Defence & Security

Middle East defence spending sees downward slide

Military spending around the Middle East has dropped for the third year in a row, according to data from the London-based International Institute for Strategic Studies (IISS). Despite ongoing turmoil in many parts of the region – including civil wars in Libya, Syria, Iraq and Yemen – total spending fell by 3.5 per cent over the past year, from $153.9bn in 2016 to $148.5bn in 2017.

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The Middle East and North Africa are generally seen as one of the least stable parts of the world. Indeed, the Institute for Economics and Peace ranks it the most violent region in its annual Global Peace Index. That’s not surprising, given the civil wars in Iraq, Libya, Syria and Yemen, as well as the insurgency in Egypt’s Sinai Peninsula, intermittent violence in Israel and the neighboring Palestinian Territories, plus the occasional flare-ups in Iran and Saudi Arabia and elsewhere.

Qatar draws US in closer with promise of more defence spending

A combination of deft diplomacy and a willingness to spend heavily on military equipment and training appears to have secured firm US support for Qatar, judging from statements made at the first US-Qatar Strategic Dialogue in Washington on 30 January. The outcome of the meeting – which is destined to become an annual affair – will provide a boost to confidence in Doha as it continues to look for ways to ensure its security in the face of the dispute with the GCC-3 of Bahrain, Saudi Arabia and the UAE, and in the face of President Donald Trump’s ‘bromance’ with the Al-Salman leadership in Riyadh.

Moscow and Washington weaponise their competition for Gulf influence

Rivalry between Russia and United States has gone public with a number of potentially mould-breaking deals
The rivalry for influence across the region between Russia and United States broke out into the open as a series of proposed defence deals emerged in the first half of October. Saudi Arabia has suggested it could buy missile defence systems from both Moscow and Washington, Bahrain says it is also in the market for Russian missile defences and the UAE may be close to breaking from the regional norm for aircraft procurement with a deal to buy Russian fighter jets. It is not the first time Gulf Co-operation Council (GCC) states have shown interest in diversifying their defence equipment supply chains away from the US and European allies, but the developments around missile defences in particular put the issue in a stark spotlight.

The Ten Countries Most Affected By Terrorism

By one measure at least, the world is getting less dangerous. There were 10% fewer deaths from terrorism in 2015 than the year before, according to the latest Global Terrorism Index compiled by the Institute for Economics and Peace (IEP). It was still the second deadliest year on record though, with 29,376 people killed in terrorist attacks.

Military ambitions seen as unrealistic

Published in MEED, 27 September 2016

Riyadh’s target of directing half its military budget to local firms by 2030 is unfeasible, but it will help to develop the sector

By the end of this year, a new aircraft should take to the skies above Saudi Arabia. The Antonov AN-132 is designed to be able to take up to 9.2 tonnes of cargo on short and medium-haul journeys. It will also be able to make mid-air drops of cargo and paratroopers. In aviation terms, it is not breaking any important new ground; it is really just an updated version of the existing AN-32 aircraft, but it still represents an important development for the kingdom.

The AN-132 is being developed by a joint venture of Ukraine’s Antonov Company and two Saudi partners, Taqnia Aeronautics Company and King Abdulaziz City for Science & Technology. It is part of a small defence industry in Saudi Arabia, but it may be a sign of things to come.

Under the recently launched economic masterplan, Vision 2030, the government plans to spend more than half its military procurement budget inside the kingdom by 2030, up from just 2 per cent today. There are many reasons for thinking that is an unrealistic aim, but even if that target is missed the local defence industry is still likely to grow in ambition and ability.

“A host of issues such as corruption, secrecy and exclusionism will challenge Riyadh to advance military industrialisation at a fast pace; technological limitations and a population lacking the necessary skills will also undermine its plans,” says Giorgio Cafiero, CEO of US-based consultancy Gulf State Analytics. “It is more realistic to expect the kingdom to take decades to build a strong defence industry.”

The local industry dates back to 1949, when King Abdulaziz al-Saud issued a decree to set up a weapons and artillery plant. Production began four years later. Despite that heritage of almost 70 years, the government says the defence sector today comprises just seven companies and two research centres.

Their capabilities are limited. The state-owned Military Industries Corporation produces ammunition, bombs and light weapons. It also owns the Armored Vehicles & Heavy Equipment Factory, which manufactures the Al-Shibl light armoured vehicle. Another company, Abdallah Al-Faris Company for Heavy Industries, makes the Al-Fahd armoured vehicle.

Others such as Advanced Electronics Company and International Systems Engineering Company provide information technology (IT) and related services. Like many local defence companies, they were set up under the economic offset programme, in which international firms help to develop local capabilities as part of their awards for defence contracts.

Maintenance is another area where there is some activity. Riyadh-based Middle East Propulsion Company was recently certified to maintain Rolls-Royce T56 turboprop engines, which are used by the Royal Saudi Air Force on its fleet of Lockheed C-130 Hercules transport aircraft. Alsalam Aircraft Company provides maintenance for the Eurofighter Typhoon and another firm, Aircraft Accessories & Components Company, services aircraft components.

The limited extent of the domestic industry along with long-running regional instability means Saudi Arabia spends a vast amount with international defence firms. Riyadh is the third-biggest spender on defence equipment globally, according to the UK-headquartered International Institute for Strategic Studies, with an outlay of $81.9bn in 2015.

Potential benefits

Developing the local defence industry will provide several potential benefits, not least in reducing the amount of overseas spending at a time of lower oil revenues. It also fits in with the wider aims to diversify the economy and create more high-value jobs for locals.

There are even some important strategic security benefits. Having a local manufacturing capability would offer Saudi Arabia some insurance against the potential for its current allies to suspend or cancel orders. Arms sales are intensely political affairs and it is not hard to envisage circumstances in which US or European arms companies are prevented from selling some weapons to a country that is regularly accused of human rights abuses in Yemen and indeed against its own citizens.

For a sign of what is possible, Riyadh only needs to consider how a series of multibillion-dollar deals to sell Boeing F-15 fighter jets to Qatar, Boeing F/A-18E/F Super Hornets to Kuwait and Lockheed Martin F-16 Fighting Falcons to Bahrain have been stalled for more than a year due to political machinations in Washington.

Slim chances

However, the chances of the country meeting its 50 per cent localisation target by 2030 are slim to non-existent, according to analysts. “It’s not going to happen,” says Matthew Hedges, an independent defence analyst. “They don’t have the capabilities in terms of manpower, there isn’t the infrastructure and there isn’t the R&D [research and development] that would enable them to stay ahead of developments. It won’t even get to half of that.”

He suggests the country may be able to localise 10-15 per cent of spending if it focuses on developing its maintenance, repair and overhaul capabilities, and on lower-tech areas such as munitions and light arms. “These are the easiest things to produce and it’s also a way to reduce costs. They’re things they use every day,” adds Hedges.

If Saudi Arabia wants to develop more advanced systems, there will be other stumbling blocks. There are big question marks about how willing other countries will be to share the more advanced technology with Riyadh. In particular, much of the Saudi equipment comes from the US, which is committed to ensuring Israel always has a qualitative edge over its regional enemies.

“Warfare is not getting less complicated,” says another defence industry analyst. “They’ll really struggle to do the complex stuff. The high-end military kit is really expensive, it’s complicated and takes astonishing amounts of R&D. The big-ticket items for the foreseeable future are unlikely to come from Saudi Arabia.”

Saudi military ambitions seen as unrealistic

Published in MEED, 27 September 2016

Riyadh’s target of directing half its military budget to local firms by 2030 is unfeasible, but it will help to develop the sector

By the end of this year, a new aircraft should take to the skies above Saudi Arabia. The Antonov AN-132 is designed to be able to take up to 9.2 tonnes of cargo on short and medium-haul journeys. It will also be able to make mid-air drops of cargo and paratroopers. In aviation terms, it is not breaking any important new ground; it is really just an updated version of the existing AN-32 aircraft, but it still represents an important development for the kingdom.

The AN-132 is being developed by a joint venture of Ukraine’s Antonov Company and two Saudi partners, Taqnia Aeronautics Company and King Abdulaziz City for Science & Technology. It is part of a small defence industry in Saudi Arabia, but it may be a sign of things to come.

Under the recently launched economic masterplan, Vision 2030, the government plans to spend more than half its military procurement budget inside the kingdom by 2030, up from just 2 per cent today. There are many reasons for thinking that is an unrealistic aim, but even if that target is missed the local defence industry is still likely to grow in ambition and ability.

“A host of issues such as corruption, secrecy and exclusionism will challenge Riyadh to advance military industrialisation at a fast pace; technological limitations and a population lacking the necessary skills will also undermine its plans,” says Giorgio Cafiero, CEO of US-based consultancy Gulf State Analytics. “It is more realistic to expect the kingdom to take decades to build a strong defence industry.”

The local industry dates back to 1949, when King Abdulaziz al-Saud issued a decree to set up a weapons and artillery plant. Production began four years later. Despite that heritage of almost 70 years, the government says the defence sector today comprises just seven companies and two research centres.

Their capabilities are limited. The state-owned Military Industries Corporation produces ammunition, bombs and light weapons. It also owns the Armored Vehicles & Heavy Equipment Factory, which manufactures the Al-Shibl light armoured vehicle. Another company, Abdallah Al-Faris Company for Heavy Industries, makes the Al-Fahd armoured vehicle.

Others such as Advanced Electronics Company and International Systems Engineering Company provide information technology (IT) and related services. Like many local defence companies, they were set up under the economic offset programme, in which international firms help to develop local capabilities as part of their awards for defence contracts.

Maintenance is another area where there is some activity. Riyadh-based Middle East Propulsion Company was recently certified to maintain Rolls-Royce T56 turboprop engines, which are used by the Royal Saudi Air Force on its fleet of Lockheed C-130 Hercules transport aircraft. Alsalam Aircraft Company provides maintenance for the Eurofighter Typhoon and another firm, Aircraft Accessories & Components Company, services aircraft components.

The limited extent of the domestic industry along with long-running regional instability means Saudi Arabia spends a vast amount with international defence firms. Riyadh is the third-biggest spender on defence equipment globally, according to the UK-headquartered International Institute for Strategic Studies, with an outlay of $81.9bn in 2015.

Developing the local defence industry will provide several potential benefits, not least in reducing the amount of overseas spending at a time of lower oil revenues. It also fits in with the wider aims to diversify the economy and create more high-value jobs for locals.

There are even some important strategic security benefits. Having a local manufacturing capability would offer Saudi Arabia some insurance against the potential for its current allies to suspend or cancel orders. Arms sales are intensely political affairs and it is not hard to envisage circumstances in which US or European arms companies are prevented from selling some weapons to a country that is regularly accused of human rights abuses in Yemen and indeed against its own citizens.

For a sign of what is possible, Riyadh only needs to consider how a series of multibillion-dollar deals to sell Boeing F-15 fighter jets to Qatar, Boeing F/A-18E/F Super Hornets to Kuwait and Lockheed Martin F-16 Fighting Falcons to Bahrain have been stalled for more than a year due to political machinations in Washington.

Slim chances

However, the chances of the country meeting its 50 per cent localisation target by 2030 are slim to non-existent, according to analysts. “It’s not going to happen,” says Matthew Hedges, an independent defence analyst. “They don’t have the capabilities in terms of manpower, there isn’t the infrastructure and there isn’t the R&D [research and development] that would enable them to stay ahead of developments. It won’t even get to half of that.”

He suggests the country may be able to localise 10-15 per cent of spending if it focuses on developing its maintenance, repair and overhaul capabilities, and on lower-tech areas such as munitions and light arms. “These are the easiest things to produce and it’s also a way to reduce costs. They’re things they use every day,” adds Hedges.

If Saudi Arabia wants to develop more advanced systems, there will be other stumbling blocks. There are big question marks about how willing other countries will be to share the more advanced technology with Riyadh. In particular, much of the Saudi equipment comes from the US, which is committed to ensuring Israel always has a qualitative edge over its regional enemies.

“Warfare is not getting less complicated,” says another defence industry analyst. “They’ll really struggle to do the complex stuff. The high-end military kit is really expensive, it’s complicated and takes astonishing amounts of R&D. The big-ticket items for the foreseeable future are unlikely to come from Saudi Arabia.”

Brussels shows that terrorism can dent an economy but rarely destroy it

Published in Quartz, 1 April 2016

The aftermath of terrorist attacks has become a depressingly familiar scene in Europe. Sirens from emergency vehicles pierce the air. Police cordon off roads that run through the city center, and soldiers man the checkpoints.

After the sirens have fallen silent and the television crews have moved on, the effects of these attacks linger. Along with the toll of the dead and injured, the local economy frequently takes a hit. Flights are cancelled, meetings postponed, and holidays put off. In the aftermath of the terrorist attacks that claimed 32 victims in Brussels on Mar. 22, many in the Belgian capital are wondering how long it will take for life to return to normal.

If the other European cities to face terrorist attacks in recent years are any indication, Brussels’ chances of recovery are good.

“If you look at the experiences of other countries, after the London or Madrid attacks, you see the impact on the overall economy in the longer term is very limited,” says Bart Van Craeynest, chief economist at Belgian consultancy Econopolis. “The only examples where it can really destroy your economy is if it becomes a long-term campaign where you have several attacks following each other.”

Brussels has dealt with terrorism before. In May 2014, four people died after an attack on the Jewish Museum of Belgium. And last November, the city was put under a three-day lockdown as the authorities searched for people linked to the Paris attacks. But it’s still nowhere close to the position of, say, Northern Ireland in the 1970s, when paramilitary activity was at its height.

Brussels authorities’ reactions to the terrorist attacks seem to be evolving. In November, restaurants, cinemas, art galleries and schools all closed their doors. Soldiers patrolled the main shopping areas and military vehicles watched over prominent junctions, guns poking out of their roofs.

This time, after bombings at the Brussels airport and the Maelbeek metro station, businesses in the city did not shut down completely. Brussels’ metro, tram and bus networks all shut down, and its main art gallery, the Bozar, closed its doors. But bistros and bars kept on serving. In the European Quarter, the location of the Maelbeek metro attack, people were asked to stay inside during the day. But by the evening, an everyday atmosphere had begun to return, with rush-hour traffic backing up at junctions as usual. The next day, more people worked from home, but regular events like the weekly food market in Place du Châtelain operated as normal.

“It’s been remarkable. In terms of people getting on with their day-to-day lives it has been rather quick,” says Fabian Zuleeg, chief economist at the European Policy Centre, a Brussels think-tank.

The soldiers remain a high-profile presence, however, with far tighter security at key sites like the Gare du Midi train station, where high-speed trains shuttle travelers to and from London, Paris and Cologne. A heavy security presence may unnerve some visitors. But the economic case for Brussels as a site for business travel remains in place.

“The situation of Brussels as the de facto capital of the European Union but also as a logistics center in the middle of Europe means it is still attractive to companies,” adds Zuleeg. “I’m not expecting this to change.”

Data on business confidence and overall economic activity for the fourth quarter of last year from the National Bank of Belgium, the country’s central bank, suggests his predictions will be proven right. There was no noticeable impact on Brussels as a result of the November lockdown, and there is little reason to suppose the events of March 22 will prove much different.

There will be a short-term drop in visitor numbers, however, not least because the city’s main airport remains closed. Market research firm Euromonitor says visitor numbers could fall by 20% in the short term, but almost everyone expects a recovery before long. “Most of the activity has just been postponed and you will get it back later on,” says Van Craeynest.

In the meantime, the Brussels stock market offers an indication of how the city’s citizens and its economy are coping. The old Bourse building quickly became the centre of public commemoration, with messages remembering the victims chalked on the sidewalk outside. The site was briefly raided by right-wing hooligans on March 27, before police reasserted control with water cannon. The stock market itself dropped sharply on the morning of March 22, but recovered all its lost ground within an hour.

On the same day as the attacks, a long-scheduled seminar on jihadi radicalization happened to be underway at the EPC, on the edge of the European Quarter. Just before the seminar began, this reporter overheard a short conversation between two of the participants. “Were you afraid?” one woman asked a colleague, referring to the news of the bombings. “Me? No, I’m from Bamako,” he replied.

The exchange puts the attacks in perspective. While the events were a shock to Brussels, many other cities and countries suffer with far greater frequency. The Institute for Economics & Peace notes that just 2.6% of all terrorist deaths since 2000 have been in the West.

Indeed, just five days after the Brussels blasts, 69 people were killed by a Taliban attack in the Pakistani city of Lahore. But that didn’t stop the Asian Development Bank from releasing a report on Pakistan’s economy on March 30 forecasting an acceleration in economic growth this year. Terrorists may wield some power. But they inevitably lose in the face of cities’ resilience.

Region’s growth in military spending slows

Published in MEED, 21 February 2016

GCC military budgets are under pressure, but fears over a resurgent Iran may prompt higher spending

The wars around the Middle East are causing unprecedented suffering for the people of Syria, Yemen and Libya. They are also testing the abilities of the region’s armed forces like never before.

After years of pouring billions of dollars into their military machines during the oil boom, governments in the Gulf and elsewhere are now starting to discover whether all that money was well spent.

A Saudi-led coalition is fighting against Houthi rebels in Yemen from the air and GCC troops have been deployed on the ground, leading to a significant number of deaths of service personnel.

At the same time, many of the GCC states have been involved in the Syrian war too. For now that has been restricted to helping the US-led air campaign and providing funds and weaponry for rebel groups, but there has been speculation that Riyadh might place troops onto the ground there too.

All this is coming at a time when military budgets are coming under pressure from the sharp drop in government revenues as a result of low oil prices. While there has been plenty of discussion about cutbacks to capital spending programmes in Saudi Arabia and the lifting of fuel subsidies in the UAE, less has been reported about the impact that the tighter fiscal environment is having on their armed forces. Yet the signs are that here too governments are taking a more cautious approach.

By some measures, the amount being committed to military spending is still increasing. According to the International Institute for Strategic Studies (IISS), a London-based think-tank, defence budgets across the Middle East accounted for 6.5 per cent of regional gross domestic product (GDP) in 2015. That marks a slight rise on the 6 per cent figure for the year before, although the difference is at least partly explained by military budgets holding steady at a time of declining GDP for oil exporters.

Overall, the growth rate of spending decelerated last year, in spite of the costs involved in the operations in Syria, Yemen and elsewhere. IISS says that regional defence spending rose by 1.2 per cent in 2015, after taking into account inflation and exchange rate changes.

In dollar terms the amount actually fell, from $212bn in 2014 to $205bn last year, as a result of the fall in value of some of the region’s currencies against the dollar. Figures come with a significant health warning, though, given the secrecy surrounding military budgets in most countries.

The Middle East is getting harder to assess and to estimate the spending,” says Giri Rajendran, research associate for defence and economics at IISS. “There are more countries in turmoil which means budgetary documentation is getting poorer. Our estimate is that, from the Arab Spring in 2011 until 2014 spending was increasing at about 10 per cent per annum. Last year in 2015 we think it decelerated quite considerably to 1 or 2 per cent [growth].”

Overall spending in the region is still dominated by Saudi Arabia, which has the third largest defence budget in the world, behind only the US and China.

Riyadh’s $81.9bn outlay is now equivalent to 13 per cent of the country’s GDP and makes up 42 per cent of the total military spend across the entire Middle East and North Africa (Mena) region.

The next largest military spending programme is Iraq’s, at $21.1bn, followed by Israel with $18.6bn and Algeria with $10.8bn. Among the remaining GCC states, the biggest spenders are the UAE and Oman.

One country which is likely to be eyeing an increase in military spending in the years ahead is Iran. Secondary economic sanctions imposed on the country as a result of its nuclear programme were lifted in January, in the wake of the implementation of the Joint Comprehensive Plan of Action (JCPOA) with the EU, US, Russia and others.

Some sanctions remain, however, notably on the sale of military weapons. These will remain in place for a further five years in the case of conventional arms and for eight years in the case of ballistic missiles and related technology.

Nonetheless, the clock is counting down and Tehran can at least look ahead to a time when it will be able to start modernising its creaking air force, navy and army, which have been struggling with obsolete equipment for many years.

“A considerable proportion of Iran’s inventory is so old that it can be considered obsolete,” says John Chipman, director general of IISS.

“Most of Iran’s front-line combat airpower dates back to the 1970s and [is] kept in service by a combination of local maintenance skills and parts bought on the grey market. The same goes for land and naval forces, with the T-54/55 and Chieftain main battle tanks, and the Alvand-class corvettes among those showing their age.”

Despite the limitations of its outdated equipment, Iran continues to be actively involved in projecting its political and military power around the region, most notably in Syria and Iraq. Saudi Arabia has also been flexing its military muscle, although it has relatively little to show for its year-long operation in Yemen, with no decisive weakening of the Houthi forces it is battling against.

The danger is that, as Iran starts to invest in its armed forces once again, the GCC states will feel compelled to act, potentially setting off an arms race in the Gulf, with the US and Europe supplying their GCC allies and Russia and China selling their skills and technology to Iran.

It could also prompt the GCC states to finally start cooperating more closely with each other, as the US has long been urging them to do.

“Previously, Gulf states assumed that they would retain a qualitative edge over Iran. If Iran re-arms, this assumption may no longer hold,” says Chipman.

“While the US has exhorted Gulf states to better coordinate these capabilities, the US still remains at the hub of regional missile defence. If Iran re-arms, this may spur greater cooperation among GCC states, building on the military ties now seen in Yemen.”

Military spending may have decelerated over the past year, but it seems that the trend could well be a short-lived one.