Solving Russia's industry reform funding shortage

Russia's deputy prime minister and former defence minister, Sergei Ivanov, warned on 11 November that the country's military industries have been "crippled" by the global financial crisis, adding during a televised address that they are facing a "dire cash shortage".

He called on state banks to provide additional funding to alleviate a "situation [that] could become quite painful for the industry".

The dearth of funding and investment that has characterised the crisis worldwide comes at an important juncture in the development of Russia's defence industrial base (DIB).

The country's military organisations are at least two years into a programme of reform intended to wrench organisations from the working practices of the past. The aim is to expand industrial footprints to meet the twin challenges of domestic re-armament and a swollen export order book.

The cost of developing the DIB has been estimated at USD19.25 billion, with industry expected to pick up 40 per cent of the total bill.

Commercial loans were expected to go some way to meeting the cost of development in the short term, while initial public offerings (IPOs) were expected to provide a longer-term route to capital. Both options appear to be less viable as a result of wider economic circumstances.

However, the modernisation of the DIB and the wider modernisation of Russia's military are unlikely to be derailed entirely by current financial woes: both are viewed as too high a priority. This suggests that greater government involvement in an already heavily state-controlled and subsidised sector will be the only course open to Moscow in the short to medium term. 264 of 822 words