By Eng. Ahmad Al-Ohali, Governor of the General Authority for Military Industries
I get asked this question repeatedly. It has taken the world’s greatest nations decades to achieve what Saudi Arabia aims to accomplish in just one. My response has always been; they did not have what we have today. And I would summarize that in three main points: the business case, the backing and the partnerships.
The business case: The facts are evident. In 2018, the world collectively spent $1.8 trillion on defense and Saudi Arabia was the third largest contributor to that. However, the ironic truth of the matter is that the vast majority of Saudi military expenditure leaves the Kingdom’s borders to support defense industries of other nations – less than 5 per cent of our military budget is spent domestically. Fast forward ten years and you are looking at a USD8 billion industry, contributing USD24 billion to our non-oil GDP and creating more than 100,000 high quality direct and indirect jobs along the way; not to mention an ecosystem of SMEs that will blossom, supporting military industries and ancillary sectors including industrial equipment manufacturing, communications, logistics and information technology, to name a few. Too good to be true? In 2019 alone, we saved USD400 million through the review of existing defense contracts, identified localization opportunities worth approximately USD1 billion, issued licenses to eight local defense manufacturers and signed the first Industrial Participation Agreement, to localize deep maintenance and refurbishment of our Patriot defense system. We see these figures growing significantly this year and beyond.
The backing: I would categorize this into two key forms of support, government and financial. HRH Prince Mohammed bin Salman, Crown Prince and Deputy Prime Minister of Saudi Arabia and GAMI’s Chairman, stated it clearly when he said, “no arms deals without local content”. The Saudi government realizes the importance of defense industrialization, and the establishment of the General Authority for Military Industries (GAMI) as the industry regulator and enabler is a clear demonstration of that commitment. We have endless support domestically to transform the Kingdom into a key global manufacturer and exporter of defense equipment. From a financial standpoint, we see a significant advantage in leveraging our defense budget. The Kingdom’s 2020 budget allocated about USD48.5 billion towards the military sector – offering us significant negotiation power. In parallel, OEMs around the world are adapting to a new norm in defense transactions. They understand that securing arms deals will require them to consider their contribution to the industry localization efforts of the Kingdom.
The partnerships: Saudi Arabia is blessed with both its regional and global status. Regionally, the Kingdom is a bellwether of economic trends and a pillar of solidarity and stability. Globally, Saudi Arabia maintains its strong influence as one of the world’s top 20 economies, supported by its role in G20 and OPEC and its significance in the global energy market. This, coupled with the robust diplomatic ties spearheaded by our government, makes the Kingdom a valued partner to nations from the far east to the far west, allowing us to navigate the shifting geopolitical landscape and sustain the growth of our local industries. Our success in defense industrialization relies heavily on leveraging those partnerships. GAMI’s Industrial Participation Program sets an excellent framework for current and future industry engagements, and we are keen to support
OEMs that share our commitment to defense industrialization in the Kingdom through transfer of technology and development of local manufacturing capabilities and talent.
Beyond this, it is important to highlight Saudi Arabia’s experience in developing industries from the ground up. In the 1980s our petrochemical sector was almost nowhere to be seen. Despite its vast reserves, Saudi Arabia had neither the experience nor technologies to develop downstream petrochemical products and bring them to market. Much like defense, the petrochemical industry is competitive, involves significant technological innovation, is capital intensive and operates in a global product market.
Today, Saudi’s petrochemical industry is vital to its economy. In 2015, chemical and plastic exports from Saudi Arabia amounted to $30 billion (SR115 billion), comprising a substantial 60 percent share of total non-oil exports. All of it built from the ground up1.
I am privileged to have been part of this transformation that was achieved with strategic investment and careful scaling up of operations as our capabilities expanded. This growth would not have been possible without the partnerships that Saudi Arabia has long enjoyed with its allies, delivering prosperity not just for the Kingdom but for its partners, too.
At GAMI, we envision a future where the military industry is a conduit for national security, social welfare and economic prosperity. What are the odds? The odds are in our favor. We have a strong business case, solid backing and robust partnerships that we can capitalize on. We have done it before and there is no doubt that we can do it again.