Following India’s lead, an increasing number of Russia’s defence clients are asking for technology transfers when buying weapons systems.
After the success of the Indo-Russian BrahMos missile venture and the progress in the Fifth Generation Fighter Aircraft (FGFA) project, developing countries around the world are gradually looking for similar kinds of arrangements from Russia, moving towards joint development and transfer of technology.
Under existing intergovernmental agreements between Russia and India, licenses and technical documentation for the production of Su-30MKI airplanes and RD-33 and AL-31 aviation engines have been transferred to India.
Russia has traditionally been reluctant to enter similar agreements with other countries, but is more open to the idea now. South Africa, a fellow BRICS member, is likely to become one of the beneficiaries of such an agreement.
Russia has expressed its willingness to give military technologies to its BRICS partner South Africa. At the Africa Aerospace and Defence 2014 international military exhibition, which was held in mid-September in Pretoria, the head of the Federal Service for Military-Technical Cooperation, Andrey Fomin said South Africa is an important partner for Russia. “We are greatly interested in developing military-technical ties with South Africa. Along with possible deliveries of finished products, Russia is prepared to cooperate in the transfer of military technologies,” he said.
Although it was not specified exactly which technologies Russia is willing to transfer to South Africa, the announcements made by the Russian officials bear witness to the fact that an increasing number of countries are only agreeing to sign contracts for military equipment if there are also offset agreements, which are becoming normal practice for Russia in military-technical cooperation. With the help of these agreements, countries in rapidly developing regions like Southeast Asia, Latin America, and Africa are receiving along with the weapons templates the right to renovate, assemble, manufacture with a license, and in some cases re-export weapons under their own mark.
In most cases, offset agreements are concluded in parallel with the main contract for the supply of high-tech or high-value products, and its conditions, as a rule, require the creation of a joint venture for the technology transfer on the territory of the state-customer, participation in important projects related to the development of the technology, infrastructure-building, or, more rarely, direct investment in the economy.
The growing importance of this method is well understood in the Kremlin. At the meeting of the Commission for Military-Technical Cooperation which was held in April of this year, Vladimir Putin declared the necessity of learning how to use modern financial and marketing tools, including exporting on the basis of various kinds of offset transactions.
Independent military expert Vladimir Kluchnikov told RIR that concluding offset transactions is general practice around the world. Their use expands the market and “binds” purchasers to a particular technology.
All nations are currently trying to gain direct access to technical documentation. However, Russian policy in this area is to create joint ventures with those countries that acquire weapons, he explains. “Our manufacturing power is currently at full capacity and JVs make it possible to reduce the load. Our people go there to work. So for us it is profitable and promising,” says Kluchnikov.
This prompts Russia to expand its use of offset transactions, an important condition of which is the requirement of investing a portion of the funds of the contract amount into the economy of the country-importer.
Cooperation with Brazil
The establishment of joint production is also being discussed with Brazil. Rostec and the largest weapons manufacturer in Brazil, Odebrecht Defensa e Technologia, signed a memorandum back in 2012 on technological partnership. The cooperation envisages joint development and the creation of a joint venture for manufacturing helicopter equipment, air defence systems, marine equipment, and so on.
Last year, a Brazilian delegation in Moscow conducted negotiations not only about the possibility of acquiring the Pantsir anti-aircraft rocket launcher system and the Igla air defence system but also about the deployment of their licensed production on the territory of the South American giant with the possibility of selling Russian weapons to third countries.
According to the General Director and General Designer of the Machine-Building Design Bureau (KBM) Valery Kashin, the transfer of technology for the manufacture of such weapons as the MPADS (man-portable air defence systems) are under special control, but Brazil might receive approval to sell the MPADS it produces to other countries.
In view of the fact that MPADS are considered weapons used by “terrorists” and their manufacture, export, and, all the more so, re-export is kept under strict control on the part of Russia as well as the USA, in accordance with the agreement on the control of MPADS which the countries signed in 2006 the production of the Igla on Brazilian territory is under question.
However, the contract for the purchase of Pantsirs, according to the Russian side, has made it to the home stretch and may be signed in October. While it still remains in the discussion stage, it is clear that it is also includes an offset program: Brazilian firms will service the Russian equipment.
If offset transactions are still “desired” but not “required” in contracts signed between Russia and Brazil, with India, Russia’s main partner, they are mandatory and have been enshrined in the legislation since 2005. According to Indian legislation, when a military contract is signed for more than $49.4 million, the supplier must reinvest at least 30 percent of the total value of the agreement into the Indian economy in one way or another. Within the next few years, India plans to bring the volume of concluded offset transactions to $10 billion.