Of all the industrial and commercial sectors that Saudi Arabia is targeting for development as part of its shift towards a knowledge-based economy, defence is one in which it is particularly well placed to become a global leader. Already the world’s third-biggest defence spender, according to the International Institute for Strategic Studies, the Saudi government is expected to continue investing heavily in the sector regardless of fluctuations in the price of oil. Much of this money will continue to be spent on imports of the latest technology, although a growing emphasis is being placed on developing the country’s indigenous defence companies, often through partnerships with foreign firms and research institutions.
Saudi Arabia does not disclose its defence budget; however, according to the Saudi Arabian Monetary Agency, defence and security spending accounted for 35% of the 2014 budget, which is equivalent to SR302.9bn ($80.7bn). This would represent an increase of 20.6% on the corresponding figure of SR251.2bn ($66.9bn) from 2013, according to Stockholm International Peace Research Institute. In terms of the outlook for 2015, Jadwa Investment predicts that defence and security will remain the largest component of government spending, which is budgeted to rise to SR860bn ($229.2bn) for the year.
“The 2015 national budget was positive as it represents continuity,” Andy Carr, CEO of BAE Systems Saudi Arabia, told OBG. Regarding specifically the defence budget, Carr noted that due to regional tensions he thinks defence spending will likely remain high for the foreseeable future. Indeed, according to consultancy IHS, one out of every seven dollars spent on defence imports in 2015 will be spent by Saudi Arabia, which is predicted to increase its defence imports by 52% year-on-year to $9.8bn in 2015.
This all comes on the back of increased defence imports between 2013 and 2014 of some 54%, which saw the Kingdom overtake India in the process to becoming the world’s largest defence importer.
The fall in oil prices since mid-2014 has had a limited impact on the Saudi defence sector, with some local contractors telling OBG that only a few smaller projects had been delayed. Major contracts with international partners, such as the F-15SA programme, are likely to proceed as planned. Indeed, in 2014 Saudi Arabia was reported to have signed a 14-year contract with the Canadian subsidiary of US defence provider General Dynamics Land Systems worth up to $13bn for 1000 light armoured vehicles and associated equipment, training and support.
Continued investment in defence is partly a reflection of the threats the Kingdom faces from ISIS to its north and instability in Yemen to its south. With these in mind as well as issues further afield, the coming years are likely to see greater emphasis on homeland security in three areas: securing the Kingdom’s northern and southern land borders, counter-terrorism and cybersecurity.
The country’s armed forces consist of the Royal Saudi Land Forces (including Special Forces), Royal Saudi Navy (including Marine Forces), Royal Saudi Air Force (RSAF), Royal Saudi Air Defence Forces, Royal Saudi Strategic Missile Forces and the Saudi Ministry of National Guard (MNG), formerly known as the Saudi Arabian National Guard, which includes a recently inaugurated Air Operations division. In total, Saudi Arabia had approximately 230,000 active frontline personnel, 1095 tanks and 652 aircraft as of 2014.
Much of Saudi Arabia’s defence spending since the 1980s has been directed towards the modernisation of its military hardware, with one of the most significant recent pieces of this process being the $29.4bn deal signed in 2011 to equip the RSAF with F-15SA (Saudi Advanced) fighter jets. The first of these aircraft began flight testing in the US in February 2013 and as of early 2015 was set for imminent delivery to Saudi Arabia.
Under the F-15SA deal Saudi Arabia will purchase 84 new fighters, and a further 70 F-15S fighters already operated by the RSAF will be upgraded to the SA configuration. Deliveries of the F-15SA are scheduled to be concluded by 2019, with conversion kit installations taking place from 2016 onwards.
The F-15SA includes fly-by-wire flight controls, a digital electronic warfare suite, Lockheed Martin’s AN/AAS-42 infrared search and track system, and Raytheon’s APG-63v3 active electronically scanned array radar. The cockpits are designed to be compatible with the joint helmet-mounted cueing system that allows the crew to aim weapons through their helmet visors, while the airframe has two extra wing stations for increased weapons payload capacity.
While air force modernisation continues, Saudi Arabia has also been investing in securing its borders. The first phase of a security barrier along the Kingdom’s northern border was inaugurated in September 2014. The 900-km barrier consists of 78 monitoring towers, eight command centres, 10 mobile surveillance vehicles, 32 rapid-response centres and three rapid intervention squads, which are all connected by a fibre-optic communications network. According to the Saudi Press Agency, 3400 people were being trained to operate the barrier.
This growing interest in border security has created an opportunity for unmanned aerial vehicle (UAV) sales. As Carr explained to OBG, “UAVs can cover a large land area and identify what has changed since the last pass. This is more effective and cheaper than constructing a physical border fence.” Saudi Arabia currently uses Turkish & Chinese Beyond-Line-of-Sight UAVs, but authorities are investigating the procurement of the General Atomics Predator XP since the US Congress authorised it for export in early 2015.
Investment in the latest military hardware from abroad has been accompanied by a growing desire to develop a sophisticated defence industry at home. Two decades ago, Saudi Arabia was near the bottom of the standard hierarchy of defence production, buying sophisticated military systems without being able to operate them, according to the Atlantic Council. Currently, the Kingdom’s state of development in defence industrialisation terms places it somewhere between tiers two and three, where tier one is the highest of five on the Atlantic Council’s scale. This means that Saudi Arabia is already able to copy and reproduce existing technologies and that it is getting closer to producing at or near the technological frontier and being capable of adapting existing technology to meet specific security requirements.
“We should focus on strategic, niche areas, such as producing radar and electronic warfare equipment,” Sami Al Humaidi, CEO of Prince Sultan Advanced Technologies Research Institute, told OBG. “This also important because these sorts of advanced systems are sometimes difficult to access.”
Saudi Arabia’s stated goal of becoming self-sufficient in the defence sector is ambitious, albeit understandable too for reasons of national security, economic diversification, policy independence and military credibility. In a 2014 study, the Atlantic Council assessed this goal to be attainable in numerous areas. The country has already demonstrated progress in the fields of the design, manufacture and modernisation of military vehicles, communication and electronic systems, and drones.
The changing nature of the global defence market should favour Saudi Arabia in its quest for self-sufficiency. Globalisation and developments in IT have made the international defence market more accessible by lowering the scientific and technological barriers that have previously been an obstacle to Saudi Arabia’s participation. In particular, the Atlantic Council identified “new technologies, such as unmanned and communications systems and commercially derived technologies” as offering new entrants such as Saudi Arabia a route into the market.
The development of a domestic defence sector requires a certain level of institutional capacity in order to succeed. To this end, in 2010 the government set about rationalising the process of military industrialisation by creating the Central Committee for Local Industrialisation, which brought together business leaders and defence officials in a bid to reduce delivery times and costs while improving local capabilities.
In 2011 Prince Khalid bin Sultan bin Abdulaziz announced the creation of a new department under the Saudi Armed Forces Command to oversee local industrialisation and the transfer of military technology. This was followed in 2013 by the approval of a new law regulating the General Organisation for Military Industries (GOMI), formerly known as Military Industries Corporation (MIC), an independent body reporting to the minister of defence.
Upon the passing of the law, the Cabinet announced, “The main purpose of MIC shall be to support the national security by creating a sophisticated military industry to meet the needs of all military sectors. The governmental military and security bodies shall give priority to MIC when they intend to purchase their needs of arms, ammunition, equipment, machinery and vehicles as well as services that fall within the organisation’s activities.” In a further sign of government support for the body, a new chairman was appointed in February 2015. By royal decree, Mohamed Al Mady, who was previously head of Saudi Basic Industries Corporation, will now chair GOBI.
Heavy investment by the government in education, particularly in science and technology, has helped create a more attractive research and development (R&D) climate – an essential component of any successful military industrialisation strategy.
A national science and technology policy was adopted in 2003, and the King Abdulaziz City for Science and Technology (KACST) has developed into a leading science agency and research laboratory employing more than 2500 people and drawing researchers and scientists from around the world.
Other institutions designed to bolster Saudi Arabia’s national R&D capabilities include a number of recently created science parks, such as the Riyadh Techno Valley, the Dhahran Techno Valley and the Prince Abdullah bin Abdulaziz Science Park, in addition to King Abdullah University of Science and Technology (KAUST), which was opened in September 2009 with a remit to focus on research.
Tapping Local Research
These investments in R&D have benefitted the defence industry, as demonstrated by some of the partnerships that foreign defence firms have pursued with KACST and other Saudi research organisations. For example, in December 2010 KACST and Boeing agreed to establish a decision support centre in Riyadh to carry out advanced modelling, simulation and analysis work on behalf of aerospace companies in Saudi Arabia.
In September 2014 Boeing opened a research and technology office in partnership with KAUST, with the aim of facilitating industrial collaboration at both the local and international levels. This marks an extension of Boeing’s existing partnership with KAUST, which has taken on work on six major projects in advanced materials, computer modelling, solar power applications and industrial water treatment since its inception in 2009. The new office will be staffed primarily by Saudis and will foster links with members of the KAUST Industrial Cooperation Partnership.
Lockheed Martin also signed a partnership agreement with KACST in February 2013, with the objectives of enhancing job creation and transferring technological expertise to Saudi Arabia, as well as helping the Kingdom to develop its aerospace and commercial sectors more generally. Under the terms of the agreement, Lockheed Martin will train qualified Saudis in fields related to the defence, medical and technological sectors. This partnership is also benefitting Saudi universities by granting their researchers access to Lockheed Martin’s laboratories and the chance to meet with a number of US experts. The partnership with KACST builds on existing agreements Lockheed Martin has with KAUST and Alfaisal University.
These agreements between defence companies and Saudi research institutions are complemented by a growing number of collaborative projects in engineering and defence-related disciplines that are being forged by leading US universities and their Saudi counterparts. For instance, KACST and the Massachusetts Institute of Technology jointly set up the centre for complex engineering systems to improve understanding of such systems and jointly conduct research.
In addition, in June 2014 KACST and Stanford University marked the successful launch of their jointly developed satellite, which is intended to carry out scientific experiments using ultraviolet radiation in space. SaudiSat-4, which was put into orbit by a Ukrainian-designed Dnepr rocket, is the 13th industrial satellite to be launched by Saudi Arabia.
This was followed by the formalisation of KACST’s research relationship with the Stanford Centre of Excellence in Aeronautics and Astronautics in August 2014. Planned collaborative projects under the six-year agreement include research by Prince Turki bin Saud, who holds a PhD in aeronautics from Stanford University and became president of KACST in February 2015, and Stanford professor Brian Cantwell into liquid rocket fuels for satellite applications.
The large international defence contractors active in Saudi Arabia have come to appreciate that it is in their interest to facilitate knowledge transfer and help build up the Kingdom’s aerospace and defence sector. “We wish to align ourselves with Saudi Arabia’s national objectives,” Carr explained to OBG. “This means creating jobs, wealth and paying taxes in Saudi Arabia, which is why training, onshore manufacturing and onshore repair form our strategy.”
Under this strategy, BAE Systems started servicing Typhoon aircraft for the RSAF in Saudi Arabia in 2009. In 2014 the Advanced Electronics Company (AEC), a joint venture (JV) established by BAE Systems under the Economic Offset Programme (EOP), became the first approved Typhoon avionics repair agent outside Europe. The company is now an approved supplier to BAE Systems for two avionics boxes on the Typhoon aircraft, and over the next three years it plans to work with BAE Systems and various other original equipment manufacturers, including Rockwell Collins Deutschland, to transfer the repair capability for a further 35 avionic boxes to Saudi Arabia. This is expected to create more than 120 highly skilled technical jobs for Saudi nationals. Eventually, Carr’s ambition is to be able to support the repair of other countries’ aircraft in the Kingdom too. “The establishment of local manufacturing and in-country maintenance and repair capabilities has been growing in importance given the increasing instability in the region,” Ghassan A Al Shibl, president and CEO of AEC, told OBG.
National Aerospace Champions
The progress Saudi Arabia has made so far in defence industrialisation is exemplified by its clutch of respected national defence companies, which are mostly the products of JVs with foreign contractors under the EOP.
In addition to AEC, which specialises in modern electronics manufacturing, system integration and repair and maintenance services, other national aerospace companies include Alsalam Aircraft Company, which offers aircraft maintenance, modification and technical support services; Aircraft Accessories and Components, which overhauls mechanical, hydraulic, pneumatic, electrical and fuel system components found on aircraft; and the Middle East Propulsion Company, which performs maintenance, repair and operations on propulsion systems.
Alsalam, which was established in 1988 through a JV between Boeing, Saudi Arabian Airlines, Saudi Advanced Industries Corporation, Gulf Investment Corporation and National Investment Corporation, now employs 3500 people, 55% of whom are Saudi nationals. The company primarily services military aircraft, but in recent years has spread into civilian areas, signing maintenance contracts with Saudi Aramco for its C-130 transport planes and Air Atlanta Icelandic for its Boeing 747 aircraft. Alsalam’s major military contract wins include a $145.2m, five-year deal signed in August 2011 with the RSAF for maintenance of its C-130 transport fleet and a $378.4m deal for maintaining the RSAF’s F-15 fighters. Since then, the company has further expanded into the manufacturing of wings for the RSAF’s Boeing F-15S Eagle fighters and upgrading these aircraft to F-15SA standard.
In the field of drone technology, KACST announced in 2013 that it had produced 38 drones named Saker 2, Saker 3 and Saker 4. Abdullah Al Hussan, supervisor of the National Centre for Aviation Technology at KACST, said that these aircraft were manufactured from a combination of fibreglass and carbon fibre and contained logarithmic programmes to enable the aircraft to adapt to changing environmental conditions while flying. The Saker 2 is a medium-sized aircraft designed to carry photography and monitoring equipment with a range of 150 km (extendable to 250 km) and the ability to fly for eight hours at a speed of 120 km per hour and at an altitude of 5000 metres. The Saker 3 is a short-range aircraft made wholly of carbon fibre that weighs just 4.5 kg. It can be launched by hand and can travel 50 km per hour at an altitude of 1000 metres. The larger Saker 4 weighs 25 kg, can carry a load of 5 kg and has a maximum speed of 120 km per hour flying at an altitude of 5000 metres.
Ground systems-focused Saudi defence companies include the Abdallah Al Faris Company for Heavy Industries and Armoured Vehicles and Heavy Equipment Factory, both of which manufacture armoured vehicles, and International Systems Engineering, which offers clients a range of systems engineering, IT and information-based services.
Abdallah Al Faris Company for Heavy Industries is responsible for Saudi Arabia’s first indigenously manufactured armoured infantry fighting vehicle, the eight-wheeled Al Fahd, in addition to the Al Faris 8-400 armoured personnel carrier used by Saudi land forces. The Al Fahd comes in two versions, the AF-40-8-1 armoured personnel carrier and the AF-40-8-2 armoured fighting and reconnaissance vehicle, with the MNG reported to be one of its users.
Meanwhile, the Armoured Vehicles and Heavy Equipment Factory, a subsidiary of Military Industries Corporation, produces the 4x4 light armoured Al Shibl 1 and 2-type vehicles. These are used by the Kingdom’s elite special operations unit, Battalion 85.
Beyond helping to create domestic defence companies under the EOP, foreign defence firms also have an important role to play in the Kingdom’s defence by training their own Saudi staff as well as military personnel. “Approaching 70% of our 5300-strong workforce are Saudi nationals, therefore training and development is a huge focus for the company,” Carr told OBG. One of the challenges identified by Carr is English language ability. This is important in order for Saudi employees to be able to participate in the overseas training and apprenticeship programmes offered by the company. Therefore, English language and specialist technical English courses constitute a significant part of the training given to BAE Systems’ local staff, as is the case with other large defence contractors that are active in the Kingdom.
To improve the effectiveness of training, some defence firms have started experimenting with different teaching styles. For example, one defence contractor involved in training the MNG told OBG that his firm had cut back on the use of PowerPoint presentations in training in favour of group discussions, which they had found to be more culturally effective.
With Saudi Arabia likely to sustain its high levels of investment in defence and security, the Kingdom will continue to be an attractive and competitive market for international companies. Meanwhile, the government’s determination to advance the country’s defence industrialisation and the modernisation of its forces’ equipment means that partnerships with Saudi organisations – be they universities or local defence companies – are likely to become an increasingly common feature of the defence landscape.
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