Stagnation continues in the sale and production of military equipment in the OECD countries and the developing countries. The 100 major arms-producing companies in 1993 had combined arms sales of about $156 billion during the year--6% less than the dollar value of their arms sales during 1992. If all companies were included, the decline would probably be greater.

In the countries of the OECD, industry has by and large been successful in adapting to the reduction in demand for its products by reducing arms production capacity, concentrating or diversifying. In the USA capacity reductions have largely taken the form of mergers and acquisitions. Many US companies have been able to achieve significantly increased profits through rising incomes from divestitures, rationalizations, personnel cuts and other forms of cost reduction. In Europe, with its smaller and more fragmented market, the potential for consolidation is not so great and costs continue to be a severe problem. European armaments cooperation is not proceeding as quickly as anticipated.

Information on the Russian military sector has become available to an extent previously unthinkable, fragmentary and unsatisfactory though some of it is. Dramatic changes have taken place in the military industry as a result of the sharp fall in the defence budgets, a fall in demand for the civilian products of the defence-related industries and the loss of arms export revenues.

Domestic procurement has declined to around one-fifth of the 1991 level, and Russia's share in world arms exports has dropped significantly. Hundreds of defence enterprises are standing still, the defence complex has declined dramatically in the pay hierarchy of industry in general, and close to 2 million jobs were lost from military industry in 1991-94.

Russian Government policy has been reactive--trying to maintain the structure of the defence complex and compensate for losses on the domestic market by promoting exports. However, some signs of an attempt to introduce urgent restructuring and a coordinated national security and defence industrial policy did appear in 1994.

The emerging policy appears to be to obtain state control over a core of the military industry, to restructure sources of finance and to let a large part of the remaining military production facilities close down.

* Appendix 13A contains data on the 100 largest companies in the OECD and developing countries in 1993.