The last few years have seen a subtle transition in how the U.S., as the world’s dominant arms exporter, markets to the world.
Consider what we already know.
In Europe, there’s an expectation to filter more to local firms, whether through co-development or direct buys. There’s also demand for greater access into U.S. programs, and for that access to be on a level playing field.
And then there’s South Korea, now calling for foreign contractors to engage with domestic small and medium-sized enterprises. Financial support for its companies is important, according to the Defense Acquisition Program Administration, but so is guidance that helps identify technologies that will make those domestic companies more marketable. Call it a mentorship of sorts.
Look to Middle Eastern countries and we’ve historically seen more financial offsets: expectations to create jobs at home to improve the economy, grow skilled labor and expand infrastructure. That’s the same in northern Africa.
But with oil no longer a reliable source of revenue for the region, the expectations are shifting. The Middle East wants to build a new industry, and with billions of dollars in arms sales at stake for the U.S. and Western allies, the region also knows full well that it holds some powerful cards to play.
It’s that question that drove the shift in Europe: “We’re buying from you, so why can’t you buy more from us? And by the way, politically speaking, we’re pretty important.”
All this to say that the emerging visions in the United Arab Emirates and Saudi Arabia have some teeth. And it can, therefore, shape how the Pentagon, American defense giants and global allies for that matter handle arms sales.
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Consider a couple of the more recent developments. The UAE launched a government-owned company with a combined annual revenue of $5 billion known as Edge, established with a core mandate “to disrupt an antiquated military industry generally stifled by red tape,” according to its CEO. Falling under Edge are now 25 companies that before were quite small in revenue and global market share, but together hold significant buying power: NIMR, AMMROC and Abu Dhabi Ship Building to name a few.
Not only do these companies become more formidable players on the global stage, but Edge suddenly carries with it significant negotiation power. Sales to the UAE could bring newfound expectations for partnerships, for stakes in programs.
Then consider Saudi Arabia, which established the Saudi Arabian Military Industries, or SAMI, for essentially the same reason. It also modeled the structure off of other countries with established defense industries — Turkey, South Korea, South Africa and some Western countries, among others. SAMI’s stated goal is to become one of the largest 25 defense companies in the world by 2030 and to have export account for 30 percent of its business.
So what might this mean for how the U.S. works with the Middle East? Major primes have cheered the formation of these holding companies. But make no mistake: Those primes recognize that the holding companies also pose a threat to the status quo. A simple model of just selling systems into the region likely won’t fly, nor will teaming on a particular competition necessarily be enough. Boeing formed a joint venture with SAMI, for example, recognizing the need to commit long term.
Also consider what SAMI CEO Andreas Schwer stated to be his asks of the U.S. and allies when I interviewed him last year: “If there was a wish, we would love to get more access to top-class technologies from all the U.S. partners. There are obviously limitations, which we are suffering from. That’s the one element. So be a little bit more open. And second, export in arms and weapons was driven by FMS [Foreign Military Sales] programs. In our new setup in Saudi Arabia, we will do more and more in direct commercial sales.”
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