has worked to ramp up industrial activity, especially in the defense sector, the current cost of rubles is “a serious brake on further industrial growth,” Chemezov said. He pointed to the fact that contracts, particularly multi-year export deals, will often include only partial advance payments, with the rest of the financing to be made up on credit that is increasingly more expensive to obtain, eating into profits. “Simply, if we continue to work like this, then almost the majority of our enterprises will go bankrupt,” Chemezov warned.

Servicing debt obligations at the current rate level requires profitability, which even the arms trade does not have, said Rostec CEO Sergei Chemezov. The state corporation he heads is forced to reduce high-tech exports under these conditions, and in general, the current cost of money creates risks of stagflation in the economy, Chemezov warned, speaking in the Federation Council on Wednesday.

Currently, the key rate of the Central Bank of the Russian Federation was at 19%, but the Bank of Russia raised it by another 1-2 percentage points. Chemezov said that the current high cost of money is "a serious brake on further industrial growth." "It is simply not profitable for enterprises to use borrowed funds, which I have already said many times. Simply, if we continue to work like this, then almost the majority of our enterprises will go bankrupt. With such a profitability - at a level of more than 20% - I, unfortunately, do not know of a single business (...), even arms trade does not provide such a profit," said the head of Rostec.

He also noted the reduction in export deliveries of high-tech products manufactured by Rostec enterprises. "Unfortunately, our export of high-tech products is also falling. If we sign contracts for products with a production cycle of more than a year, then, naturally, the maximum we receive is an advance payment of 30-40%. The remaining funds needed to produce these products must be taken on credit. And with such an interest rate, all the profit we envisage is "eaten up" by the interest that must be paid to the bank. Therefore, today the question is: either we stop all high-tech exports - aircraft, air defense systems, ships, and so on, which require production periods of at least a year - or something must be done," Chemezov said, noting at the same time that state support programs are limited both in terms of limits and industries.

"A conservative financial policy can lead to stagflation. This is when both production and consumption fall at the same time, but inflation grows at a high rate. As a result, prices rise and unemployment rises. And, unfortunately, we can come to this. In general, this does not happen very often in the economy, but there are such examples," Chemezov said.

Since Moscow launched its invasion of Ukraine, Russia’s leaders and propagandists have regularly drawn on the events of World War II, referring constantly, for example, to Ukrainian soldiers being “Nazis”. Former Russian president Dmitry Medvedev, who devoted his presidency to promoting civil and economic freedoms, reinvented himself as one of Russia’s main war hawks. To cheer up those in attendance at the meeting, Medvedev on 23 March 2023 read to the working group of the Military-Industrial Commission, which is responsible for delivering Russian defense policy, one of Stalin's telegrams. In September 1941 Stalin sent to the directors of military factories asking them to fulfill orders honestly and on time, threatening otherwise: "I will start smashing you like criminals neglecting the honor and interests of the Motherland".

Quote from Stalin's telegram of dated 17 September 1941: "I am asking you to fulfil the order for the supply of tank hulls at the Chelyabinsk Tractor Plant honestly and on time. Now I ask and hope that you will fulfil your duty to your motherland. In a few days, if you prove to be violators of your duty to your motherland, I will start to crush you as criminals who neglect the honour and interests of their motherland. We cannot tolerate our troops suffering at the front from the shortage of tanks while you are chilling and idling in the distant rear."

On January 11, 2024, Medvedev, at a meeting of the military-industrial complex working group, stated that in 2023 all planned deliveries of highly demanded samples of weapons were completed according to schedule. He added that a series of recent "intensive and effective" strikes by the Russian army against military facilities in Ukraine "confirms the successful and effective work of the Russian defense industry during 2023." Prior to that, on January 2, the Ministry of Defense reported that the Russian Armed Forces had launched a group strike with high-precision long-range weapons and drones at enterprises of the military-industrial complex of Ukraine. Later, on February 19, Medvedev noted that Russia is not inferior to any country in the world in terms of its military power. She knows how to win, even when faced with difficult periods in her history. Medvedev is confident that Russia will win the conflict in Ukraine.

On 28 February 2024, Deputy Chairman of the Russian Security Council Dmitry Medvedev recalled the text of the famous telegram from General Secretary of the Central Committee of the CPSU Joseph Stalin to the directors of two factories, in which he harshly demanded to increase the production of Il-2 aircraft necessary for the Red Army to defeat the German invaders during the Great Patriotic War. Medvedev read it out at a meeting of the working group of the Military-Industrial Commission (MIC) of the Russian Federation on control over the production of demanded samples of weapons, military, special equipment and weapons of destruction.

"So that everyone understands how victory was achieved, I will once again quote one of the famous instructions of Supreme Commander Joseph Stalin to two factory directors: "You have failed our country and the Red Army. You still don't want to release the Il-2. The Il-2 planes are needed by the Red Army now like air, like bread," he said, quoting the telegram. Further in the text, Stalin explains that the director of the 18th plant, Matvey Shankman, "gives one Il-2 per day." Anatoly Tretyakov, director of Plant No. 1, "gives MiG-3s one, two pieces each." The Generalissimo noted that this is "a mockery of the country, of the Red Army."

"We don't need MiGs, but Il-2s. If the 18th plant thinks to get rid of the country by giving one Il-2 per day, then it is cruelly mistaken and will be punished for it. I ask you not to put the government out of patience and demand that they release more "Silts". I'm warning you one last time. Stalin," Medvedev read the famous telegram to the end.

Up to 90% of all machine tools are imported to Russia from abroad. The most critical is, according to experts, first of all, for the production of ammunition. How bitterly says one expert, Yuri Shabalin, "now own the machine tool in the ammunition industry, we do not exist in the country." According to the same Shabalin, in the defense industry is now working half of CNC systems are imported. And, in his opinion, "for you can turn off a specific signal is CNC or set wrong program." Like it or not, but its machine tool industry and its machine tool industry in Russia in fact is no more. However, there are no people who could work on these machines.

As recognized by the general director of "Uralvagonzavod" Oleg Sienko in 2015, "we really did not have and do not have enough skilled workers. First of all - operators of CNC machine tools, without which it is impossible to conduct a global re-equipment." By the way, he also listed some of the areas where entrusted to him tankostroitelnoe leading enterprise in the country suffered losses from the sanctions and the lack of supply of imported components: "We are under sanctions, it means that foreign banks and suppliers can not come into contact with us. We take very seriously worked on the creation of a locomotive with Caterpillar. But two days before the shipment of the products made at the site of our partners in Latin America, the sanctions were imposed. With Renault Truck Defense we have made a good car, intended for export. And our military liked it too. But we were forced to stop these processes. With Bombardier we have the same situation ... .Byli program and with other international partners, we are forced to fold. "

"Import substitution is very important, but it can be done any day or a year or even five years - realistically acknowledged CEO of" Uralvagonzavod ", - the competence of something we have lost. We need to replace the process of the twentieth century in the process of the twenty-first century .... But leave it years. We'll have a long time to catch up with what has been done in the world." Because if we want to create the best product, "we can not sure a top manager, to create one of the worst materials using poor equipment. The entire chain should consist of the best units."

Over 300 CNC machines from German manufacturers were delivered to Russia despite sanctions. This is stated in an October 2024 investigation by the southern German broadcasting company SWR. According to the investigators, in Russia about 80% of such machines are used in the production of aircraft, military equipment and ammunition. Based on photographs and video materials, SWR was able to find out that German machines are used at the enterprises "Kamaz", "Parsec", NIR and "Industrial Solutions".

According to customs documents, deliveries were made until the end of last year. SWR was able to identify over 30 German manufacturers whose machines were imported to Russia. Most of them are located in the federal state of Baden-Württemberg. Deliveries were mainly made via Turkey. Local intermediate suppliers have direct contacts with Russia, and in some cases were founded directly by Russian enterprises.

In response to SWR's questions, German machine tool manufacturers responded that they constantly adhere to the sanctions regulations of the European Union. If German manufacturers had known that their machines were being delivered to Russia via Turkey, they would have violated the embargo. Journalists were unable to verify the companies' information.

Walter Maschinenbau from Tübingen is listed 11 times in the customs lists. A Russian wholesaler has a machine from this company, manufactured in 2024, up for sale. Sales of Walter Maschinenbau machines are probably still ongoing. In 2023, multi-ton machines from Vollmer from Biberach were also listed in the customs lists. This company still maintains an active repair and technical consulting business in Russia. Fein GmbH from Schwäbisch Gmünd also still has an active website offering service. Its machines were delivered to Russia seven times in 2023. Machines from Heller from Nürtingen also reached Russia via Turkish intermediaries. According to the SWR investigation, they are installed at the Parsek and Kamaz enterprises.

German enterprises could not explain to journalists why their machines are being sent to Russia. "We assume that manufacturers of machine tools and industrial installations generally adhere to the sanctions regulations and laws. Enterprises and intermediate suppliers that do not adhere to the current legislation are committing a crime. We reject the cessation of deliveries to Turkey," the German Machine Tool Builders Association told SWR.