Saudi Arabia aims to local-source 50% of future arms acquisitions

By Bilal Khan

Under the “Vision 2030” program, aiming to re-orient the Saudi economy for a post-oil world, Saudi Arabia is seeking to source at least 50% of its defence acquisitions from its domestic industry by 2030.

According to the Stockholm International Peace Research Institute (SIPRI), Saudi Arabia is the world’s fourth largest defence spender at $87.2 billion U.S. a year. Although it has overtaken Russia, the majority of its acquisitions are imported, mainly from the U.S. and Britain.

In a televised interview with Al Arabiya, Mohammed ibn Salman, the Defence Minister and Deputy Crown Prince, stated, “Does it make sense that we are the world’s fourth latest military spender in 2014 and third in 2015 and we do not even have a local military industry?”

Prior to the Vision 2030 announcement, Saudi Arabia was in the process of sourcing a proportion of its arms using domestic channels. For example, a new munitions production factory was recently opened in Al-Kharj. Built with the contracted assistance of South Africa’s Rheinmetall Denel Munition, the Al-Kharj facility will supply the Saudi military with a range of artillery shells and general purpose bombs.

Vision 2030 will likely accelerate these efforts. At this stage, one should expect to see Riyadh to attach offset and technology transfer clauses to its future acquisitions. Having seen Boeing and Lockheed Martin push their respective fighter platforms for India’s “Make in India” campaign, it will be interesting to see how American vendors respond to Saudi Arabia’s stipulations.

In Riyadh’s case, one would need to heavily invest in the requisite talent and infrastructure necessary to absorb advanced technology, and there will be a lead time before complete solutions begin rolling out. Of course, the 50% target is being set for 2030, hence is being envisaged as a gradual process.

In addition to resulting in sizably deep technology transfers, it could also result in the rise of numerous private sector defence players in Saudi Arabia. Whether this weighs on the rise of foreign subsidiaries or an abundance of Saudi firms, that remains to be seen.

While Western firms will continue being front and center of Saudi Arabia’s arms acquisitions, it will be interesting to see if Saudi Arabia invests in Turkish, South African and Ukrainian goods as well. Saudi funding in programs such as the Otokar Altay and An-188 would provide these systems a massive financial shot in the arm, thus cementing their presence and enabling the vendors to more easily market their goods to other countries (by actually being able to offer the goods in a cost-competitive manner).

The development of a Saudi arms industry will definitely be worth watching over the coming years.