Saudi prince's revamp turns to developing military

International companies at Armed Forces Exhibition to Support Local Industries are eyeing multi-billion dollar deals
By Bloomberg
Thu 01 Mar 2018 09:15 AM

An army band with bagpipes marched past displays of machine guns and laser-guided missiles in Riyadh this week as international defence companies showed off their hardware.

Hours later, the Saudi government announced that several top commanders had been removed, including the chief of staff and the heads of ground and air forces.

If recent months have all been about Crown Prince Mohammed Bin Salman’s crackdown on business elites, now he’s turned to the military as he extends his authority over the kingdom. The purge of top brass comes as Saudi Arabia is struggling to get a grip on the proxy war with Iran in neighbouring Yemen.

But, like everything in Saudi Arabia at the moment, it comes back to the country's finances and the prince’s much-vaunted revamp of an economy too dependent on oil.

Executives from Raytheon, Boeing, Rheinmetall and other international companies were at the exhibition (Armed Forces Exhibition to Support Local Industries 2018) to talk about how they fit into his “Vision 2030.”

The new era for defence includes developing a domestic industry so that the world’s biggest importer of US weapons can make hardware itself in conjunction with foreign manufacturers.

For companies specialising in military equipment, it could mean billions of dollars in contracts as the kingdom spends decades building an industry from scratch.

At the exhibition in Riyadh, dozens of companies marketed their cyber weaponry, combat vehicles and communications systems.

“There is a lot a business potential over the next five, 10 years, 15 years,” John Bottimore, vice president of international business development at the U.S. unit of British company BAE Systems, said in an interview at the exhibition.

“We won’t have a position in Saudi Arabia long term if we don’t work with partners and transfer capability.”

The announcement on Monday of the change in military personnel came the same day as King Salman approved a plan setting out a “vision and strategy” for the Defence Ministry. In another major shift, the government also said military jobs at the rank of soldier would be open to women for the first time.

The country’s sovereign wealth fund established Saudi Arabian Military Industries, or SAMI, in May.

The company plans to manufacture equipment and provide maintenance services across units, including air and land systems, weapons and missiles, and defence electronics, mainly in joint ventures.

“Saudi Arabia is seeking a degree of military self-sufficiency by developing a local defence industry and putting in some of the building blocks it would need should it decide that it needs a nuclear capability,” said James Dorsey, a Middle East specialist at Singapore’s Nanyang Technological University. US President Donald Trump’s opposition to Iran gives the Saudis a “window of opportunity,” he said.

The ultimate goal is to “localise” 50 percent of Saudi procurement from 2 percent now, according to SAMI’s chief executive officer, Andreas Schwer.

That will create jobs and generate $10 billion a year in revenue for SAMI by 2030, he said in an interview at the exhibition.

Saudi Arabia started the exhibition in 2010 to develop its domestic military industry.

The event, attended by Saudi companies and government officials, helps international companies find a local factory or service that they can use for their supply chain, said Major General Atyah al-Malki, general director of the general directorate for industrialisation support.

Inside the hall, Saudi officers check out new uniforms, body armour, all-terrain vehicles and military-industrial components on display from companies as diverse as Ankara-based Roketsan Roket Sanayi Ve Ticaret AS, South Korea’s Hanwha and Oshkhosh.

Outside, there were armoured personnel carriers, fire trucks and an artillery cannon.

Raytheon Saudi Arabia is one of the US defence companies working with SAMI. At the exhibition centre, the company's executives guided visitors on a virtual tour of a military city where the viewer flies above buildings and walks through training centres.

Raytheon anticipates it will finalise details of a joint venture with SAMI over the next couple of weeks, according to Michael Pottier, vice president of business development. The company estimates it will generate $7 billion of revenue through the localisation of defence projects in Saudi Arabia over the next five to seven years, Pottier said.

It’s all part of Prince Mohammed’s with-us-or-against-us plan to drag Saudi Arabia into the 21st century globalised economy.

The drive to create a domestic defence company is one of the pillars of “Vision 2030,” along with building new cities and developing an entertainment industry. The plan also includes selling stakes in state assets, including oil giant Saudi Aramco and creating the world’s biggest sovereign wealth fund.

The purge of the military command announced this week was reminiscent of events that happened last year.

Two weeks after the crown prince hosted some of the world’s leading investors at the palatial Ritz-Carlton hotel in Riyadh in October, he turned the property into a luxury prison for dozens of the kingdom’s most prominent princes and businessmen.

Schwer, who headed combat systems at German arms firm Rheinmetall before joining SAMI last year, said there’s an unflinching resignation to get the job done, provided the country can hire the right people.

“There is the commitment of the government, the king and the crown prince,” said Schwer. “As we are one core pillar of ‘Vision 2030,’ failure isn’t an option for us.”

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Last Updated: Thu 01 Mar 2018 08:51 AM GST

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