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The ‘Dividends of War’ of Middle Eastern Manufacturers

From the series The arms industry in the Middle East

Europeans started selling weapons to the Middle East a century and a half ago, recalls the Economist. At the time, European armies began to adopt the breech-loading tifle and to sell the surplus of rifled muskets to rival Arab tribes. The fow of arms has never stopped since, but in the meantime the importance of the area has grown, attracting new sellers: Americans, Russians, Chinese and also emerging local groups. The United Arab Emirates’ (UAE) EDGE conglomerate, with 12,000 employees and sales worth $4.7 billion, recently entered the SIPRI (Stockholm International Peace Research Institute) top 25 arms-producing companies in the world for the first time.

An unstable but enormous market

In the Middle East and North Africa (MENA) there are three ongoing conflicts (Syria, Libya, and Yemen) and a heated dispute over gas resources in the easter Mediterranean. Recent diplomatic moves, such as the agreements between Israel and the UAE or the reconciliation between Qatar and Saudi Arabia, are the result of de facto alliances in this context. However, these ties will need to stand the test of the new American administration’s decisions concerning Iran.

This part of the world remains a crossroads where a plurality of interests and tensions meet, a situation reflected in the decisions of Europe. Europe is forced, at times, to drop the pacifist and democratic mask it likes to wear for the sake of economic and diplomatic considerations. The UK has been trying for the last two years to conclude an agreement for the sale of 48 more Eurofighter Typhoon planes to Saudi Arabia. However, Germany (which participates in the production of the plane along with the French company Airbus) is against the sale as long as the war in Yemen lasts. Egypt proposes an agreement of the century to Italy to buy €9 billion worth of weapons systems, but the murder case of the Italian student Giulio Regeni in Egypt has started a hypocritical debate over whether the Egyptian military is, or is not, a factor of stability in the area.

In debates and diplomatic masquerades SIPRI’s figures count. In the fiveyear period from 2015-2019, armament exports in the world rose by 5.5% compared to the previous 5 years, but European exports rose by 9%. The Middle East imported 61% more, Egypt 212% more, and Algeria 71% more. Of the total world arms trade, the USA accounts for 36% and Europe for 27%, ahead of Russia’s 21% share and China’s 5.5% share.

The French Defence Ministry’s report to parliament gives a detailed picture of the weapons trade in the decade from 2010-2019. For the MENA region orders received were worth €38.3 billion and deliveries were worth €25.9 billion, equivalent to almost half of France’s weapon systems. Alongside this we will consider an overview of the major European contracts in the Middle East.

There’s no such thing as a peace dividend

Defence industries in Arab states: players and strategies by Florence Gaub and Zoe Stanley-Lockman is a study by the European Union Institute for Security Studies published in March 2017, an analysis of the markets and attempts at local development of the weapons industry.

The authors recall that it is common practice to refer to the 1990s (the decade following the end of the Cold War) as those of the peace dividend, but this does not apply to North Africa and the Middle East, which in that same period increased their military spending by 27% and 15% respectively.

The invasion of Kuwait in 1990, its libcration and the beginning of terrorism in Algeria as well as in the Sinai region were occasions that created a demand for weapons in the MENA area, where Western industries, penalised by national disarmament, could find an outlet. A case in point is the 1993 sale of 400 Leclerc battle tanks to the UAE, i.e., half of the tanks that GIAT (today Nexter) had previously planned to produce for the French Army.

In the same period the offset (compensation) agreements were born, with the great arms industries of the West binding themselves to their client countries through investment for the production of parts and servicing. This mechanism functioned poorly due to a widespread lack of local industrial development. This in turn is the result of oil and gas revenues. Today, that income is destined to gradually diminish and this diminution is fulling a trend of economic diversification, which is illustrated by the ‘Vision 2030’ plan launched by Saudi Arabia. This plan includes domestic arms production.

The financial and economic dimensions are not the only ones present, reads a document written by the Foundation for Strategic Research. Faced with US presidents who speak of the ‘strategic pivot’ of Asia, the major Arab states are pushed to give more thought to how to develop their means of defence.

Prince Mohammed bin Salman’s plan foresees an increase of domestic weapons production to cover for 50% of Saudi Arabia’s military needs, up from the current 2% figure, an objective considered unrealistic by experts. The Saudi Public Investment Fund is worth $224 billion, but only one young person in a thousand in the country has a degree in technical-scientific subjects. The failure to reach planned objectives would be far from the first failure of the Arab countries.

MAJOR EUROPEAN CONTRACTS IN THE MIDDLE EAST


Type year of deal value supplier
— Italy




Qatar 28 helicopters
 NH90 2018 3.00 Leonardo(1)

2 patrol vessels
 OPV



1 amphibious vessel
 PDP
2017 4.00 Fincantieri(2)

4 corvettes



Kuwait 28 fighters
 Typhoon 2016 7.00 Leonardo
Egypt 2 frigates
 FREMM 2020 1.10 Fincantieri

32 helicopters
 AW 149 2020 0.90 Leonardo
— France




Egypt 2 helicopter carriers Mistral 2015 0.95 Naval Group

1 frigate FREMM 2015 0.75 Naval Group

24 fighters Rafale 2015 4.50 Dassault

4 corvettes
 Gowind 2014 1.00 Naval Group(3)
Qatar 36 fighters Rafale 2015 6.30 Dassault(4)
UAE 2 corvettes Gowind 2019 0.75 Naval Group
— Germany




Egypt 4 submarines
 U209 2011-15 … TKMS

4 frigates
 MEKO 2019 2.30 TKMS(5)
Israel 4 corvettes
 Sa’ar 2015 0.45 TKMS

1 submarine
 U209
… TKMS
— UK




Saudi Arabia
 72 fighters Typhoon 2007 15.30 BAE Systems

22 trainer aircrafts
 Hawk 2015 … BAE Systems(6)
Oman 12 fighters
 Typhoon 2012 3.00 BAE Systems
Qatar 24 fighters
 Typhoon 2017 7.40 BAE Systems
Note: values in billions of euros 1) Leonardo prime-contractor in NHIndustries under Airbus Helicopters 2) Leonardo systems 3) three built in Egyptian shipyards in Alexandria 4) including MBDA missiles 5) one built in the Egyptian shipyard in Alexandria 6) partly assembled in Dhahran, Saudi Arabia.
Sources: RID, Analisi Difesa, Le Point, Fincantieri, Leonardo.

The Egyptian attempt

Gamal Abdel Nasser, head of State in Egypt following the overthrow of the monarchy, recalls in his book The philosophy of revolution his participation as a young officer in the anti-Israel war of 1948: we were cheated into a war unprepared and our destinies have been the plaything of passions, plots and greed. Here we lie under fire unarmed.

The Egypt of Nasser and of his successors tried unsuccessfully to grow as a producer of weapon systems. In 1975 Egypt led a ‘pan-Arab’ federation of 18 countries pledging to devote 2% of GDP to this end. This federation was reduced to only four countries the following year (with Egypt, Qatar, Saudi Arabia, and the UAE remaining). The AOI (Arab Organisation for Industrialisation) was finally limited to Egypt alone, when in 1979 it decided to sign a peace treaty with Israel.

In 2007, the AOI signed an agreement with the American firm General Dynamics for the production under license of more than one thousand M1A1 Abrams heavy battle tanks and for the supply of parts to tanks in service in Morocco, Kuwait, and Saudi Arabia. AOI also produces helicopters, armoured vehicles, corvettes, and frigates of French and German designs, but in limited quantities.

Egyptian military factories produce equipment under licence, assemble equipment based on imported kits, or produce equipment with little or no military relevance write Gaub and Stanley-Lockman. Still according to these analysts, the US considered that only 24% of the end items produced in Ministry of Military Production factories were actually military. Indeed only two of the 16 Ministry factories exclusively produced military items […].

The UAE Tactics

In November 2019 EDGE was born, a conglomerate of twenty companies based in the UAE and some holding companies (including Mubadala). The group’s strategy is to grow by specialising in niche sectors (armored vehicles, small ships, aircraft, and light drones) which can also be exported. A strategy which, the US thinktank CSIS says, is pragmatic and realistic. A little cynical, we might add.

The confit in Yemen has showcased the NIMR (Tiger) armoured vehicles of Tawazun. Tawazun merged into EDGE and has produced 2,500 of these units for Algeria too. Off the coast of Yemen there are Baynunah corvettes, 8 units of which were recently sold to Kuwait. The Calidus B-250 light fighter has also been sold to and used by Saudi Arabia. Emirati arms industries acquired the technology from the Russian GAZ and the South African Denel for armored vehicles, from the French CMN for corvettes, from the Brazilian Novaer for fighters; it has begun production, testing, and selling.

Mubadala, before joining EDGE, was also a shareholder in 2018 in the Italian company Piaggio Aerospace. The goal was to acquire the P.1HH Hammerhead drone, partly because the USA had no intention of providing its Gulf Arab allies with unmanned aircrafts. Faced with a refusal from the Italian government to invest more into the company, Mubadala also purchased Chinese Wing Loong II drones (which are also used in conflicts in the Yemeni area), and the UAE decided to pull out of the Ligurian company Piaggio Aerospace and its administrative control.

The 2008 crash caused demand for business aircraft to crumble; the Chinese weapon industry discouraged the Italian venture in the Emirates; and the workers of Piaggio Aerospace are paying the price for it.

Lotta Comunista, January 2021

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