DN - Defence Notes

Dubai Airshow 2017: GCC sets out vision for indigenous defence industries

6th November 2017 - 12:11 GMT | by Alice Budge in London

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The relationship between the Gulf states and the western defence companies that have traditionally provided the region with its military capabilities is changing.

Sustained low oil prices have resulted in growing budget deficits in oil-rich Gulf countries such as Saudi Arabia and Oman, incentivising the diversification of their economies away from a reliance on the oil and gas industry and western imports.

According to the IMF’s regional outlook report, released on 1 November this year, the average Gulf nation deficit has risen from 1.1% of GDP in 2014 to over 10% in 2016.

With oil prices forecast to remain at their current levels of $50 to $60 per barrel, it is no surprise that Saudi Arabia and Abu Dhabi released their 2030 economic visions earlier this year which are blueprints for their economic transformation.

In order to meet the 'vision 2030' target to localise over 50% of defence procurement spending, the Saudi government established the Saudi Arabian Military Industries (SAMI) in May, to spearhead the development of an indigenous defence industry.

Saudi Arabia has focused on embedding terms related to the transfer of technology and skills to the Kingdom within its procurement contracts with the West.

A recent contract between Lockheed Martin and Saudi Arabia, worth $28 billion, included an MoU with SAMI for the parties to work together to build defence capabilities in the Kingdom in support of Vision 2030 and to assist ‘localisation efforts associated with multi-mission surface combatants and aerostats’.

Also included within the contract was an agreement that 150 Black Hawks will be assembled in the country through a joint venture between Lockheed Martin and Taqnia, a state owned investment and technology development company.

However, John Louth, senior research fellow and director for defence, industries and society at RUSI, cautioned that substantial barriers, including cultural differences and a lack of incentives to relocate, continue to stymie the transfer of skills from the west.

While many of the states now have maintenance and repair capabilities, they still lack the skills associated with manufacturing large and complex systems from the design stage through to final assembly.

‘They have the ability to engage with maintenance and repair contracts but they haven’t really got a strong tradition of first base manufacturing,’ he explained to Shephard. 

‘The issue is these are still high skilled technology businesses and they are relatively people intensive… it’s very difficult to transfer skills, it’s very difficult to partner and mentor emerging indigenous talent under those environments.’

Louth, who ran national programmes to develop commercial and defence capabilities across a number of Gulf states, believes that contracts will increasingly be centred around the transfer of skills and technology.

Despite the ambitious targets laid out by Gulf governments for their defence industries, a slowdown or reduction in the level of imports of western defence equipment is unlikely to materialise in the medium to long term.

While the relationship between buyer and supplier may be changing it is not one that western defence companies should be wary of, Louth explained, instead the relationship will become much more about integrated partnering solutions.

‘Rather than fearing competition defence exporters will be partnering with the Gulf states,’ he said.

‘The UAE is not going to develop indigenously… Western businesses will remain the core partner. I think it’s an opportunity rather than a threat.’

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