Gulf region invests in arms capabilities

Gulf countries have been developing military production capacity through offset programmes. Published in MEED, 21 July 2013

If a GCC soldier ever goes to war, the chances are he will do so riding in the back of a European or US-made tank or armoured personnel carrier. His colleagues in the navy are likely to be patrolling on Western-built ships, while in the air force, they will be flying fighter jets designed and made by UK, French or US companies.

That reliance on Western military technology is unlikely to change any time soon, particularly for large, sophisticated equipment such as fighter jets. Indeed, both the UAE and Qatar are currently considering upgrades to their air forces, which seem likely to boil down to decisions on whether to buy Eurofighter Typhoons made by the UK’s BAE Systems or Rafale jets from France’s Dassault Aviation.

What is certain, however, is that any such deals will include more than just the delivery of the planes themselves. Gulf countries are increasingly keen to add ‘offsets’ to any defence deals, which typically involve elements of technology transfer and training. The aim is to develop a domestic defence industry that will lead to more maintenance being carried out in the region, but also the production of smaller, less sophisticated equipment, ranging from bullets to patrol vessels.

“They’ve got ambitions,” says Douglas Barrie, senior fellow for military aerospace at the London-based International Institute for Strategic Studies (IISS), of the Gulf countries. “It’s one of the things they are looking to try and tie in to any kind of commercial deal they do in buying combat aircraft and weapons systems. They start from a low level, but they have made some progress.”

Offset deals

By common consent, it is the UAE and Saudi Arabia that are the most advanced in the Gulf when it comes to such deals.

The Abu Dhabi government set up its Offset Program Bureau in 1992, renaming it the Tawazun Economic Council in May last year. Any defence deal worth more than $10m over five years must include an offset element, worth at least 60 per cent of the contract value. According to the Office of the US Trade Representative, there is anecdotal evidence that some defence contractors have been able to satisfy their offset obligations by making an up-front, lump-sum payment.

An offshoot of the council, Tawazun Holding, is used to form joint ventures with international firms in defence manufacturing and technology, but also makes investments of its own and has built up an extensive portfolio. Among the companies it has helped to create are Tawazun Dynamics, which develops precision-guided munitions and was set up with Denel Dynamics, South Africa’s largest government-owned defence manufacturer. It has also set up Nimr Automotive to develop armoured personnel carriers and patrol vehicles, and it owns German rifle manufacturer Merkel.

“The UAE has been getting more professional over the past few years,” says John Louth, director for defence, industries and society at the Royal United Services Institute (RUSI), a UK defence think-tank. “It was always pretty good at offsets, but it is much more systematic than some other countries.”

In Saudi Arabia, the offset element is decided on a project by project basis. One of the largest companies involved is BAE, which employs more than 3,000 Saudi nationals at eight sites around the kingdom. The size of its presence in the country is a result of deals such as the multibillion-dollar Al-Yamamah contract signed in 1985, covering the supply of Tornado, Hawk and PC-9 aircraft, and a further deal in 2007 for the supply of Typhoon jets. Among the local partners of the UK firm are Aircraft Accessories & Components, Advanced Electronics Company and International Systems Engineering.

Defence priorities

The defence needs of Gulf countries form only part of the motivation for such initiatives. The joint ventures can also help to build up local skills and experience in industrial production and, as such, can play a role in economic diversification and job creation. For the international partners, the continued enthusiasm for defence spending on the part of oil-rich Arab states represents a valuable line of business at a time when their own governments are often scaling back their spending.

“There’s a general trend in land equipment. Many manufacturers are now looking at making up for the reduction in Western defence spending by sales to other regions, be it South America, the Gulf or Asia,” says Ben Barry, senior fellow for land warfare at IISS. “[They are] increasingly being told by their potential customers we don’t want to just buy your stuff, we also want technology transfer and to build the capability to develop an industry all of our own.”

Alongside the two main markets of the UAE and Saudi Arabia, other Gulf countries have also been getting involved, albeit to a lesser extent and at times in a less structured way.

Kuwait’s offset programme was also set up in 1992, managed by the Finance Ministry. In 2006, the programme was transferred to the then newly created National Offset Company. Any defence contract worth more than KD3m ($10.5m) will involve an offset worth around 35 per cent of the total contract value. As with other offset authorities, it does not just deal with defence projects and has been involved in everything from cement production to media companies, but its initiatives related to defence have included a cyber security project and ship maintenance.

Oman’s offset programme, called the Partnership for Development, is run by the Defence Ministry, but is not applied to all defence contracts. The country already has a small home-grown defence industry. One of the oldest local companies is Muscat-based Engine Engineering Company, which was set up in 1974. It started out making weapon mounts, but has since expanded into light armoured vehicle production and is currently developing prototypes of high-speed boats.

A more recent addition to the scene is Oman Ammunition Production Company, which was set up in January under the chairmanship of Mohammed bin Nasser al-Rasbi, undersecretary of the Defence Ministry. According to the official Oman News Agency, France’s Manufacture de Machines du Haut-Rhin (Manurhin) will be a strategic partner in the project.

There are similar initiatives in the other GCC states. The Nakilat Damen Shipyards in Qatar, for example, is a joint venture between the local Nakilat and Damen Shipyards Group of the Netherlands, and has built a number of coastal patrol boats. In Bahrain, US firm Sprung Instant Structures has a distribution centre for its temporary military structures.

Even with all these deals in place, the domestic production capabilities of GCC countries clearly remain very limited. But while the equipment they are able to produce is relatively unsophisticated, the small arms and armoured vehicles are often the type of equipment most useful when dealing with domestic opposition groups – something that local rulers are ever more nervous about in the wake of the Arab uprisings. Their nascent domestic capabilities has not stopped them from buying more equipment from outside too.

“A lot of the defence equipment going into the GCC states has been for domestic defence and crowd control,” says Joanna Spear, director of the Elliott School’s Security Policy Studies Programme at George Washington University in the US.

Limited capabilities

Other than Israel, the only country in the region with an extensive domestic defence industry is Iran, although it suffers from some significant shortcomings. According to the IISS, Tehran can produce light weapons, military vehicles, anti-tank and anti-ship missiles, heavy artillery rockets, short and medium-range ballistic missiles, drones, light tanks and small naval vessels. However, it is unable to make advanced fighter jets and heavy armour, and the equipment it does produce is of questionable quality.

There was widespread ridicule when the country unveiled what it claimed was a new stealth fighter jet, the Qaher 313, in February. As critics quickly pointed out, the jet looked like a model rather than an actual plane and many questioned whether it could fly at all. Images released since then of the jet purportedly in flight look like they have been digitally manipulated. But a lack of sophistication may not matter.

“Symmetrically speaking, tank for tank or plane for plane, Iran doesn’t compare in any way, shape or form to what is lined up against it,” says David Roberts, director of RUSI Qatar. “But the Iranians are very savvy when it comes to asymmetric warfare. They have the wherewithal to build a lot of small boats and if you have enough, then one will get through and that’s all you need in that sort of asymmetric warfare.”

Beyond the Gulf, other countries in the Middle East have also tried to develop an indigenous defence industry. Jordan, which has traditionally had one of the region’s better regarded armies, has been developing its security sector under the KADDB Investment Group, the commercial arm of the King Abdullah II Design & Development Bureau. Its affiliates include First Armour, Jordan Ammunition Manufacturing & Services, Jordan Light Vehicle Manufacturing, and Terraqueous, which makes boots for military personnel.

To make the most of the evolving skills across the region, it would probably help if there was greater coordination between the armed forces of the Middle East, particularly the GCC countries, which share many of the same security concerns. For now, however, such policies remain limited, not least because the US provides a security umbrella, which effectively removes the need for such cooperation.

“When it comes to military cooperation, the GCC countries will not do that until they have to and they don’t have to because America is here,” says Roberts. “If there was no ultimate guarantor they would be forced to make these decisions, but at the moment they do not have to make difficult decisions where you have to subsume your line of command.”

In the meantime, they will try to ensure that they take on board as much technical know-how as possible because the day may come when they have to rely on their domestic capabilities.