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Abu Dhabi, UAESaturday 23 March 2019

Sergey Chemezov has big ambitions for Russia’s Rostec

The chief executive of Rostec is ready to tap the defence budgets of the UAE, Saudi Arabia and other regional economies as the Kremlin seeks to increase its sphere of influence in the Gulf – but he also hopes the Trump administration means business
Sergey Chemezov, Rostec’s chief executive, controls an empire that includes Russian military icons from the Kalashnikov assault rifle to the MiG fighter jet – both of which form part of his plan to increase Russian arms sales to the Arabian Gulf states. Mona Al Marzooqi / The National
Sergey Chemezov, Rostec’s chief executive, controls an empire that includes Russian military icons from the Kalashnikov assault rifle to the MiG fighter jet – both of which form part of his plan to increase Russian arms sales to the Arabian Gulf states. Mona Al Marzooqi / The National

Sergey Chemezov is Siberia serious most of the time.

But the solemn face of a key cog in Russia’s military machine very occasionally cracks into a mischievous grin – especially when asked about Donald Trump.

“He represents big business,” he says. “I hope very much economic reason will prevail.”

In representing big business, the US president has something in common with the 64-year-old chief executive of Rostec.

Mr Chemezov – who once shared an apartment in East Germany in the 1980s with a then-young KBG agent called Vladimir Putin – is in charge of a sprawling military conglomerate of 700 companies with sales of more than 1.3 trillion roubles (Dh81.5 billion).

He controls an empire that includes Russian military icons from the Kalashnikov assault rifle to the MiG fighter jet – both of which form part of his plan to increase Russian arms sales to the Arabian Gulf states in competition with the big US military contractors who have dominated the market for ­decades.

He wants Rostec to be among the world’s top five biggest military companies within a decade, brushing cockpits and turrets with the likes of Lockheed Martin and Boeing.

Tapping into the defence budgets of Saudi Arabia, the UAE and other regional economies will help him achieve that position by 2025.

“I think it is doable for us,” he says in an interview at the Idex defence show in Abu Dhabi last month, where some of the best of Russian military hardware was on display.

Boosting arms exports is a key foreign policy objective of Moscow as a way of rivalling US hegemony while at the same time generating foreign revenue to support its economy that has been battered by three years of Western sanctions.

As the Kremlin seeks to increase its sphere of influence in the Gulf, which is complicated by its support for the Assad regime in Syria and through its economic ties with Iran, it is also awaiting signals from the new White House administration – which continues to be harried by questions about whether Russian hackers influenced the US presidential election outcome.

He dismisses that suggestion as “insane” and “crazy”.

“It is just an attempt by the Democrats to justify their own defeat,” he says.

However, a US congressional committee agreed on Wednesday to investigate allegations of Russian interference in the election.

While Mr Trump’s approval ratings may be at a record low for a new president, more than 70 per cent of Russians believe he will be a competent leader according to a recent poll from VTSIOM, a state-run research body.

Such popularity came across in private conversations with some Russian visitors to Idex.

Born in 1952 in the southern Siberian mining town of Cheremkhovo, Mr Chemezov spent his early career in industry and later worked with Mr Putin in East Germany during the latter years of the Cold War.

As one of the Russian president’s inner circle, he and his company were the target of Western sanctions following Russia’s annexation of Crimea and the outbreak of fighting in eastern Ukraine.

Three years on from the introduction of sanctions, he says he hopes “business reason and economic expediency will prevail” in the new US administration.

He highlights the connections of Rex Tillerson, Mr Trump’s secretary of state, who as chief executive of Exxon Mobil had close ties with Russian oil company Rosneft.

He also emphasises the commercial ties with major US corporations such as Boeing, a big buyer of Russian titanium – used extensively in the Dreamliner aircraft.

“We produce one third of total production of titanium in the world,” he says.

“If they say tomorrow, sorry we are not buying anything from you, that would mean the closure of Boeing and Airbus. I am just mentioning the majors here but of course there are many more minor companies.”

The message is clear: you can impose sanctions on us, but you also need us.

At home he is steering a massive privatisation programme and spearheading a sales drive in the Gulf that Russia is now courting.

During his visit to Abu Dhabi last month he revealed an initial plan to jointly develop a fifth generation light fighter aircraft with the UAE as well as the potential sale of Sukhoi Su-35 fighter jets.

He wants to transform Rostec’s corporations, about 700 of them, many of which were loss-making Soviet-era throwbacks, into a profitable and integrated operation. The strategy is a simple one – sell what can be sold without compromising national security.

“As for the assets we keep in Rostec, we are not planning to keep them forever under the auspices of the state,” he says. “Whatever is possible to sell without any detriment to the state security, we will. Civil production will definitely be sold.”

Kalashnikov, the company’s most famous brand, is one Rostec unit that has been earmarked for greater private-­sector ownership. The company is also considering establishing a factory to make the world’s most popular assault rifle in either Saudi Arabia or the UAE.

It is almost 10 years since Rostec was formed with Mr Chemezov as its head, scooping up military and industrial assets from across the country.

“All of those companies were in a financial fight,” he says. “Many of them were almost bankrupt. When we did our first consolidated budget our loss was 61bn roubles.”

Rostec has not yet reported its 2016 earnings. However, he reveals that revenues are expected to be about 1.3tn roubles with profit in the range of 70bn to 80bn roubles. The final figures are expected next month.

The conglomerate is now targeting annual growth of 17 per cent, with the battlefields of the Middle East expected to play a significant part in that growth.

While Western sanctions do not represent an impediment to Rostec’s sales in the region, they do in the West.

The latest investigation into claims of Russian hacking during the presidential elections by the US House intelligence committee means the president will soon need to make a choice as the new relationship with the Kremlin is defined.

Mr Chemezov hopes that business and not politics will mould it. “We don’t know how friendly he is as he hasn’t come to Russia yet,” he says. “But he belongs to big business and he represents big business so he should be interested in the development of the relationship with Russia.”

scronin@thenational.ae

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Updated: March 2, 2017 04:00 AM

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