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Gulf arms spending set to reach $100 billion.

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SPENDING BY SAUDI ARABIA, THE UAE, Kuwait, Qatar and the other two states of the GCC--Oman and Bahrain--on arms purchases could top $100 billion over the next two to three years, according to sources in the global defence industry.

The move reflects mounting concern about regional threats, but also the availability of surplus oil revenues, despite the global economic slowdown, to purchase state-of-the art equipment and technology that can help to build military manufacturing and servicing facilities in their own countries.

Industry sources in the US and the UK say that Saudi Arabia alone is expected to spend about $50 billion over the next two to three years, followed by the UAE at $35 billion.

In 2009, the kingdom alone spent almost $40 billion on its military forces, according to the Stockholm International Peace Research Institute (SIPRI). Another $5 to $10 billion is expected to be spent by Kuwait, making a total of $90 billion to $95 billion for the three states alone. Additional spending by Qatar, Oman and Bahrain, the sources indicate, could take the total to $100 billion or more by 2015.

Saudi Arabia and the UAE are reported to be giving priority to purchases made through their existing offset agreements. These require the beneficiaries of arms purchases, like Boeing of the US or BAE Systems of the UK, to invest a specified amount of the sale in training, servicing or manufacturing programmes in the buyer's own country. In the case of Saudi Arabia, which launched its first offset programme in 1984 with the $3.8 billion Peace Shield contract, the amount was set at 35% of the value of the sale.

One industry expert, Grant Rogan, chief executive of the UK-based offset advisers, Blenheim Capital Services, explained that the two countries' offset programmes "have been largely the same for the past 20 years." This meant that they now needed to be overhauled to maximise the opportunities for both Saudi Arabia and the UAE to expand their nascent defence industries, he added. The company says these opportunities include a "wider focus on the employment of skilled indigenous workers, the transfer of technology and the facilitation of defence export activity."

Saudi Arabia is expected to spend $24 billion in the next three to five years upgrading their existing offset programmes, primarily with the US and the UK, according to Rogan. For the UAE, which embarked on its own offset programme following the 1990-91 Gulf war in Kuwait and Iraq, the amount is put at $21 billion. This would account for almost half of the total expenditure expected by 2015 and could involve return offset investment in the two countries' own defence industries of some $18-$20 billion, other analysts estimate.

Missile defence

In 2007, the Bush Administration in Washington agreed an arms package for the GCC, worth some $20 billion, a move supported by President Barack Obama. This has enabled Saudi Arabia, the UAE and Oman to buy sophisticated Joint Direct Attack Munitions (JDAM) satellite-guided bomb technology and hardware, despite opposition from many in the US Congress who feared it could upset Israel's military dominance in the region. Kuwait and the UAE are acquiring Patriot missiles, manufactured by Raytheon of the US, complementing those already sold to Saudi Arabia. Under the programme, the US will share with the GCC its Littoral Combat System technology for coastal defence. So far some $11.5 billion of the $20 billion has been spent, the industry sources report.

Defence analysts in the Gulf say the $20 billion package focuses primarily on missile defence and air power, as well as on naval power to ward off any potential attempt to block the vital oil-shipping lanes of the Gulf and the Straits of Hormuz. In addition, GCC buying will aim to upgrade existing defence systems and seek to influence the research and development, as well as transfer, of new weapons technologies, they add.

The UAE is currently pressing Washington about buying its state-of-the-art stealth fighter jet, the F-35, even though the production programme at manufacturers Lockheed Martin in the US state of Maryland is about two years behind schedule. Administration officials are said to favour the sale as part of their policy to encourage the Gulf states to take more responsibility for their own defence at a time when US military forces are heavily engaged in Afghanistan, and not yet out of Iraq completely. Each aircraft is estimated to cost about $113 million, but this figure could rise with escalating production costs.

Last year, the US Congress approved the sale to the UAE of the Terminal High Altitude Area Defence system, for which Lockheed Martin is the lead contractor. The system, designed to shoot down short- and medium-range ballistic missiles, also involves input from Raytheon and Honeywell in the US as well as BAE in the UK. Another big order for Lockheed includes four giant C-17 aircraft and smaller military transport C-30s. The UAE has already taken delivery of 72 of Lockheed's latest F-16 fighter jets.

Advisors to the Pentagon have pointed out that such sales help the US to finance its own weapons programmes at a time of severe budgetary constraints.

An earlier sale of hundreds of M1A1 Abrams tanks to Saudi Arabia and Egypt, for example, "provided sufficient additional funds to allow the Army to proceed with the development of the advanced version of the tank, the M1A2," American defence analyst, Daniel Goure, said in June. "Since Obama came to power there's been a lot of talk within the administration about burden-sharing," observes Mustafa Alani, an analyst at the Gulf Research Centre in Dubai.

Bush's agreement followed the launch in 2006 of the US-Gulf Security Dialogue, which seeks to promote cooperation between the six GCC states as well as between them and Washington. While in the past it focused on improving Gulf defences, internal security and the fight against terrorism, officials in the US capital say it now includes joint discussions on regional security issues, including Iraq, Israel, Palestine and Lebanon, as well as Iran.

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Diplomatic sources in London say while the Dialogue has succeeded in boosting the defences of the GCC as a whole, and of individual states within the Council, it has been less successful in promoting coordination and cooperation in military affairs between the six states, due to differences in their foreign and domestic policies. Efforts to create Gulf-wide air, naval and ground forces are also lagging behind, they add.

Arms purchases

Meanwhile, both the French and the Russians, as well as some Asian nations, are seeking to make greater inroads in arms sales to the GCC states. Saudi Arabia is reported in the Gulf media to be considering the purchase of Russia's S-300 PMU air defence system at a cost of $4 billion. Other sources say the kingdom may wait for work to be completed on its more advanced S-400 PMU system, which has a range of 250 miles, even though Moscow has indicated that it wants to keep this for its own use domestically.

Other Saudi purchases from Russia could include Mi-35 assault helicopters, Mi-17 transports, T-90 battle tanks and BMP infantry fighting vehicles, according to sources in Riyadh. Gulf analysts have speculated that given such weaponry may not be compatible with Saudi Arabia's arsenal, bought mainly from the US and the UK, Riyadh may be seeking to encourage Russia to avoid selling such advanced weaponry to Iran, as it had previously agreed to do.

French President Nicholas Sarkozy has also made the round of Gulf capitals seeking to promote arms sales and France's defence industries, as well as other exports and joint ventures.

In addition to the 50 Mirage 2000 fighter jets ordered from France in 2008, the two countries have agreed to set up a joint army, navy and air force base in the Gulf state, primarily to upgrade their cooperation in intelligence affairs. France has also agreed that its famed military academy, St Cyr, will be allowed to establish a branch in Qatar. This followed the recent successful completion of joint military exercises in the region with Saudi forces.

Elsewhere in Europe, Airbus, the joint Anglo-French aircraft manufacturer, has supplied the UAE with three A330 tanker aircraft and has an order for another three scheduled for delivery next year. Italy's Alenia is also boosting its presence in the GCC and recently won an order from the UAE for its jet fighter training aircraft.

In the UK, Vosper Thorneycroft is delivering three state-of-the-art 2,700-tonne Corvettes to Oman as part of a $715 million deal to upgrade the Sultanate's navy. Significantly, one of the biggest arms deals to be agreed by the GCC in the past few years went to the UK's BAE Systems, formerly known as British Aerospace, partly because of its willingness to support the development of local manufacturing in the Gulf. The contract, worth some $33 billion, calls for the delivery of 72 advanced Eurofighter Typhoon jets to Saudi Arabia, the first of which was turned over in July.

Under the agreement, BAE will help the Alsalam Aircraft Company in the kingdom build new factories in Riyadh to assemble 48 of the aircraft. BAE is also holding talks with another Saudi firm, Advanced Electronics, to produce components for the fighters. The moves are part of the Saudi government's plan to develop a fully-fledged indigenous aeronautics industry based on the most advanced technology available.

Technology and know-how

In the UAE, the sovereign wealth fund, Mubadala, has acquired the Gulf Aircraft Maintenance Company which services a variety of military aircraft, including the country's F-16s and Mirage 2000s. Mubadala is investing $500 million in upgrading the company's facilities and has now given it a new name to reflect the government support: Abu Dhabi Aircraft Technologies. The fund has established a helicopter pilot training school in Al Ain and is investing in the local A1 Yah Satellite Communications Company, providing secure satellite communication systems to the Emirate's armed forces, as well as in a joint venture with EDS Defence and Security of the US to provide them with data security systems.

In addition, Mubadala is playing a key role in expanding the Abu Dhabi Shipbuilding (ADSB) company, in which it holds a 40% stake. ADSB is building five of the six Corvettes ordered from France's Constructions Mecaniques de Normandie at a total cost of $817 million. And, as a sign of its strong government backing, ADSB has also been selected to provide the UAE navy with 12 missile-armed, fast-attack craft and four maritime patrol aircraft, Bailey reports. Oman has also placed an order with the UAE firm for a troop-carrying ship, signalling ADSB's huge potential as an exporter of naval equipment to other parts of the Gulf and Middle East.

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What is clear is that the days when the GCC states concentrated solely on building up their military forces and internal security through arms purchases from the US, the UK and France are over.

While Saudi Arabia and the UAE took steps to enable some of these sales to be "off-set" through American, British and French investment in local maintenance, training or servicing, the latest transfers involve far more: the technology and know-how to equip a new generation of Saudis, and Emiratis to both build and develop advanced weapons systems, both for their own use and for export.

Additional moves to encourage the development of indigenous arms manufacturing plants in countries such as Egypt, Jordan and Algeria are indications of how Gulf funds are being used to promote wider choices for the Arab states as a whole.

Given that most industry experts agree such arms are being acquired solely for defensive purposes, the world's leading providers of military technology can be expected to accelerate their wooing of the Gulf states and their efforts to increase their share in the GCC's military budgets. Those arms suppliers willing to share their technology and to help build up indigenous industries stand to reap the most benefit.
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Title Annotation:CURRENT AFFAIRS
Comment:Gulf arms spending set to reach $100 billion.(CURRENT AFFAIRS)
Author:Smith, Pamela Ann
Publication:The Middle East
Geographic Code:7SAUD
Date:Aug 1, 2010
Words:1992
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