The chairman of Paramount Group, Ivor Ichikowitz, was invited as a key speaker to address the annual gathering of global aerospace leaders in Abu Dhabi on the topic of: ‘Making Defence Affordable’. Here is an extract of Ichikowitz’s question-and-answer session on the first day of the summit:
You have been a vocal proponent of “affordable defence”, which is relevant in the current difficult economic environment. How critical is it for the countries in the Middle East?
At a time when the global economy has huge challenges and at the same time the global security situation is highly compromised, the concept of affordable defence is more relevant to Middle East governments than it has ever been before.
Before the drop in oil prices, most Middle East countries were allocating significant budgets for defence and aerospace, and the focus was on acquiring the most sophisticated equipment possible, irrespective of price.
Today, the situation is completely different. Defence budgets are under pressure at a time when the threat levels are higher than they have been for many years. Governments therefore need to focus on value for money so they can stretch the available budgets as far as possible to meet operational requirements.
How can technological innovation cut defence spending and further economic growth?
Technology and mindset are the key factors in reducing defence spending. Defence equipment tends to be over-engineered, and in many cases, the over-engineering and the time to market results in very costly systems. New technological developments now make it possible to integrate and construct sophisticated defence systems from commercial off-the-shelf components, thus reducing technical risk, time to market and, in turn, reducing cost significantly.
Is it true that technological innovation may reduce employment? If so, what political strategy can make it acceptable to the people at large?
I have been an advocate for using the defence industry as an engine for economic growth, especially in the developing world. I believe that countries should develop their own defence industrial bases and keep defence industry jobs in their own countries.
Paramount has been working with governments around the world to create industrial complexes with the aim to produce defence equipment that will be used in those countries. We call this a policy of portable production. This has worked very well in a number of countries around the world and I truly believe that we now have proof that the defence industry can be an engine for economic growth, and that through appropriate technology development and production, we can create high-value jobs all over the world.
Can the defence industry meet the requirements of current and future customers? How must defence companies adapt their business practices accordingly?
The defence industry is typically dominated by very large corporations that have become oversized and inefficient over the years because of the procurement policies of governments. With increasing budget cuts, more pressure is placed on the defence industry to be a lot more innovative and to find ways to reduce both the cost of developing products as well as the cost of production.
I firmly believe that the current budget crisis is very good for the industry, as it is forcing innovation and forcing the industry to reinvent itself.
Paramount Group has existed in Africa for many years in an environment where budgets have always been low and we always had to innovate to make products affordable for our customers. We are now finding that a lot of our experience is becoming sought after in developed countries.
Describe the importance of strategic partnerships and manufacturing innovation in providing affordable solutions and platforms?
With the security threats being experienced in the world today, countries no longer have time to go through large-scale, long-term development processes to bring product to market. It is now necessary for governments and the private sector to work closely together to transfer technology, establish joint developments and use innovative ways to give governments the best available technology at the lowest possible price. There has never been a better time to form strategic partnerships and alliances than now. The strategic alliances being formed will have the long-term benefit of strengthening the industry.