Sales for tiny cadre of regional defense companies fell in 2010, research shows
The year 2010 wasn’t a bad one for the world’s top arms makers, but in the Middle East the tiny cadre of defense companies to make it to the Stockholm International Peace Research Institute’s (SIPRI) top 100 list didn’t have much to celebrate. Last year doesn’t look to have been much better.
Even as the global economy struggled to climb out of recession, the top 100 arms makers pushed up sales by 1% after inflation to $411.1 billion in 2010. But the five Middle Eastern companies – three from Israel and one each from Kuwait and Turkey — in the list saw their sales fall by almost 11% to $8.42 billion, according to SIPRI data broken down by The Media Line.
The sales slump for Middle East and North Africa (MENA) defense companies stands in sharp contrast to the demand for weaponry. Thanks to the windfall from high oil prices as well as wars and domestic unrest, the region bought one sixth of the world’s arms imports while accounting for just 1/15th of its population.
The Arab Spring and tensions with Iran have only encouraged the trend. Last July, Saudi Arabia boosted the size of arms deal with the U.S. to $90 billion from the $60 billion announced in 2010. Other Gulf countries have been eyeing weapons purchases while Israel has been debating an increase in military spending out of concern that old friends like Egypt and Turkey are turning hostile.
Cuts in military spending in the U.S. and other Western countries may also spur sales in the next several years, said Susan Jackson, head of SIPRI’s arms production project.
“From the perspective of companies in the U.S. and Western Europe the way to deal with proposed military spending cuts is to focus on export markets and one of those markets they want to focus on is the Middle East, particularly Saudi Arabia and the United Arab Emirates,” Jackson told The Media Line.
But the fact is the big arms-buying bucks go to the world’s biggest arms makers, which are based on North America and Europe. Sales by the 44 U.S.-based companies on the SIPRI list accounted for over 60% of all global arms sales while 29 companies based in Western Europe accounted for another 30%.
Jackson said most of the MENA region would have trouble developing a domestic industry.
“You really need to have well developed infrastructure with highly skilled workers .For instance, in India they have tried for decades to develop and maintain an arms industry. But it hasn’t gained much traction,” she said “Even if they grow more technology infrastructure, it’s quite not enough to absorb technology into arms production.”
The biggest decline among MENA defense companies was at Kuwait’s Agility, a logistics company that gets about a quarter of its revenues from military-related business. The company saw its defense sales slump nearly 50% as the U.S. troop presence in Iraq wound down and it became ensnared in a legal dispute with the U.S. Department of Justice.
Last year didn’t look much better: Agility’s third-quarter revenue – the latest reported by the company – fell 19% to 330 million Kuwait dinars ($1 billion), compared with the same time in 2010.
Among the three Israeli companies in the top 100, defense electronics maker Elbit Systems and state-owned Rafael, which makes a defense cornucopia of missiles and small arms, both suffered a sales slump. Elbit’s revenues fell as its Watchkeeper drone contract in Britain began winding down as did a project to upgrade Turkish M-60 tanks.
Elbit’s sales picked up in the first nine months of 2011 by 6% to $1.97 billion, but earlier this month it announced that an Israeli Defense Ministry decision in December to block delivery of sophisticated intelligence systems to the Turkish Air Force would force it to take a $65 million charge on last year’s earnings.
The $140 million deal advanced infrared Lorop camera and related equipment was signed in 2009, but since then Israeli-Turkish relations have deteriorated.
Only Israel Aerospace Industries (IAI), another government-owned company, saw its sales grow in 2010 by about 18% to $2.48 billion. They were higher in the first nine months of 2011 as well and the next few years look even better after Azerbaijan agreed in December to buy $1.6 billion in drones, anti-aircraft and missile defense systems, from IAI.
Another MENA company to enjoy higher sales in 2010 was the Turkish electronics and electronic systems company Aslen, which is owned by a foundation linked to the country’s armed forces. The smallest of the region’s top 100 arms makers, its sales increased close to 19% last year. In the first nine months, they grew further still reaching 912 million Turkish dinars from 686 million the same time in 2010.
Turkey is a net importer of defense equipment, but its long-term strategy is to reverse this. The government has launched projects to reduce imports and step up sales abroad. Between 2005 and 2009, Turkey doubled its defense exports to $669 million, according to the Turkish Defense Industry Manufacturers Association (SaSad).
“Although this represents an important leap forward in absolute terms, Turkey is still far from being a top-level defense exporter on a global scale,” Francesco Milan wrote in a paper for the Swiss Federal Institute of Technology’s International Relations and Security Network. “However, Turkey is investing heavily in the sector, trying to strengthen exports through its diplomatic network.”
Top Middle East Arms Markers
Arms Sales Arms Total
Rank $ bln Total Profit Total
2010 2009 Company Sectors Base 2010 2009 Sales $ mln Payroll
35 29 Elbit Systems Electronics Israel 2.48 2.70 95 183 12,320
37 41 Israel Aircraft Israel 2.40 2.03 76 94 16,000
Aerospace Electronics
Industries Missiles
54 53 Rafael Aircraft Israel 1.47 1.57 98 N/A 6,500
Missiles
Small arms
58 36 Agility Service Kuwait 1.31 2.48 23 87 22,000
87 95 Aselan Electronics Turkey 0.76 0.64 97 160 4,010
Source: Stockholm International Peace Research Institute