USSR: IMPLICATIONS OF HIGHER ARMS EXPORT PRICES TO LDCS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000100220002-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 21, 2016
• Document Release Date: September 18, 2008
• Sequence Number: 2
• Publication Date: April 1, 1980
• Content Type: REPORT

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Foreign
Assessment
Center
USSR: Implications of
Higher Arms Export Prices
to LDCs
Secret
ER 80-10212
April 1980
Copy 219
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National
Foreign
Assessment
Center
USSR: Implications of
Higher Arms Export Prices
to LDCs
An Intelligence Assessment
Research for this report was completed
on 8 February 1980.
International Trade and Services
Division, Office of Economic Research. It has been
coordinated with the Office of Strategic Research and
the Resources and Installations Division, Defense
Intelligence Agency. Comments and queries are
welcome and should be directed to the Chief, Trade
and Aid Branch, OER,
Secret
ER 80-10212
April 1980
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Figure 1
USSR- LDC Arms Transactions:
Effect of New Information on Earlier Valuation
Billion US $
Sales
Deliveries
1974 f-
0 2
I
1 Reflects a slight decrease in the
value of deliveries resulting from
the change in the price valuation.
Secret ii
Old estimate
Added by new volume figures
Added by new price estimates
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Key Judgments
USSR: Implications of
Higher Arms Export Prices
to LDCsF--~
Soviet 25X1
ruble export prices for military equipment increased about 70 percent
between 1973 and 1979. Because of changes in the official ruble/dollar
exchange rate during that period, the equivalent dollar prices for the Soviet
equipment also increased, by about 100 percent. 25X1
Use of the new prices{ 25X1
has raised our estimate of the value of Soviet military sales to 25X1
the LDCs during 1974-79 to $34 billion. Our earlier estimate for the period
was $23 billion, or $26 billion if the new information on volume were taken'
into account. The estimated value of deliveries rose to $24 billion, from $19
billion. 25X1
Exports in 1979, totaling about $6.7 billion, and payments due on earlier
arms deliveries contributed to at least $4 billion of hard currency received by
Moscow in 1979 as payment for arms provided LDCs-about 15 percent of
Soviet hard currency earnings in 1979.
The largest change in Soviet export prices between 1973 and 1979 was for
naval craft and ground equipment; the smallest for jet aircraft and missile
launchers.
The new prices bring Soviet charges for arms exports within the range of
prices charged for similar equipment by Western countries. The new prices
also are close to the prices that US firms probably would have to charge for
the same equipment if it were manufactured in this country.
Even though Moscow apparently is quoting higher prices to all its clients, it
continues to make politically based concessions to select customers in the
form of discounts and extended repayment periods.
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Secret
Contents
Key Judgments
Revised Soviet Arms Export Prices
1. USSR-LDC Arms Transactions: Effect of
New Information on Earlier Valuation
2. USSR: Arms Sales and Deliveries to LDCs,
Current and Constant Dollar Costs Compared
USSR: Ruble Prices of Arms Exports
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Secret
USSR: Implications of
Higher Arms Export Prices
to LDCsF--]
con-
firm earlier scattered reports of sizable increases in
Soviet arms export prices since 1973.' The Kremlin's
decision in the mid-1970s to raise its charges for arms
offered to LDCs was influenced by the availability of
Arab oil wealth to most of Moscow's major arms
buyers and the fast-growing and widespread accept-
ance of Soviet arms by LDCs because of Moscow's
willingness to supply sophisticated weapons on short
notice.
The ruble prices for Soviet military equipment,~
are on the average 70 percent
above the old prices; when converted to US dollars, by
use of average annual ruble/dollar exchange rates,
they are about 100 percent higher. Some of the
increase reflects more complete information on Soviet
military trade items and prices, as well as genuine
improvements in the quality of the Soviet weapons. As
shown in table 1, the largest price increases for weapon
systems occurred for naval craft and ground equip-
ment, the smallest for jet fighters-the Soviet's biggest
export ticket item-and missile launchers.
Use of the new information
aises our earlier figure for
the aggregate value of Soviet-LDC arms transactions
in 1974 to 1979 to $34 billion. Our earlier estimate for
the period was $23 billion, or $26 billion
As for
aggregate Soviet arms deliveries in 1974 to 1979, the
price revisions raise the estimate to more than $24
billion, from $19 billion (no adjustments were made in
volume).
'Soviet trade prices are strongly influenced by political and world
market conditions and do not necessarily reflect the actual costs of
producing military goods in the USSR. Therefore, trends in Soviet
USSR: Ruble Prices
of Arms Exports
Index 1977 = 100 25X1
Jet fighter
aircraft
73.6
82.4
91.2
100.0
108.8
116.6
Ground armaments
66.4
77.6
88.8
100.0
111.2
122.4
Naval ships
52.6
68.4
84.2
100.0
115.8
131.6
Missile launchers
85.9
90.6
95.3
100.0
104.7
109.4
Average, all
equipment
68.0
78.6
89.3
100.0
110.7
121.4
If put in real terms-that is, in constant 1973 dollars
(prior to the sharp acceleration of prices)-sales for
the six-year period would be about $23 billion, or $4
billion a year, which is about twice the annual average
for 1970 to 1973. The constant dollar series also shows
that after peaking in 1977, sales failed to regain their
earlier vigor, and deliveries leveled off (see figure 2).
he value of
Soviet military sales to LDCs would have been roughly
one-third more if the same goods had been manufac-
tured and sold by US firms.
by the late 1970s, Soviet prices for many major
export items had risen to-nnd in cnme. inctnnrrc
above-US cost levels
our estimates of Soviet arms exports now
approximate the value of Soviet exports based on US
costs. In 1977, for example, Soviet deliveries valued at
current Soviet trade prices come to $4.7 billion,
compared with $4.2 billion when valued at US costs.
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 Figure 2
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USSR: Arms Sales and Deliveries to LDCs,
Current and Constant Dollar Costs Compared
1 X ~Constant~~
Constant VJ/
We also note that the new Soviet export prices
approximate the export prices for a number of similar
major military end items produced in the West.C
Soviet fighters and medium tanks are
competitively priced with equipment offered by West
European and US manufacturers.
In view of the rise in Soviet export prices for military
items, Moscow's share of the LDC arms market is
roughly the same whether valued in actual prices
charged by the Soviets or in estimated prices that
might be charged if the US manufactured and
exported the same equipment. The USSR, which ranks
a strong second behind the United States in arms sales
to LDCs, had one-fourth of the market in 1974 to
1979. The new estimates raise the value of Soviet arms
sales to LDCs (at actual prices) to about 55 percent of
US sales in 1974 to 1979, compared with previous
estimates of 40 percent. If military-related construc-
tion, logistical support, and technical assistance were
excluded from US sales (not accounted for in Soviet
sales), the value of the Soviet arms program would be
raised to at least 85 percent of US sales for the period.
Ever since the initial increases in world oil prices in
1973/74, the USSR has taken advantage of the
improved financial positions of its own oil-rich clients
and those other arms buyers that receive aid from
OPEC. In addition to charging higher prices, Moscow
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has required hard currency payments from almost all
its arms buyers, resulting in hard currency earnings in
1979 of at least $4 billion-about 15 percent of Soviet
hard currency earnings. These earnings-up from $2
billion to $3 billion in each of the previous two years-
were derived mainly from the cash portion of the $6.7
billion of arms delivered in 1979 (especially to Algeria,
Iraq, and Libya), as well as from payments due on
equipment delivered earlier under credit by less
affluent clients]
Moscow apparently has charged the higher list prices
for sales to all LDC arms customers, making price and
repayment concessions to politically important clients.
These politically-based concessions generally take the
form of large discounts from the list price, especially
for vintage hardware. While they apply less frequently
to advanced weapons-such as T-72 tanks, IL-76 jet
transports, and MI-24 Hind helicopters-Moscow
allows some purchasers of these items longer repay-
ment periods (usually eight to 10 years) and below
market interest rates (as low as 2 percent).
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