With one of the highest military spends worldwide, Saudi Arabia is in the midst of restructuring its defence sector and expanding its military industry to greater higher added value can be generated for the national economy. The sector has witnessed significant change over recent years, with major reforms under way across all subsectors of the industry. Recent trends have included the introduction of new government entities to lead the drive for localisation, a new defence contracting mechanism and a growing focus on areas such as cybersecurity, and the Kingdom’s space programme and satellite industry. The shock of the 2019 attack on the country’s Abqaiq and Khurais oil facilities brought a renewed focus to the defence sector, placing it at forefront the country’s priorities. Meanwhile, the new impetus towards localising military expenditure represents a core ambition of the country’s Vision 2030 development strategy and stands to bring enormous economic benefits in terms of employment and technology transfer.
Saudi Arabia’s defence forces include a number of branches operating under different ministries. The Ministry of Defence (MoD) is responsible for administering the largest military bodies, including the Royal Saudi Land Army (RSLA), the Royal Saudi Air Force (RSAF), the Royal Saudi Naval Forces (RSNF), the Royal Saudi Air Defence Forces (RSADF) and the Royal Saudi Strategic Missiles Force (RSSMF). Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud currently serves as the country’s minister of defence. In addition to MoD forces, the Saudi Arabia National Guard (SANG) operates as a separate entity under its own ministry, while the Ministry of the Interior (MoI) administers the Kingdom’s border guard. Furthermore, in 2017 a new body, the Presidency of the State Security, was established to administer the country’s counterterrorism and domestic intelligence services.
Saudi Arabia’s armed forces are not configured as an international expeditionary force, but instead trained to defend the country from regional and internal threats. The latest publicly available data from the International Institute of Strategic Studies estimates that the country’s forces totalled 277,000 personnel in 2015. This included 75,000 in the RSLA, 20,000 in the RSAF, 13,500 in the RSNF, 2500 in the RSSMF and 100,000 members of SANG. As part of Vision 2030, the government is seeking to integrate the MoD’s five armed forces under a joint operational command, with this deemed to be a key aspect of the organisation of effective armed forces. These efforts are being overseen by the a team within the MoD, under the leadership of Khaled Biyari, the assistant minister of defence since early 2018.
In September 2019 parts of the country’s critical oil infrastructure were attacked in drone and missile strikes. It has been speculated that these incursions were linked to Iran or Houthi fighters in neighbouring Yemen. Both the Abqaiq crude processing facility and nearby Khurais oil field were hit in the assault. This brought a renewed commitment from Saudi Arabia’s partners to help strengthen the country’s air defence infrastructure. New systems will serve to protect against low-altitude objects with small radar signatures, the characteristics of drone swarms and cruise missiles.
In December 2019 Saudi Arabia announced that $48.5bn, or 18% of its 2020 budget, would be allocated towards military spending. Saudi Arabia’s official defence spending figures do not reflect off-budget purchases, and as such, actual spending is generally substantially higher. According to the latest available data from the Stockholm International Peace Research Institute (SIPRI), Saudi Arabia’s military expenditure in 2018 was estimated at $67.6bn, or 24.6% of total government expenditure. This positioned the country as the world’s third-largest military spender, behind only the US and China. Furthermore, this figure placed the Kingdom far ahead of any other country in the Middle East in terms of expenditure on defence and security, with Turkey spending $19bn in the same year, Israel spending $15.9bn and Iran spending $13.2bn. Within the GCC, spending by the UAE is not disclosed, but Kuwait, Oman and Bahrain spent $7.3bn, $6.7bn and $1.4bn.
The amount budgeted for 2020 represents a 5% decline from the $51bn allocated in 2019. This places the sector second to education, which received 19% ($51.5bn) of the budget, while health received the third-largest share, at 16% ($44.5bn). This decrease forms part of a broader attempts at fiscal consolidation in Saudi Arabia. The 2014 fall in international oil prices, coupled with the introduction of Vision 2030 – which emphasises a shift away from a public investment-driven development model – brought a renewed focus on reducing unwarranted expenditure across all government ministries. In the defence sector this has encouraged a realignment of where money is allocated, with a greater emphasis on administrative efficiency and smart spending.
Saud Arabia’s military spending has fluctuated considerably over recent years, with these shifts largely taking place in line with changing revenue from oil exports. According to the SIPRI Military Expenditure Database, the country saw a continuous annual increase in military expenditure between 2008 and 2015, growing by 76.7% over that period to reach $87.2bn. However, following the fall in international oil prices that began in 2014, military expenditure decreased by 28.4% in 2016, before rising 11.5% the following year in line with the recovery of international oil prices and falling again by 6.5% in 2018. In terms of GDP, military expenditure was equivalent to 8.8% in 2018, down from 10.3% in 2017 and below a peak of 13.3% in 2015. Nevertheless, this figure was still above the average for other major international military powers, with the top-15 countries in terms of military expenditure having an average level of spending of 4% of GDP in 2018. Furthermore, the country’s per capita expenditure on the armed forces ranked the highest in the world in 2018 at around $2013 per person.
The announcement of reduced military spending in the 2020 budget comes at a time in which the government is seeking to consolidate its fiscal position in anticipation a projected decline in state revenue. In December 2019 the government forecast that total revenue for 2020 would reach approximately $222bn, down from an estimated $244.5bn in 2019. However, the dramatic fall in international oil prices in early 2020, following the impact on demand brought about by the global Covid-19 outbreak, is likely to weigh further on this projection. Nevertheless, while increased pressure on funding is a likely result of the economic impact of the worldwide pandemic, military spending will likely remain a core priority of the Saudi government, given the high strategic importance of the sector.
According to the SIPRI Arms Transfer Database, Saudi Arabia was the world’s largest arms importer in 2015-19, accounting for 12% of global arms imports. This represented a 130% increase on the previous five years. During that period the US and the UK were the Kingdom’s leading sources of imports, accounting for 73% and 13% of total arms imports, respectively. This was followed by France, which was responsible for 4.3% of imports and Spain for 1.7%. Canada and Germany each supplied 1.6%, while Italy, Switzerland and China supplied 1.3%, 1.1% and 0.9%. These dynamics reflect some notable shifts compared to the preceding 2010-14 period. Chief among them, the share of imports from the US increased dramatically, rising from 41%, while those from the UK fell steadily from 33%. At the same time, the share of other leading arms exporters declined, with France being responsible for 5.5% of imports in 2010-14, followed by Spain (5.1%), Germany (4%), Switzerland (2.1%) and Canada (2%). In a similar pattern, in 2010-14 imports from Turkey represented 2.3% while in 2015-19 they were 0.6%, while those from the Netherlands declined from 1.1% to 0.1% and those from Sweden fell from 2.2% to virtually zero. Conversely, arms imports from both Italy and China increased from 0.2% and 0.4% respectively in 2010-14.
The US remains the world’s largest arms exporter, with its share of the global export trade rising by 36% between 2015 and 2019. Saudi Arabia remains the most important client for the US, representing 24.5% of US arms exports in 2015-19. The UK stood as the world’s sixth-largest arms exporter in the same period, accounting for 3.7% of worldwide arms exports. Saudi Arabia was the largest importer of arms from the country in 2015-19, accounting for 40.9% of the UK’s total arms exports. However sales each year declined significantly throughout that period from a particularly high point in 2015.
Notable sales of military hardware from the US to Saudi Arabia included the delivery of 23 Patriot PAC-3 air and missile defence systems between 2014 and 2018 as part of a $1.7bn deal signed in 2011 with US firm Raytheon. Furthermore, in 2016 the US delivered 154 Boeing F-15SA combat aircraft, following the signing of a $29.4bn contract in 2011. In 2018 saw Saudi Arabia order seven THAAD missile interceptor systems from the US defence giant Lockheed Martin, as part of a $15bn deal approved in 2017. The THAAD system is fully interoperable with Raytheon’s Patriot system, creating an integrated defence infrastructure.
Meanwhile, the UK delivered 72 Typhoon combat aircraft between 2009 and 2017 as part of a £4.4bn deal with the aerospace firm BAE Systems, inked in 2007. The contract is expected to be worth £20bn over the lifetime of the aircraft. In 2018 a memorandum of intent was signed indicating plans to purchase 48 more Typhoon under a potential £10bn deal. However, the deal has since been put on hold pending the approval of BAE-linked companies operating in Germany. Other important sales included 338 tanks from the US between 2014 and 2018, and over 4000 armoured vehicles across the same period. The latter were sourced from a range of international import markets including Austria, Canada, France, Georgia, South Africa and Turkey.
As part of its Vision 2030 strategy, the Kingdom is seeking to significantly expand its domestic industrial base for defence hardware and localise over 50% of its military equipment spending by 2030. This marks an ambitious expansion on its 2019 level, when it stood at between 2% and 5%, according to government sources. In order to support this effort, the government established two new entities in 2017. The first is the General Authority for Military Industries (GAMI), a financially and administratively independent entity chaired by Crown Prince Mohammed bin Salman. GAMI’s core responsibilities include ensuring localisation goals are met, promoting military spending efficiency, and developing the industry through centralised research and development (R&D). The body has identified 11 initial priority sectors for localisation, including defence electronics, guided munitions, missiles and launchers, and unmanned aerial vehicles. GAMI has also been tasked with developing a regulatory framework to support the localisation of investment, procurement and R&D, in addition to increasing transparency.
The second, Saudi Arabian Military Industries (SAMI), is a national holding company for domestic military manufacturing, which is 100% owned by the Public Investment Fund (PIF). SAMI is targeting the development of new and existing local industries with the aim of developing new technologies, manufacturing products and providing services to scale up the military industrial sector. It has four main units: aeronautics, land systems, weapons and missiles, and defence electronics. The government aims to grow SAMI to become one of the top-25 military industrial companies in the world by 2030. SAMI plans to achieve these objectives by acquiring existing Saudi defence firms and pursuing joint ventures with the industry’s leading international original equipment manufacturers. In addition to SAMI, a range of domestic, privately owned companies are expected to contribute to localisation include GDC Middle East, The Helicopter Company and the Saudi Rotorcraft Support Company.
“In order to achieve the Vision 2030 target of localising 50% of military expenditure, three main components will be key,” Muneer Bakhsh, CEO of GDC Middle East, a PIF aerospace company, told OBG. “These are ensuring the steady supply of raw materials, building a qualified workforce, and enabling the transfer of technology and knowledge.”
In common with other rapidly developing countries, cybersecurity has become an area of growing focus for Saudi Arabia (see ICT chapter). The most high-profile cyberattack occurred in 2012, when the Shamoon virus shut down Saudi Aramco’s computer systems. In January 2017 the Ministry of Labour was hit by a cyberattack, though no data was breached, and Sadara Chemical experienced network disruption. In addition, in October 2018 UK media reported that Russian hackers were believed to be behind an August 2017 explosion, targeting an emergency shutdown system that was supplied by French firm Schneider Electric. These digital attacks form part of a broader global trend, with the World Economic Forum (WEF) estimating that the cost of cybercrime could rise to $6trn by 2021. The rise of new disruptive technologies is providing fertile ground for cybercrime, with attacks on internet of things-enabled devices up 300% in the first half of 2019, according to the WEF.
In order to address these challenges, the government announced the establishment of the National Cybersecurity Authority (NCA) in October 2017. The board of directors includes the president of state security, the chairman of general intelligence, the deputy minister of the interior and the assistant minister of defence. The mandate of the new body is to develop policies, mechanisms, standards and regulations to protect networks, systems and electronic data including national infrastructure. In October 2018 the NCA issued a core cybersecurity controls document outlining minimum standards for public and private sector entities. Concurrently, the Ministry of Communications and IT published a cybersecurity threat report in 2018 stating that the Kingdom had been exposed to terrorist cyber-warfare, which had aimed to disrupt vital services in the country. The report stated that in the fourth quarter of 2017, 48% of cyber-attacks had targeted government entities, with the energy sector in the crosshairs of 15% of attacks followed by telecoms with 11%.
In order to adequately address the challenges posed by cybersecurity, the government has recognised the need to attract both increased investment and international expertise. In September 2019 the recently founded Prince Mohammed bin Salman College of Cybersecurity, Artificial Intelligence and Advanced Technologies signed a memorandum of understanding with BAE Systems. The agreement aims to advance cybersecurity and artificial intelligence training for Saudi military personnel in addition to fostering technical cooperation. This follows an earlier partnership signed in July 2018 with US advisory firm IronNet Cybersecurity to develop educational programmes on different aspects of cyber-defence.
In addition, the Kingdom hosted the first Global Cybersecurity Forum in Riyadh in February 2020. With 1200 delegates and over 100 speakers, the conference brought together both private sector stakeholders and governments to discuss the development of greater capacity to manage and combat the challenges posed by cyber-attacks. It also sought to facilitate the discussion of the investment opportunities created within the growing international cybersecurity industry. To further develop its capabilities to withstand cyber-attacks, the Saudi defence sector is also fostering partnerships with domestic technology firms. For example, local ICT contractor International Systems Engineering is currently working with the armed forces to develop an ICT modernisation and cybersecurity roadmap for the entire defence sector.
As the country targets the development of advanced manufacturing, the aerospace sector is being viewed as a major area for growth. In 2018 Saudi Arabia began tapping into the lucrative composite materials market for aircraft manufacturing. As part of an aeronautics programme led by the Saudi Technology Development and Investment Company, a new factory was established to manufacture aircraft components using the materials, which is expected to begin production in 2020. The new plant is a wholly owned Saudi venture that will be capable of making components for fixed-wing and rotary-wing civilian and military aircraft, as well as unmanned aerial vehicles. The project is being developed with technical support from King Abdulaziz City for Science and Technology (KACST).
In June 2019 Saudia Aerospace Engineering Industries (SAEI) joined the US aviation e-commerce firm Aeroxchange’s AeroBuy platform, a major purchasing portal for the aviation industry. SAEI provides maintenance support to Saudi Arabian Airlines and its affiliates, and is one of the largest maintenance, repair and overhaul service providers in the Middle East. The move is expected to improve asset optimisation and boost supply chain transparency.
In February 2020 the Saudi international conglomerate Abdul Latif Jameel made an undisclosed investment in the US air taxi start-up Joby Aviation. While air taxi services remain in the early stages of commercialisation, they are expected to play a prominent role in the GCC. At the time the investment, Joby Aviation was the best-funded electric vertical take-off and landing start-up in the world.
The General Authority of Civil Aviation (GACA) is responsible for the country’s civilian airports and airlines, and issues commercial licences to companies offering aviation services. It is also overseeing the expansion of the country’s airport system, including King Abdulaziz International Airport in Jeddah and King Khalid International Airport in Riyadh. In January 2019 GACA launched an online portal for drone permit applications for commercial or personal use. However, in light of the 2019 attacks, it is unclear whether increasingly proliferating drone technology will remain under civilian or military regulation. This remains an outstanding regulatory issue worldwide in need of significant attention. Beyond military threats, civilian drones have brought significant disruption to major international airports such as the UK’s Gatwick Airport in December 2018. Regulatory action on the issue will be important as companies in the industry look to strategically position themselves.
At the same time, Saudi Arabia is seeking to boost its space programme and satellite industry. In April 2019 it successfully launched its Arabsat 6A telecommunications satellite from Florida, marking the country’s second launch of the year. This follows the phased launch of 16 Saudi satellites between 2000 and 2019. The country’s first Saudi-owned satellite for communications, the SGS-1 which launched in February 2019, was developed by KACST in collaboration with Lockheed Martin. Through KACST’s Space and Aeronautical Institute (SARI), the country aims to achieve regional leadership in the segment and support the development of a high-tech domestic R&D and industrial base. In 2018 the Saudi Space Commission was established to develop the local space industry. It is led by Prince Sultan bin Salman bin Abdulaziz Al Saud, a former astronaut, who flew on National Aeronautics and Space Administration’s Space Shuttle Discovery in 1985 as the first Arab and Muslim in space. The Saudi Space Commission has been instrumental in expanding cooperation with international partners to facilitate technology transfer and improve capacity. In 2017 Saudi Arabia and Russia signed a space cooperation agreement and the issue received renewed attention following President Vladimir Putin’s visit to Saudi Arabia in October 2019. The meeting is thought to have initiated discussions on the possibility of Russia training and launching Saudi astronauts to the International Space Station. This follows the Russian training and launch of the UAE’s first astronaut in September 2019. According to Russian and Saudi press reporting, a proposal is also believed to be under discussion involving the use of Saudi Arabia as a possible satellite launch location using Russian capabilities. In December 2019 Saudi Arabia conducted initial space cooperation talks with Kazakhstan in addition to talks on satellite manufacturing and applications with South Korea.
The realisation of Vision 2030 requires the development of new high-value-added industries, and the security, aerospace and defence sector stands to become a key element of this strategy. Central to the achievement of these diversification and localisation goals is the development of an advanced domestic industrial and R&D capacity that generates sustainable employment. Ongoing efforts to foster international partnerships and attract investment will prove vital in this endeavour. Moving forwards, key priorities will continue to be the advanced protection of both the country’s airspace and cyberspace from new threats, while ensuring that defence spending delivers the highest returns.