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You can't beat the price.

Russia wants to generate closer commercial and financial relations with the Arab Gulf countries, but the best it can offer is cut-price weaponry. Peter Feuilherade writes that Moscow is eagerly touting its goods and hoping for investment in Russia, but the Gulf states are not falling over one another with excitement.

Moscow is hunting for loans and investments from the Gulf states, with several visits to the region by senior Russian officials in the past two months. Russia's foreign minister, Andrei Kozyrev, has had talks with all six GCC states, while various military delegations have been seeking new markets for weapons manufactured by the former Soviet Union.

Kozyrev and Russia needed Arab loans and investment, particularly in the oil sector, to help transform its economy after 70 years of communism. Russia is ready to open its doors to Arab businesses in both the public and private sectors, he adds.

In exchange, it offers to provide raw materials as well as expertise in sectors such as water supply, medicine and aerospace research. Kozyrev does admit, however, that the Arab Gulf states might need a lot of persuading. "These countries did not trust us before and did not try to have cooperation with us."

On his return to Moscow, the Russian foreign minister was candid about the prime motive for his Gulf tour. Russia was seeking new and profitable arms markets. He said Moscow would nor rather deal with "stable, moderate regimes" rather than restricting itself to its previous clients, of whom he mentioned Libya, Iraq and Iran by name. "That was an extremely unfortunate choice," he now confesses.

Sources in Moscow suggest that the sale of Sukhoi aircraft to the UAE would be the first such deal to be announced. Currently Kuwait is the only GCC country to have brought arms from the former Soviet Union. These include surface-to-air missile systems bought before the Iraqi invasion in August 1990.

The concern felt in the Gulf capitals over Moscow's arms supplies to Tehran was raised repeatedly during Kozyrev's tour, particularly in Bahrain, with its large Shia population. Conceding that Russian military cooperation with Iran remained a stumbling block to better relations with the Gulf states, he has tried to dispel GCC fears "by assuring them that we do not sell the latest arms to Tehran".

In May news agencies reported that Iranian crews were being trained by Russia in the Baltic to take delivery of Iran's first submarines. Captain Richard Sharpe, editor of the authoritative naval reference book Jane's Fighting Ships, said Iran was hoping to acquire up to three Russian Kilo-class diesel-powered submarines, although pressure is being exerted on President Boris Yeltsin, especially by the United States, to call off the delivery.

Although Kozyrev's visit yielded few immediate or direct economic gains, he said in Moscow on his return that foreign policy success was not measured only in terms of financial credits. Russia had made a breakthrough in the Gulf which promised much for future cooperation. "A policy calculated only to secure financial assistance is worthless. We had to assert ourselves in the region and show that Russia remains a great power ready for mutually advantageous cooperation, and not just standing with hands outstretched."

In the event, Oman proved the most lucrative contact, promising to invest $600m in the development of Russia' oil and gas sectors. The Saudis and the UAE confined themselves to discussing the timing of payment of credits promised earlier.

One Arab diplomat commented that "apart from affordable weapons, the Russians don't have much to offer the GCC states". It was just such cut-price weapons that were being promoted by another Russian delegation to the Gulf, led by a tank specialist, Col-Gen Aleksandr Galkin. According to the UAE newspaper Al-Khaleej, the list of weapons for sale included MiG-29 and Sokhoi-27 fighters, T-72 and T-81 tanks and C-300 anti-missile missiles.

Moscow was offering the Gulf states all this advanced weaponry at competitive prices, and without technological restrictions, a Russian official was quoted as saying. And just, before Galkin's team returned home, news agencies reported the arrival of a third delegation from Moscow, comprising members of the Russian air force allegedly posing as civil aviation experts, also on the look-out for potential buyers in the Gulf.

In June Russia's defence minister, Pavel Grache, held talks in Moscow with visiting UAE military officials on the supply of Russian-made armoured vehicles. The first deliveries to the Emirates were expected at the end of the month, according to the Itar-Tass news agency. It said the talks also covered the sale of Russian military aircraft, and joint arms production projects.

In 1991 Russia's weapons exports fell 80% from 1989 levels, and will probably shrink further now that traditional markets such as Afghanistan, Iraq and Libya are no longer available. But while its defence industry is being converted to civilian production, Moscow intends to raise as much foreign currency as it can from arms sales, especially now that such deals are to be made exclusively on commercial grounds rather than determined by political considerations. Russia hopes to keep arms sales at a level of $5bn a year, according to Mikhail Maleya, President Yeltsin's chief adviser on converting the former Soviet Union's military-industrial complex to civilian use.

But while the GCC countries themselves continue to spend billions of dollars on arms, they are increasingly insisting on offset programmers to bring in technological and industrial investment. The biggest such deal is the Al Yamamah programme agreed between Saudi Arabia and Britain in 1985. Kuwait now wants civilian contractors taking part in post-occupation reconstruction to accept offset deals to generate investment in Kuwait or abroad, with the participation of Kuwaiti investors.

The UAE has also set up an offset department. Its director, Amin Badruddin, said that in the past" arms companies used to come here, sell weapons and walk away. They were not interested in development in this country. Now, they are required to contribute because we are paying them billions of dollars." Forty Western firms have already signed offset agreements with the UAE, bringing in $800m in investment.

Russia, itself struggling to convert a large proportion of its military sector to industrial production, is unable for the moment even to contemplate such levels of investment. On the contrary, Moscow is itself looking to the Gulf states for help with its military conversion programme.

In May the chairman of the Jeddah-based Saudi conglomerate Dallah al Baraka, Sheikh Saleh Kamel, said his group had reached an agreement with Russia on the creation of a joint company that would examine cooperation in conversion of Russian military industries to manufacturing civilian goods. Kamel signed an accord with the Russian vice-president, Aleksandr Rutskoi, during a visit to Moscow, and said he expected the joint company to start operations in August. The group is also negotiating to open a bank in Moscow.

Dallah al Baraka, with investment in some 40 countries estimated at $6bn also plans to launch special investment funds for Uzbekistan, Kazakhtan and Turkmenistan. Kamel adds that he had recruited 15 economists and business administrators from Saudi, Arabia, Egypt and Turkey for a project to set up economic institutes in Uzbekistan and Kazakhstan, to teach bankers and government officials the principles of free-market economy.

He was quoted by Associated Press as saying: "People there are completely ignorant in economy and business administration. They have no knowledge of the concepts of cost, profit or marketing. They are economically naive."

Russia's investment overture to the Middle East have not been only to the Arab Guld countries. The last two months have also seen a high-profile visit to Israel and Egypt by Vice-President Rutskoi, leading a large delegation of Russian businessmen, and a visit to Kuwait by the Russian minister of foreign economic relations, Petr Aven, who discussed prospects for economic cooperation.

Moscow is likely to step up its military sales drive in the Gulf too, as it seeks new markets to replace former clients. Although countries like Iraq, Libya and Syria in theory owe the Commonwealth of Independent States billions of dollars for arms provided in the past, it would be politically impossible for Moscow to try to recover the debt. Instead, finding new and reliable clients for hard currency arms sales is a more attractive and immediate option for Russia.

The Gulf arms market is undoubtedly growing as the region's states re-arm after Iraq's invasion of Kuwait, and as debate continues with no clear consensus about what form a new regional security order should take. But at the moment, apart from their lower cost than Western arms, it is difficult to see Russian-made weapons having sufficient attractions to lure Gulf buyers away from their traditional suppliers in the US, Britain and France. There will be well-founded doubts over Moscow's ability to provide spares and servicing.

Nor will Russian arms salesmen find much comfort in the words of Kuwait's defence minister, Sheikh Ali Sabah al Salim al Sabah, who said earlier this year that defence was as much a matter of alliances as of weaponary. "Protection is the friends you have, not the weapons you have."
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Title Annotation:Current Affairs; Russia's commercial and financial relations with Arab Gulf countries
Author:Feuilherade, Peter
Publication:The Middle East
Date:Jul 1, 1992
Words:1513
Previous Article:To the bitter end.
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