Saudi Arabia plans to make half of military purchases domestically

As part of a larger reform plan to transition Saudi Arabia into a post-oil economy, Deputy Crown Prince Mohammed bin Salman said he aims to direct half of the country’s military expenditures into the domestic industry.

“Does it make sense that we are the world’s fourth-largest military spenders in 2014, and third in 2015 and we don’t have our own local military industry?” the prince said during a televised interview with Al Arabiya. “We spend more on military than the British and French, yet we do not even have our own local industry.”

Prince Mohammed, who is also the kingdom’s defense minister, said Riyadh plans to create a government-owned holding company to boost the domestic military industry, which is currently almost non-existent. The company would be listed on Saudi Tadawul by the end of 2017, he added.

“When I walk into a Saudi military base, the floor is made of marble, the walls are decorated, and the finishing is five stars. I enter a base in the U.S., I see the pipes in the ceiling, the floor is bare, no marble, and no carpets. It’s made of cement. Practical,” he said. “We cannot be the third largest military spender in the world, while our military is rated in the twenties when it comes to efficiency; there is something wrong.”

The announcement is a big step for the kingdom, which is currently one of the biggest buyers of U.S. weapons. By boosting the percentage of purchases from domestic military suppliers to something between 30 to 50 percent, Riyadh hopes to create thousands of new jobs in the process, while diversifying its oil-focused economy over the next 15 years.

“As we continue to give our army the best possible machinery and equipment, we plan to manufacture half of our military needs within the Kingdom to create more job opportunities for citizens and keep more resources in our country,” the Prince said in the Vision 2030 announcement.

The state-owned company could allow for new ways to diversify the kingdom’s overall portfolio and increase possible cooperation between Saudi Arabia and the United Arab Emirates’ defense sectors— or even pave the way for an Egyptian-Turkish-Saudi triangle, said Cyril Widdershoven, partner at Dutch energy and security risk consultancy VEROCY.

Earlier this year, Prince Mohammed changed the management structure of the Saudi Military Industry Corporation (MIC) by appointing SABIC’s CEO as president of the corporation.

Widdershoven believes these changes were a precursor to the kingdom’s plans, which are a part of Saudi Vision 2030.

Although Saudi MIC is expected to pose major competition to the China-India-Russia industry, it is currently lagging behind competition due to geo-politics, bureaucracy, and lack of access to technology. However, an integrated regional defense production proposal would be very attractive and feasible, said Widdershoven.

“We will expand the variety of digital services to reduce delays and cut tedious bureaucracy,” said Prince Mohammed. “We will immediately adopt wide-ranging transparency and accountability reforms and, through the body set up to measure the performance of government agencies, hold them accountable for any shortcomings.”

Oil revenues in the last decade allowed Saudi Arabia to increase defense spending by 112.0 percent, according to Deloitte's 2016 report on the global defense industry. Currently, Saudi arms are partly produced locally or sourced from Europe, U.S., China, Russia, India, or South Africa. 

But, heavy military spending is becoming a burden on the government as oil revenues remain low due to slumping crude prices. Saudi Arabia could utilize the influx of new technology while using domestic defense production to counter defense spending or even start real exports, Widdershoven added.

Saudi Arabia expects to spend SAR 213 billion on defense this year, higher than any other sector. 

Write to Farha Abdelhaq at farha.abdelhaq@argaamnews.com and

Reem Abdellatif at reem.a@argaam.com