Monday, October 22, 2018
Subscription Centre
Receive our free e-newsletter.
Click here for more information

Saudi Arabia turns to South Africa to bolster its defence industry

Saudi defence industry open for businessSaudi Arabia’s military industry is open for business – and hoping to secure South African ventures before the end of this year.

Set up in May last year as part of Crown Prince Muhammed bin Salman’s 2030 project to reform and modernise the kingdom, Saudi Arabian Military Industries (SAMI) began operating this year on a two-pronged mission: to coordinate and combine all existing local Saudi defence companies under its umbrella and to find strategic international joint venture partners.

CEO Dr Andreas Schwer wants to achieve both by the end of this year. He is in Pretoria this week at the tenth iteration of the Africa Aerospace and Defence (AAD) exhibition being held at Waterkloof air force base. The African showpiece is the first international arms fair that SAMI has attended.

“The Crown Prince’s target to us is to be among the top 25 defence players internationally by 2030,” he said. Milestone targets for that date include directly employing 40 000 people in Saudi Arabia, directly contributing $3.7 billion to the kingdom’s GDP and investing $1.6-billion in research and development (R&D).

Combining all the local defence companies under one umbrella, a process which is currently under way in Saudi Arabia, will create an immediate workforce of 8 000 people. The next phase is to announce a raft of key defence joint ventures with international contractors and manufacturers by the end of the year – with the end result being half the kingdom’s defence budget being spent locally by 2030.

SAMI is open to all and any defence projects, from aeronautics to land systems, defence electronics, weapons and missiles. Schwer hopes some of SAMI’s partners will be South African, especially in – but not limited to – missiles, ammunition and optoelectronics. Negotiations have been underway ever since President Cyril Ramaphosa’s visit to the kingdom in July.

“These ventures will be the backbone of our future,” Schwer explained. “Those companies who work with us will get great incentives, but most of all exclusive contracts in the kingdom for decades to come in a country with the fourth biggest defence budget in the world.

“It’s a marriage for life.”

The Saudi defence budget last year was actually the third biggest in the world, according to the Stockholm International Peace Research Institute, which estimates that Saudi Arabia spent $69.4 billion on defence last year, more than Russia at $66.3 billion. China remained in second position spending $228 billion, while the US remained in the lead at $610 billion – more than the next seven countries’ defence budgets put together.

To qualify though for the kind of contracts SAMI envisages, manufacturers will have to properly partner with Saudi companies, sharing local intellectual property and training Saudi personnel so that the next generation of equipment, weaponry or ammunition is jointly developed, not merely produced under licence.

SAMI has already signed memoranda of understanding agreement with Boeing, Lockheed Martin and Russia’s state manufacturer Rosoboronexport.

“We are prepared to invest in South Africa, we will inject cash, we will buy shares but we will expect our partners to share their technology.

“This business model is unique simply because of the sheer size of the Saudi market,” he said.

Nobody else has the same proposition, he said, and is something that he thinks is very important for the South African defence industry.

“We will ensure growth and create jobs here, rather than the current situation which is shrinking.”

On the eve of AAD 2018, Jane’s estimated that while South Africa remained the third biggest defence spender in Africa with a budget of $3.6 billion, behind Algeria ($9.5 billion) and Morocco ($4.8 billion) it would fall to fifth by 2023, pipped by Egypt and Angola.

“Huge multi-billion-dollar contracts have been approved on our side, the money budgeted for and set aside, but now pushed back pending the signing of joint venture partners.”

Schwer intends meeting with defence contractors and manufacturers as well as ministerial representatives to progress the negotiations that have already taken place.

“If we sign agreements, we will set up SAMI offices here with a research and development hub – and duplicate the process in Saudi.

“We don’t take anything out of the country, we merely mirror it. South Africa won’t lose anything from the process, only gain.”

An example, he says, could be South Africa’s missile technology which could be adapted in tandem with SAMI for use on differing aircraft platforms, rendering it a truly international proposition in the global arms trade.

Time though is not standing still.

“We want agreements before the end of this year, otherwise we might lose that window of opportunity.”

 

Company News