A Platform for Independence
Why should we join forces?
The world we live in today has been gradually transforming for the last decade, and is now entering a new stage of development. However, the perception of this transformation differs between ‘the West’ and ‘the East plus the South.’ Russia’s interpretation, as President Putin himself put it, is that “the modern world is multipolar, complex, and dynamic.” This point of view is also shared by our BRICS partners – something that does not sit well with those who are, according to the President, “trying to build a model of international relations where all of the decisions would be made by a unipolar power.”
The expert community has repeatedly pointed out that the BRICS countries will emerge as a symbol of this multipolar world, and simultaneously act as the driving force behind its development. These five countries, which were historically excluded from ‘The Great Game,’ represent the interests of the largest part of the world. These countries now welcome the idea of a multipolar world in which many of them, perhaps for the first time, will be able to command their own destiny.
Even if we do not count the ‘sympathizers,’ BRICS is a massive association. It accounts for nearly one-half of the planet’s population, 25% of its territory, and almost one-quarter of the global GDP. Moreover, one of its members (China) has already become one of the world leaders in terms of GDP. According to the OECD’s long-term forecasts, India and China – with their enormous human resources and domestic markets – will jointly account for 46% of the global GDP by 2060.
All of this raises a legitimate question: given such an enormous capacity and so many opportunities, what prevents the BRICS countries from transcending the ‘developing world’ label and, in so doing, dispelling any remaining doubts as to the world’s multipolar nature? The answer is exceedingly complex and is rooted in the history of the global financial system, centers of military power, cultural influences, and a whole range of other aspects, including technologies where our countries are trailing the West (the concept of hegemonic cycles and other similar theories explain these processes).
What makes today’s situation unique (as many analysts point out) is that mankind has completed the scientific and technological stage of its evolution, which primarily had to do with the spread of computers and the Internet. We are now on the threshold of another technological revolution. This time, however, it seems it will not be symbolized by a specific invention – such as the steam engine, the conveyor belt, or the PC – but rather it will be characterized by the aggregate effect of new technological capabilities that are systematically used in production. These changes bring about what technical sciences and sociology refer to as a ‘point of bifurcation,’ a stage of systemic instability that would be followed by a new state. This opens the door to incredible opportunities for our countries. To express this idea using a Formula 1 metaphor: this is a tough curve where one could catch, or even pass, the leader. The only thing to do to accomplish this is to stay on the leader’s tail and not let him break away.
Technologies represent a part of this systemic lag, where we stand a chance of integrating our respective capacities and achieving significant strides in a relatively short period of time based on catch-up development policy. The growth of the economy’s high-tech segment brings its structure closer to that of the developed countries and increases its international competitive edge, which is likely to bring about a knock-on effect for all aspects of life. In today’s environment, this would require a level-playing field for all stakeholders in the international labor division system and access to global markets. The BRICS countries experience certain difficulties in this respect – the rich Western markets remain partially closed, and access to critical technologies is limited and largely depends on the decisions of transcontinental companies, which tend to be controlled by large financial groups in the West.
Where do we stand?
The current level of technological development enjoyed by the bloc’s member-countries serves as the foundation for implementing any new approaches in the BRICS framework, because even the synergy effect of any cooperation in this area will be directly predicated on the potential of each individual country.
Technological development depends on a complex combination of conditions and pre-requisites, and it is virtually impossible to identify all points of departure in a single article. To paint a broader picture of the current situation, we can fall back on international rankings. For instance, China was ranked 28th among the world’s most competitive economies in 2014, leaving the other BRICS countries behind. Russia, South Africa, and Brazil were ranked 53rd, 56th, and 57th, respectively, not trailing too far behind one another, while India came in 73rd. At the same time, when it comes to the availability of state-of-the-art technologies, Russia finds itself far ahead of its partners (in 29th position, compared to China’s 83rd, South Africa’s 66th, Brazil’s 43rd, and India’s 49th).
The fact that Russia lags behind in innovations should not mislead anyone; that is merely a function of two decades of insufficient funding for the sciences. Current trends, and the significant inroads achieved over the last several years, are well reflected in the composite indicators compiled by the Swiss-based World Intellectual Property Organization, also known as the Global Innovation Index, which ranks countries in terms of their R&D investment efficiency.
Last year, Russia managed to jump 13 positions – an unprecedented feat among all 143 countries included in the rankings. Having moved up to the 49th position, Russia neared China (ranked 29th) and left the remaining BRICS countries far behind (South Africa was 53rd, Brazil was 61st, and India was 76th). Still, all five countries have improved their respective rankings and received praise from the indicator’s authors as ‘efficient innovators.’
In our opinion, the five countries’ growing contributions to science and engineering development is due to their emerging scientific and technological complexes (with the exception of Russia). This manifests in the emergence of higher academic institutions and the development of government-sponsored systems to support R&D. This system was finalized and took its current form in the mid-1980s. Russia stands apart because of its colossal human capital, a product of the Soviet education system, which saw a revival only in the 21st century. Today, these processes are evolving much faster than in Russia’s partner-nations thanks to a powerful impetus that comes from the existing scientific base and infrastructure.
The overall picture does not fully reflect the potential that the BRICS countries enjoy, but it still serves as an illustrative example of the capabilities that may emerge if the countries’ respective potential is combined. Our nations have already embarked upon this journey, and the general pivot is reflected in a Memorandum on Cooperation that the Russian government signed on 14 March to develop science and innovation, together with the BRICS countries. Among various other cooperation priorities, the Memorandum of Understanding provides for new incubators to be created and for a broader exchange of technologies.
What role does Russia play in BRICS?
The facts cited above clearly show that Russia and China act as de facto drivers of technological and scientific development in the bloc. However, this is not as visible in the trade structures of these nations.
Oil and oil products – as well as metals, machines, and equipment – constitute the lion’s share of Russia’s exports. If we look at Russian exports to the BRICS countries based on 2013 data, we will see that they are dominated by the following commodity groups: mineral products (fuel and energy, predominantly,) account for 62.4%; machines, equipment, and motor vehicles make up 11.6%; and chemical products compose the remaining 10.4%.
China remains Russia’s largest trading partner in the BRICS ($89 billion in 2013). Trade between these two countries is expected to reach $95 billion in 2014, with oil products accounting for 91.63%, and machines making up a little over 1% of Russia’s total exports. It should be noted that the latter indicator has nearly doubled over the past year, and this growth is likely to continue. Most of their joint projects are still being rolled out, or the required infrastructure remains under construction. This applies to projects such as the joint construction of spongy titanium extraction capacities in Jiamusi (Heilongjiang province) and a new oil refinery in Tianjin (which will be put into operation in 2020). In 2014, the United Aircraft Corporation (UAC) of Russia and China’s COMAC signed a memorandum to develop a large body long-haul jetliner, while Russian Helicopters is developing a heavy transport helicopter with China’s help. An agreement was signed on 8 May to create a joint leasing company, slated to sell a record number of Russian-made SSJ100 regional aircraft in China (around 100 units) over the next several years. On top of that, UralVagonZavod and the Honghua Group signed an agreement in 2013 to produce heavy drilling rigs in Russia, and they have recently completed the joint construction of a plant in Novosibirsk to produce lithium and iron phosphate batteries for electric buses and cars.
Russia’s bilateral trade with India reached $9.5 billion in 2014. Despite its relatively low scope, the export structure is favorable for Russia. The share of machines, equipment, and means of transport has reached 36.7% (54.5% in 2013). On the other hand, Russian imports from India are predominantly products other than raw materials (18.8% of its imports are machines, equipment, and transport, and 30.7% are chemical products and so forth). These figures reflect the existing trend of jointly developed high-tech production facilities, including those in the Defense Industrial Complex (India is one of Russia’s biggest partners in this area).
India assembles Russian-made fourth generation multi-purpose SU-30MKI fighter jets, and both countries are jointly developing the Bramos missile family. Russian Helicopters and Elcom Systems Private Limited set up a joint venture to assemble Russian Mi and Ka helicopters in India. Another large bilateral project is their joint development of a multi-purpose transport aircraft (MPTA), where Russia is represented by OJSC OAK-TS and India by Hindustan Aeronautics Ltd. In the civilian sector, Russia and India also cooperate in nuclear energy (Russia is currently building the Kudunkulam nuclear power plant), the automotive sector (KAMAZ and Vectra Group announced a joint venture in 2009 to manufacture various KamAZ heavy duty trucks), and the chemical and pharmaceutical industries (Russia’s SIBUR and India’s Reliance Industries Ltd. are building a butyl rubber plant with the capacity for 100,000 tons near Jamnagar, and Pharmasintez acquired a controlling stake in Biosynthesis Laboratories, an Indian manufacturer of modern oncological medications).
India assembles Russian-made fourth generation multi-purpose SU-30MKI fighter jets, and both countries are jointly developing the Bramos missile family. Russian Helicopters and Elcom Systems Private Limited set up a joint venture to assemble Russian Mi and Ka helicopters in India. Another large bilateral project is their joint development of a multi-purpose transport aircraft (MPTA), where Russia is represented by OJSC OAK-TS and India by Hindustan Aeronautics Ltd
Despite these partnerships with India and China, Russia’s bilateral trade with Brazil remains at a mere $438.9 million. Russia is only Brazil’s 19th largest trading partner (accounting for 1.17% of its trade). Russian exports mostly include iron ores and oil products, while imports are mostly made up of agricultural products.
Cooperation in the high-tech sector is evolving slowly, despite massive potential. Even projects that have long been slated for completion are still in progress. Still, certain areas of technological cooperation between Russia and Brazil play a crucial role, such as the power engineering sector – Power Machines set up a branch, called Power Machines E.G.E. do Brasil Ltda, to promote the company’s products on the Brazilian market and to provide comprehensive maintenance for steam, gas, and hydro turbine generators. Additionally, JSC NPO Saturn, a manufacturer of gas turbine equipment, and INEPAR Systemas di Energia of Brazil have announced plans to set up a joint venture in Brazil to assemble power plant blocks and gas compressor units based on Russian-made gas turbine engines. The two countries are also fostering cooperation in aircraft building. VSMPO-AVISMA provides 100% of the titanium and titanium products required by Embraer, Brazil’s largest aircraft maker. Slowly but surely, Russian Helicopters are conquering the Brazilian market for military and civilian aviation. In this area, the two countries are planning to expand their level of cooperation. In particular, negotiations are underway to set up a joint venture to assemble Mi-171 helicopters and to transfer to Brazil the technologies required for the repair and maintenance of the equipment that has already been shipped. Brazil has also showed readiness to share technologies with Russia. In particular, Metalfrio Solutions, a large global manufacturer of refrigeration equipment, acquired Caravell/Derby in 2007 and is now developing a refrigeration and deep freeze equipment plant in Kaliningrad oblast.
In 2014, Russia’s bi-lateral trade with South Africa totaled $975.9 million and consisted predominantly of raw materials, as was the case with Brazil. For the most part, Russia imports fruits, ore, and rolled iron, and exports ferrous alloys, chemicals, plastic, and rubber. In recent years, trade between the two countries has been on the rise. In 2013, their bilateral trade grew 130.72%.
Renova, a Russian company, remains an active player in South Africa. In the early 2000s, it acquired a stake in manganese, titanium, and uranium development operations. In 2013, Renova started cooperating with Inyanga Energy Investments, a South African company, to develop alternative energy sources, and solar power plants in particular. In 2010, OJSC Severstal acquired a 25.6% stake in Iron Mineral Beneficiation Services (IMBS), a South African metallurgy company. Thanks to this deal, Severstal acquired access to Finesmelt technology patented by IMBS, which reduced steel manufacturing costs. Russian technologies are also being transferred to South Africa. Russian Helicopters and South African Denel Aviation set up a regional service center for Russian-made helicopters, while the National Telemedicine Agency, an NGO, is running a pilot project to develop a national telemedicine system in South Africa. Several batches of equipment have already been shipped through this project.
What is industrial diplomacy?
Russia’s current integration and technological cooperation with the BRICS is hardly enough – it should be expanded significantly. Russia’s strengths include its scientific potential and its technological legacy, the latter of which has recently been streamlined and is beginning to show growth. In this respect, we believe that Russia should play a vital role in the BRICS – not just as an ‘energy superpower,’ but also as a hub driving the development of new production capabilities, both in its own territory and in partner-countries. Areas in which we could play the leading role range from electrical power (including nuclear power and alternative sources) to the production of chemicals for agricultural purposes, the automotive sector, rolling stock manufacturing, ship-building, aviation, agricultural mechanical engineering, pharmaceuticals, medical equipment manufacturing, space exploration, the defense industry, and freight and passenger transportation infrastructure.
The fact that large industrial corporations are being set up in our country – and that new opportunities are emerging as a result of mergers between production enterprises and integrated complexes – drives the development of so-called ‘industrial diplomacy.’ State-owned corporations act as technological ambassadors representing our country. Corporate-level contacts facilitate a continuous dialogue with our partners, enabling them to foster relations in sensitive areas. For instance, Rostech is striving to simplify access to the Russian market for its overseas partners, and working to attract investments and implement new projects. We simply must be aware of our partners’ needs. We need this to prepare proposals, which have lately become modular and multi-stage in nature. As has been noted before, we are in the business of selling solutions, not just finished products. Granted, each of these solutions includes both financing and technical aspects.
Not only does this approach enable us to generate profits for the Russian budget, it also facilitates the development of our partners’ economies and creates opportunities for ongoing scientific and technological development. In this respect, the Military Industrial Complex is a particularly telling example. Today, when the government is working hard to re-arm its military, it acquires state-of-the-art military hardware models, many of which would be impossible to manufacture without the cooperation of India and China.
At the same time, we have recently been trying to address legacy distortions in our relations with China and India, and channel efforts to foster cooperation in the military sphere by placing a growing emphasis on dual-use technologies and purely civilian sectors. From the very outset, we have tried to use this approach to build our relationships with Brazil and South Africa as well.
As a result, we have managed to achieve a number of major successes in recent years. In August 2012, Russian Helicopters shipped two Mi-172 units certified in India to Pawan Hans Helicopters Ltd., a state-owned company. Russian Helicopters is currently reviewing different options to launch the manufacture of various helicopter parts in India; a KAMAZ joint venture is already operational in the country. Electronics and optical electronics developed jointly with China are exported to China (Roselectronica and Schwabe are taking part in this cooperation project). We are also pursuing cooperation initiatives to upgrade the technologies used in the chemical industry. KAMAZ trucks are exported to China. Gas infrastructure development projects in several provinces of China may see shipments of up to 80 gas turbine units with 25 MWt capacity. Rostech organizations have entered into an agreement with the China Aerospace Science and Technology Corporation (CASC), Aviation Industry Corporation of China (AVIC), and China Aerospace Science & Industry Corporation (CASIC). Earlier agreements were signed with other large Chinese companies, including the Poly Group.
KAMAZ and Marcopolo’s joint venture to manufacture buses serves as another positive example of the evolving cooperation with our Brazilian partners. As a follow-up to this project, our work in the BRICS framework may acquire new and more promising formats, whereby we would graduate from bilateral to multilateral projects. Today, we are discussing potential manufacturing of Russian-Brazilian buses for South Africa, where the Brazilian company occupies a significant market niche and owns production facilities.
Speaking of our cooperation with South Africa, the Russian Helicopters holding and Denel Aviation of South Africa set up a joint center in Johannesburg in 2013 to repair and service Russian-made civilian helicopters. The center was inaugurated on the eve of the BRICS summit in South Africa. Techmash, a scientific production corporation, also signed contracts to ship its Osa multi-purpose non-lethal weapons systems and drill ammunition to this country.
All of these efforts are complemented by the continued development of the military component of our technological cooperation. The United Engine Corporation’s (UEC) companies supply AL-31FN engines for the Chinese-made J-10 fighter jet while Rosoboronexport is negotiating contracts with China to export Su-35 jets. United Industrial Corporation OBORONPROM and Russian Helicopters are looking to set up a joint venture to service and maintain MI-17 helicopters for the Indian Air Force. Their Indian counterparts have already been granted a license to manufacture 120 RD-33 engines. In March 2014, NIMI (part of the Techmash Corporation) signed contracts to export and organize the licensed production of armor-piercing hard-core shells in India.
Following a decision by the Russian Ministry of Industry and Trade, MKB Kompas was appointed one of the contractors to provide India with high-precision access to Russia’s global satellite navigation system GLONASS, including shipments of navigation consumer hardware and integration of Russian components in this navigation hardware.
How does one go about beating global competition?
Russia needs to transition from selling finished products to selling technologies bundled in integrated packages. Given the decisions in place at this stage, we need new markets. Our domestic market’s capacity is insufficient, and markets in the West have long been divided and are geared toward the ‘in-house’ technological solutions offered by their own companies. Furthermore, even though these companies are highly solvent, their potential does not compare with that offered by Russia’s BRICS partners. The ‘technologies in exchange for market access’ strategy may become Russia’s main pivot in its relations with India, Brazil, and South Africa in the near future. Our relationship with China is already evolving based on technological cooperation; large joint projects are already being implemented, including those for the benefit of third-country markets. We believe that this is the optimal approach for both countries.
This shift is fully in line with the dominant trend among the BRICS countries. We are modernizing our economies through our own innovations and reducing dependence on foreign technologies. A critical objective, which would directly determine the political and economic prospects of the five countries, is to join forces and integrate import substitution without abandoning potential cooperation with other countries, including those in the West.