Exporters of arms shrug off effects of Kolchuga scandal
Ukrainian arms officials say that allegations of illegal arms trading with Iraq have undermined the country’s position as a major arms exporter, derailing an anticipated surge in sales last year. Analysts, however, said the damage was insignificant, with sales now posed to rebound.
Valery Shmarov, general director of state arms exporter Ukrspetsexport, said his company saw the number of export contracts in the first quarter of last year drop from 36 to 28 in the last quarter of 2002. Shmarov said the figures were a sign of the world’s diminishing interest in Ukrainian-produced weapons following U.S. accusations that the country sold anti-aircraft radar systems to Iraq against a UN embargo.
Shmarov said the number of export deals signed by Ukrspetsexport rose from 32 in the first quarter last year to 54 in the second, but started falling afterwards as allegations gained widespread international publicity.
“In the beginning of last year there was a rapid growth in export sales, which allowed us to expect an increase in sales by the end of 2002 in comparison to the previous year,” said Oleksandr Urban, spokesman for Ukrspetsexport. “But right after the burst of activity in the second quarter, exports started to decline because of the unsubstantiated accusations of Kolchuga sales to Iraq.”
“The arms business is very vulnerable. Political scandal can either destroy or improve it,” he said. “For example, after September 11th the demand for our anti-terrorist equipment for radio surveillance and personal protection increased greatly,” he said.
Urban said that while the Kolchuga scandal didn’t affect the company’s business with regular customers, it did stifle interest from potential customers.
He admitted, however, that the overall volume of sales last year remained on par with 2002. He also said the situation started to improve early this year.
“Despite the lower number of contracts we had in the first quarter of 2003, their value was higher than that of the first quarter of 2002,” he said.
Data by the export control committee under President Leonid Kuchma shows that Ukraine sold arms worth $500 million in 2001. That figure went down to about $450 million said the Center for Army, Conversion and Disarmament Studies, a think tank.
The center’s Director Valentyn Badrak said the decrease didn’t stem only from allegations of foul play on international arms markets but also increased competition between the countries of Eastern and Central Europe. Badrak also said several of Ukraine’s regular arms recipients in the Middle East and South East Asia have joined the anti-terrorist coalition and opened their markets to weapons made in the U.S. and Western European countries.
Nicholas Chipperfield, a researcher with the Arms Tranfers Project at the Stockholm International Peace Research Institute, said he believes Ukraine’s stance as an arms exporter is unlikely to be adversely affected by the alleged radar sales to Iraq.
“At least not for Ukraine’s most important arms recipients, such as Pakistan, China, and Algeria,” Chipperfield said. “Any effect on Ukraine’s future arms exports should be limited.”
Badrak also said Ukraine should be able to at least maintain its previous sales volumes due to a wider assortment of weapons it now has available.
“I do not see the [last year’s] decrease as a problem because the share of new weapons in the structure of exports is now increasing,” he said. “The share of high-tech products and services is also growing.”
Stocks of military hardware produced in Soviet times or during the early years of independence previously constituted the lion’s share of the country’s arms exports.
The center’s data revealed that the share of new arms manufactured in Ukraine rose from 19 percent in 2000 to 60 percent in 2002. Sales of military services such as equipment repair and maintenance is also on the rise.
Badrak said several successful deals were signed last year that should also help reverse the downward trend. The most important among them were a $100 million deal to supply Pakistan with transmissions for tanks and a contract with Libya for two AN-124 Ruslan cargo airplanes.
Badrak said arms exports started increasing in 1996 when a number of weapons exporters were consolidated under Ukrspetsexport’s roof.
The figures grew from $148 million in 1997 to $300 million in 1998 and $446 million in 1999, according to Badrak. Most of the growth, however, arrived from a single contract; the $620 million deal to supply 320 Ukrainian tanks to Pakistan, inked in 1996.
He said Ukraine’s prospects as an exporter of weapons will now depend on whether the country manages to keep up with modern technology. He said Ukraine’s best-selling products are anti-aircraft radars, surveillance systems, spare parts for aircraft and armored vehicles.
“In case of favorable developments, Ukraine can exports to $550 million and keep them at that level,” he said. “But if it’s slow to introduce new technologies, the figures will fall to $200-300 million within 3 to 4 years.”
