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Russia: Arms merchant to the world

Published by Forbes on 1987-11-02

THE THIRD WORLD arms trade is becoming a buyers' bazaar. Worth $ 58.3 billion in 1982, according to Richard F. Grimmett of the Congressional Research Service, the business was $ 29.2 billion last year.

Like auto manufacturers loaded with excess inventory, the sellers are offering easier and easier terms and jostling one another for business. In 1985 Saudi Arabia wanted to add one or two squadrons at $ 30 million a plane of McDonnell Douglas F-15 interceptor jets to the 60 jets the Saudis already owned. The Israelis objected. The Saudis gathered their robes and went shopping in Europe. The French were eager to sell Mirage 2000 fighters, but the Saudis awarded an $ 8.2 billion contract to British Aerospace for 72 Tornados, 30 Hawk jet trainers, 30 Swiss-made Pilatus PC-9s turboprop trainers, plus missiles, ammunition and spare parts. The deal ensured that the British manufacturer and its West German and Italian partners would stay in good health for several more years. Prime Minister Margaret Thatcher personally thanked Saudi King Fahd.

Many European arms makers, and not only the "peace-loving" Swedes (FORBES, Oct 19), are struggling for survival and -- unbound by naive American concepts of morality -- are offering blandishments in various forms as never before.

The major European suppliers -- France, West Germany, Britain and Italy -- have increased their share of weapons exports to the Third World. Figures from the Stockholm International Peace Research Institute (SIPRI), comparing 1977-81 sales with 1982-86 sales, show that the combined share of these four European arms producers rose from 23% to 28%.

Take Peru, a bankrupt nation, steeped in poverty. But when it comes to arms, Peru believes in going first class. Its air force consisted of aging Soviet-made Sukhoi Su-22 fighters. In 1985 and 1986 the generals wanted to buy the advanced F-16 plane from General Dynamics. Washington dragged its feet: Would it be proper for an impoverished nation to waste money on arms? The French jumped in, and the Peruvians bought 15 Mirage 2000 fighters. Will Peru be able to pay for the planes? Maybe not, but the order keeps French workers working and the French aircraft industry alive.

Elsewhere, the number of suppliers is increasing faster than the number of customers. Newly industrialized Third World suppliers are getting into the act, offering easy credit terms and a dazzling array of low- and medium-tech weaponry. According to SIPRI, 26 Third World countries produced and exported $ 11 billion worth of weapons last year. According to the Congressional Research Service (CRS) of the Library of Congress, China alone delivered $ 7.3 billion in weapons to the Third World between 1979 and 1986. For the same period, South Korea sold $ 2.7 billion; North Korea around $ 2.5 billion; Brazil, $ 2.2 billion; Czechoslovakia, $ 3.7 billion.

Says Professor Stephanie Neuman, an arms-trade specialist at Columbia University: "What you have is countries that you never really thought of as major arms suppliers now getting a large share of the market either as surrogates of the superpowers, or doing a dandy business earning foreign-exchange for themselves."

In 1985 Brazil outbid British Aerospace in selling 130 Tucano trainer planes to Britain's Royal Air Force. The size of the sale was unprecedented for Brazil. And it's rare that a NATO country goes outside its ranks to make such a big purchase. Brazil has some 350 companies involved in producing planes, tanks, armored personnel carriers and other defense items, primarily for the Middle East and Africa. More than 200,000 Brazilians work for these companies.

Few Third World manufacturers lay claim to original designs, of course. In arms, as in apparel, the developing countries' producers are proficient imitators. The Chinese, for instance, have imitated the U.S. M-16 automatic rifle, which is produced by Colt Industries. Colt's M-16 retails for $ 660 per rifle, the Chinese version for $ 185.

Chilean engineer Carlos Cardoen copied a U.S.-made cluster bomb, and his bomb -- which contains explosive canisters -- sells for $ 600, compared with $ 2,000 for the original.

In this increasingly competitive business, one old-line supplier is more than holding its own: the Soviet Union. According to Richard Grimmett, Soviet weapons exports in 1986 hit $ 12.6 billion, triple the U.S.' $ 3.9 billion. The U.S. Arms Control & Disarmament Agency estimates that 15% of Soviet exports consists of arms sales, compared with 4% for the U.S.

According to the CRS, the Soviets delivered $ 60 billion in arms to the Third World in 1982-86. U.S. deliveries? Around $ 25 billion.

Like any good supplier, the Soviets sell and deliver arms quickly: no fuss over congressional approval, no waiting. For instance, when the Marxist military dictatorship in Ethiopia wanted a ton of ammunition and 50,000 Kalashnikov AK-47s to fight neighboring Somalia in the late 1970s, Moscow shipped the goods literally overnight. When India and Pakistan went to war in 1971 for the fourth time and Washington suspended all arms shipments to New Delhi, Moscow airlifted tons of guns and ammunition to the Indians within hours of New Delhi's request.

The Soviets shrewdly mix hard business deals with political trading. To help swing India's purchase of Soviet-made guns, planes and ammunition in 1980, Moscow offered an 8-year grace period on payments, 12 years to pay after that, annual interest of barely 2.5% and payment in non-convertible Indian currency. "Try to match that," says Chris Smith, defense and disarmament researcher at Britain's University of Sussex. While the deal earned Moscow no hard currency, it cemented relations with Russia's friends in New Delhi. If India could not pay in hard cash, it could pay in denouncing the U.S. in the United Nations.

The Soviets can drive a hard bargain. In exchange for helping Ethiopia crush rebellions in Eritrea and successfully counter neighboring Somalia's attempts to "liberate" Ethiopia's Ogaden province in the late 1970s, the Soviets reportedly demanded and received part of Ethiopia's coffee production, the impoverished country's principal foreign exchange earner. While Ethiopian children starve, the Marxist government picks up the tab for Russian advisers and has paid some $ 2 billion in Soviet arms through the coffee barter. Western diplomats based in Addis Ababa point to 1978, when Ethiopia's rulers reportedly bartered $ 63 million worth of coffee for East German trucks that proved unsuitable for the rugged Ethiopian terrain, tractors that sputtered and some spare parts.

Another African state whose people are chronically malnourished, Mozambique, traded away valuable fishing rights to Moscow in exchange for weapons.

India gets special treatment -- not out of sentiment but because the Soviets cannot issue direct orders to an Indian government. One incentive the U.S.S.R. offers its best customers is license production, an arrangement that allows them to manufacture Russian-patented goods under certain guidelines. During 1985 and 1986, the Indians were considering a French offer for additional Mirage 2000s for their air force. Moscow countered with a deal to supply some 45 copies of its latest fighter jet, the MIG-29 -- and an agreement to allow India eventually to manufacture the sophisticated plane at a Hindustan Aeronautics plant, which already assembles MIG-21s. The Soviet decision was unique because Moscow hadn't yet sold the MIG-29 to anyone else.

That deal set a precedent: Britain will allow India to assemble locally 47 Jaguar fighters. Say this for the Indians: They demand a stiff price for the political support they give the Soviets on the international scene.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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