Intervention in Syria pays off for Russian arms sales

Mar 30, 2016, 12:11 PM EDT
Syrian president Bashar al-Assad and Russian president Vladimir Putin.
(Source: scrolleditorial/flickr)

Russia's economy is still declining from Western sanctions and low oil prices, but one industry is booming: arms exports. President Vladimir Putin said on Tuesday that the country exported a better-than-expected $14.5 billion of military products in 2015, and that foreign orders are currently set to top $56 billion. Russia's military intervention in Syria thus proved to be a testing ground for new hardware (like the Mi-28 attack helicopter) as well as prime advertising for interested buyers ranging from Algeria to China.

On Monday Russian newspaper Kommersant cited Russian government and military sources in estimating the "marketing effect" of Moscow's Syrian campaign would net arms contracts worth about $7.6 billion. If the price tag of Russia’s Syria escapade was only around $480 million, as Putin claimed, then in strictly economic terms the return on investment was stellar.

(Last year Blouin News reported on Russia’s fast-growing arms industry despite being cut off from Western markets, while noting that the figures are not transparent and thus may not be accurate.)

Still, weapons manufacturing is no substitute for oil as the engine of Russia’s economy. (Nearly half of the government’s revenue comes from its oil and gas exports, whose dramatic price drop over the past two years has led to major deficits.) The country’s GDP contracted 3.7% in 2015, and it’s on course to shrink by 1% or more this year, before – maybe -- growing by 1% in 2017, according to the IMF.

As the ruble weakens against other currencies, high inflation remains a threat and the population continues to feel the pinch. Official data shows that real wages dropped 9.3% in 2015. Furthermore, 20 million Russians – about 14% of the population -- now live in poverty, compared to 16 million in 2014.

But with a parliamentary election coming up in September, the government is trying to show voters that the economy is picking up again. As such, last week P.M. Dmitri Medvedev announced that the minimum wage will increase 20% to $109 per month starting in July. This is the second raise this year, following a 4% increase in January, and it should help ease any popular discontent over the economy. Medvedev said the new minimum wage law will be passed through parliament as soon as possible.

But despite a few protests earlier this year, the ongoing economic crisis has yet to dent Putin’s approval rates, which are above 80%. (See our earlier coverage of Putin's popularity.) With good news on the horizon, and global respect for Russia’s power at a new high after its game-changing intervention in Syria, it’s easy to forecast the ruling United Russia party will comfortably stay in power after September.