All the links between Rostec and the Russian government in the article by Giuseppe Gagliano
In a very long interview on 16 September, the CEO of Rostec, Sergey Chemezov, underlined, among other aspects, the need for Russia to achieve leadership in the high technology. Artificial intelligence offers many opportunities in this sense and Rostec is moving precisely on this path to compete with the US and China.
In parallel, Rostec works on quantum sensors and fifth generation wireless communications. The development of these areas is in fact, according to the CEO of Rostec, the most ambitious but also crucial objective for global competition. Precisely for this reason, also in collaboration with Huwaei, Rostec by 2022-2023 will be able to create an experimental 5G network in one of the regions of Russia and in a short time it will have to be able to present an overall strategic plan for the creation of 5G. throughout Russia.
What is the role of Rostec in Russian economic policy
In addition to the adoption of ambitious military modernization programs for the Russian armed forces, the Putin government wanted to deepen the industrial concentration policy initiated in the late 1990s.
This policy, motivated by the sharing of production costs and R & D, plays a role in the context of Russian power projection policy. To achieve this goal, Putin wanted to set up the state company Rostekhnologii in November 2007.
Led by Sergei Chemezov, the Rostekhnologii holding brings together 437 companies of the Russian military-industrial complex, some of which were in a state of financial crisis. Renamed Rostec in 2012, the company aims to promote the development, manufacture and export of advanced industrial products by providing financial and technical support to Russian companies in domestic and foreign markets.
One of the project’s ambitions is to make Rostec the catalyst for research and development efforts in both military and civilian technologies. This is why the holding absorbs most of the technological research departments and research institutes of the military-industrial complex from its creation.
In addition, the creation and consolidation ofRostec has important political interests for the Kremlin. Initially, the goal was to end conflicts between shareholders of different companies in the context of equity investments in highly strategic sectors, such as VSMPO-AVISMA, the world’s largest producer of titanium.
The grouping of competing or conflicting companies within a single holding, of which the sole owner and shareholder is the Russian Federation itself, therefore appears as a means of forcing these companies to cooperate within the restrictive framework of Rostec.
In a second phase, the interest of such a concentration of Russian defense industries in the hands of a single manager is to strengthen the protection of the state and to fully present the resources of the military industry in the service of foreign policy and the Kremlin. Beyond the financial control exercised by the Russian state through the majority shareholdings in the companies of Rostec and Rostec itself, this will to place such an imposing military complex at the service of the Russian state and clearly visible from the close relations maintained between the leaders of the Kremlin and Rostec. Indeed, the CEO of Rostec, Sergei Chemezov, and a close friend of Vladimir Putin while the other key positions of the company have been entrusted to personalities of the circle of the President, such as Sergei Abramov,
This political-industrial collusion between the Kremlin and Rostec’s leaders also allows the Russian government to deepen the process of concentration of industrial activities under the control of the federal administration.
Indeed in the name of “strategic interests of Russia”, the Russian government has pushed Rostec to multiply the absorption of civilian industries and favor their mergers into sectoral sub-holdings. Therefore, Rostec has acquired control of many civil companies considered strategic such as the car manufacturers AvtoVAZ, holder of the Lada brand, and Kamaz, manufacturer of engines and trucks, several airlines or the VSMPO-Avisma company, world leader in the titanium market. and aluminum.
In 2018, Rostec made a decisive contribution to President Putin’s final agreement for the integration of United Aircraft Corporation (UAC), the parent company of major Russian airlines Sukhoi, MiG and Irkut. This acquisition, which has been on the agenda for several years, is in line with the Kremlin’s ambition to consolidate all national aviation activities in Rostec’s hands. In fact, the state-owned company already controls Russian Helicopters, the sole Russian helicopter manufacturer, United Engine Corporation, the sole aircraft engine manufacturer, as well as some 750 aircraft component manufacturers, which supply 70% of the parts to United Aircraft Corporation. Although Rostec executives insist that the resulting structure be modeled on the European Airbus,
Therefore, these mergers and acquisitions and industrial alliances aim to strengthen cooperation and technology production, achieve economies of scale and benefit from better sharing of innovations, particularly in the field of dual use technologies.
In Russia’s current economic and political conditions, the most likely scenario is that the government continues to promote the concentration of large defense and civilian industries around Rostec, thus dismantling what remains of a market economy.
The Kremlin has clearly expressed a desire to designate some defense companies as exclusive suppliers of equipment to mining and energy companies and has even issued a directive stating that consumer products should account for 50% of the military complex’s revenue – industry by 2030.
