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IDEX 2017: Middle East market still relevant (video)

16th February 2017 - 05:02 GMT | by Grant Turnbull, Richard Thomas in London

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The Middle East market still maintains its relevance, particularly for Western defence manufacturers, but also for emerging suppliers in China and Russia.

However, low oil prices have affected the region with Saudi Arabia's defence budget plumetting by a whopping 30% in 2016, according to data released this week by the International Institute for Strategic Studies (IISS).

Between 2015 and 2016, Saudi defence spending went from $81.9bn to $56.9bn.

The huge reduction has been attributed to a number of factors not least the fall in revenues that have resulted from low oil prices.

'While national threat perceptions and the requirements of ongoing operations will likely mean that defence still receives significant sums, the fall was nonetheless stark,' said IISS in its 2017 Military Balance, which assesses military capabilities globally.

Saudi Arabia is not alone. Other oil-producing countries in the region have had 'limited fiscal space' to increase defence budgets owing to low oil prices.

Oman's defence budget decreased by 7.9%, Iraq's by 14.6% and Bahrain saw a slight dip at 0.2%.

On the other hand non-oil producing countries have had 'more economic freedom' to dedicate funds to defence and security. Israel saw its defence budget increase 3%, Jordan's increased by 11.1% and Morocco's by 3%.

It is Saudi Arabia's dip, however, that will worry most in the aerospace and defence sector, particularly among those western companies that have enjoyed lucrative contracts with the country to supply aircraft, vehicles and ships to both regular forces and the national guard.

Industry will also have to consider even more change in the coming years as the country looks to reform its defence industry and ultimately localise 50% of defence expenditure under an initiative known as 'Vision 2030'.

Currently, small items such as ammunition and uniforms are produced locally, representing only around 2% of defence spending. Most of its advanced defence equipment is imported from the US, UK and other European countries.

As defence reform advances, pressure will mount on defence companies to alter their current arrangements and potentially enter into offset agreements and joint ventures with local companies.

This means that some major equipment programmes will likely be revisited and required outputs delivered 'in different ways' or with fewer platforms, said IISS.

Nevertheless, the kingdom remains 'by far' the largest spender in the region on military equipment and its recent cuts means that it is now fourth biggest spender behind Russia in overall global standings.

For more information about the IDEX 2017 exhibition visit the Shephard Media show news homepage here.

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