The he ch challenge enges s of of de developing ping de defenc ence indu dustr stry y in the he Midd ddle le East
The moti tivat atio ion n for r Middl dle e East natio ions ns to develop elop defe defenc nce indust ustries ries • Domestic development of military capability is a statement of national intent or priority • Profitable defence industry helps national economic diversification, the development of technology and the growth of the technical skills base • It facilitates the building relationships and influence with other nations • Nation seek better value for money by developing domestic industry rather than importing defence products Top Defence importers (2014-2018 consolidated, US$ Bn) MENA Nations 16.869 13.876 7.429 6.793 6.441 6.103 5.425 5.350 4.492 4.240 Saudi Arabia India Egypt Australia Algeria China UAE Iraq South Korea Vietnam The graph shows the top10 global defence importers of which 5 are from Middle East & North Africa (MENA) Source: Stockholm International Peace Research Institute (SIPRI) 2019
The histor torical ical limit iting ing facto ctors rs which ich have e hinde dere red d develo elopment ent in the Middle le East • Have drained resources Conflict and instability • Have limited cooperation between nations • Lack of a manufacturing base and funds increased the attraction of imports in the short-term Dependence on Imports • Exporters have been reluctant to transfer technology or allow production under license • Plans for the development of defence industry were Overreach too ambitious and costly • Industries were unsustainable • International alliances have not been productive • It has been difficult to start a strong flow of Foreign Bureaucracy and lack of cooperation Direct Investment • Existing industrial bases were not capable enough to support defence industrial growth National infrastructure and resources • There was insufficient funding and trained people to support development
The he inher herent nt risk sks s in develo velopi ping ng domes esti tic c defen fence ce indust dustries es • Set-up costs are a major investment • Domestic industry often requires preferential trading Increased financial costs conditions • They often require financial support or subsidies • They often require legal and commercial support • Domestic defence industries depend normally upon domestic spending for survival making them a Reliance on the domestic market compulsory cost • Export sales alone are not sufficient to compensate • Technically Inefficient • Poor quality • Costly The creation of monopolies • Slow to produce • Uncompetitive and therefore not for export • Overspending on defence creates an opportunity cost Opportunity Costs elsewhere in the economy • This can have unforeseen effects
Key success cess factors ors for defenc nce industri trial devel elop opmen ment Policy Alignment Export Budget Strategy Successful Defence Industrial Development Incentivizing Strategic Laws and Partners Regulations & Allies Transmitting Demand There are five factors which help the successful development of a defence industry
Clear ar and aligne gned d natio ional nal polic icies ies • Defence Objectives and Tasks Defence Policy • Capability Priorities & Security of Supply • Make or Buy decisions The right capability • Foreign Direct Investment rules Economic Policy • Financial and other support for Start-ups and SMEs • Industrial Development Priorities • Export Policy Industrial Policy • Analysis of Value Chain and Supply Chain Successful Defence selection Industrial Compete Development Diversified • Selection of technology development priorities in defence R&D Policy Economy • Long-term strategy for R&D markets • Selection of priority subjects for schools and Universities Education Policy • Selection of postgraduate priorities • Align with Defence Industry requirements Employment • Development of employment terms and conditions for defence ecosystem Policy Alignment in national policies is essential to develop a successful defence industry
Alloc locati ating ng and aligni gning ng budgets gets and financ ance Government Spending and Innovation Funding Middle East 3 % 220 Ministry of Defence 203 Foreign Direct 187 170 Capital Expenditure Investment & Offsets Operating Expenditure 2018 2021 2024 2027 US $ Bn Venture Capital Regional defence spending is forecast to rise – nations must focus funding and investment to develop industry to meet this opportunity
Laws, , Regul gulati ations ns and Standar dards ds National Laws • Trading • Contract • Ownership • Investment … . Laws Regulations • Licenses • Permits Standards • National • Manufacturing regulations • Transport Regulations • International Standards • Safety … .. Agreements … Strong laws, regulations and standards set and control the environment in which successful industrial development can occur and high quality manufacture can be achieved
Trans nsmit itting ing demand and to defe fenc nce indus dustr try Degree Of Uncertainty Armed Forces Armed Forces Armed Forces identify the construct the Armed Forces examine new capabilities funded deliver forces for concepts for needed in the requirement for operations capability future new capability 30+ Now Years • Industry expresses an • Industry delivers spares • Industry conducts R&D, • Industry develops products, opinion on the ‘ art of the and services gives information on designs upgrades, replies to possible ’ • Industry modifies and capability options • Industry conducts R&D & RFPs and accepts contracts delivers upgrades • Industry makes decisions on • Industry delivers capability begins to plan in which • Industry supports disposal its future investments technology to invest Degree Of Uncertainty Armed Forces and Industry communicate so that early investment decision can be made
Poli licy y which ich incen entiv ivizes izes Strategic ategic Partne rtners rs and Allies ies • Traditional Joint Ventures often have only short-term impact • Other model could have longer-term advantages – Landed Companies Industrial Models – Government-owned Contractor-operated – Tapering Equity • Strategic Partners must be incentivized to transfer technology Technology Transfer • Mutual advantage must be identified • Good relations and cooperation with allies are essential – regulations exists, agreements will be required • Nations should work with Strategic Partners and Allies to develop onshore companies which co-develop R&D and R&D products from an existing technological base • Successful nations target offsets or use them flexibly • Funding can be directed to R&D, Start-ups and innovation Offsets projects • OEMs welcome direction on discharging their liabilities Foreign Direct Investment (FDI) and partnerships are essential to successful industrial development
Targe gete ted d and aligne ned d export port stra rate tegy gy Target markets must The strategy must be be selected, analyzed formulated and and a national aligned as a cross- approach developed government initiative Cross- Target Government Markets Armed Market Forces Participation Support An assessment must Support from be made of which whole systems to domestic Armed Forces to market export or which part domestic products of international supply chains to target
The UAE Appro proac ach h – Developing eloping a national ional eco cosys yste tem of inter erconne onnecte cted elem ements ents UAE Centennial 2071 National 4th Industrial Artificial Revoution Intelligence Strategy Strategy National UAE Innovation Vision 2021 Strategy National National 4th Industrial Space Defence Revolution Strategy Industry Council t 2030 National Strategy Ministry of Strategy for Defence Higher Strategies Education and Plans Investment 2030 in Universities Offset Reform and Advanced Foreign Sciences Direct Investment Reform The UAE has many initiatives which create an ecosystem in which defence industry can develop.
The UAE is develo eloping ing a st stro rong ng in a wide e range ge of defe fenc nce indust ustry ry secto ctors 1 2 3 Aircraft Arms and Munitions Electronics and ICT 1 Guided Electronic Fixed Wing Rotary Wing Arms Ammunition C4I 2 Cyber Optronics 4 Weapons Warfare 3 6 4 5 Ground Vehicles Ships Simulation Combat Surface Fleet Sub- Combat Logistics Amphibious Simulation Support Warfare Support marine 7 8 9 Soldier Systems Space Unmanned Systems Combat Equipment Support Equipment Satellites Launchers Air Ground Sea 10 Services 5 Support 6 Training 7 MRO Services support all other sectors Services support all other sectors
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