New defence partnerships emerge as Riyadh pushes industrialisation goals

Riyadh is developing new industries in defence and aeronautics with a concentrated strategy that will create thousands of employment opportunities for its growing pool of highly skilled workers.
Saturday 20/07/2019
A view of the Saudi Arabian Military Industries (SAMI) exhibit during the International Defence Exhibition & Conference in Abu Dhabi, last February. (Reuters)
Ambitious plans. A view of the Saudi Arabian Military Industries (SAMI) exhibit during the International Defence Exhibition & Conference in Abu Dhabi, last February. (Reuters)

DUBAI - Saudi Arabia, the world’s most important oil supplier, is also one of the world’s leading defence spenders and despite cost-cutting initiatives to enhance efficiency, will allocate more than $50 billion to its defence budget this year.

Until recently, it is estimated that Saudi industries represented only as little as 2% of that spending.

Saudi Arabia’s Vision 2030 aims to localise as much as 50% of its annual defence expenditures. It is an ambitious target but from the current low base to begin with there is enormous potential for growth and multifaceted economic benefits as Riyadh bids to grow non-oil sectors of the economy and boost industrial output.

Riyadh is developing new industries in defence and aeronautics with a concentrated strategy that will generate billions in income and create thousands of employment opportunities for its growing pool of highly skilled workers.

In 2017, Saudi Arabian Military Industries (SAMI) was established by Saudi Arabia’s sovereign wealth fund to lead efforts in cultivating a more dynamic defence industrial base.

SAMI has a target to create 40,000 jobs by 2030 and is on a mission to develop Saudi defence industries through new partnerships and joint ventures that can bring international expertise, knowledge and technology for manufacturing and professional technical services to Saudi Arabia’s doorstep.

SAMI recently announced an agreement with Paramount Group, one of South Africa’s leading defence and aerospace companies known for innovative approaches in manufacturing of equipment such as infantry combat vehicles and unmanned systems. As an industrial partner, Paramount Group, with product and solutions ranging across the air, land and sea domains, promises to offer proven capabilities as well as a long-term commitment to Saudi Arabia.

SAMI has also announced a joint venture with Hanwha Munition Systems to produce and sell munitions in Saudi Arabia. Hanwha Munition Systems is part of Hanwha Group, one of South Korea’s leading diversified industrial conglomerates whose core business area in defence is supported by an international research and development network.

In future phases, SAMI will work with Hanwha Group to expand product lines and develop more advanced systems for the land forces locally.

French company Figeac Aero entered into a joint venture with SAMI in June to manufacture parts for commercial and military aircraft in Saudi Arabia. Figeac Aero specialises in machining structural, engine and precision parts with light alloys and hard metals.

The new entity is expected to focus on machining processes and will deliver finished goods and could represent an important milestone in Saudi Arabia’s journey into the manufacture of high-end aeronautics products.

To reach sales revenue targets of $10 billion by 2025, SAMI is planning multibillion-dollar strategic investments and the creation of as many as 30 joint ventures to focus on aeronautics, land systems, weapons and defence electronics. SAMI’s efforts to develop international partnerships in defence are likely to continue as it implements a strategy to meet its ambitious targets.

SAMI’s role is also as much about reshaping Saudi Arabia’s domestic industrial landscape to set it up for the kind of rapid growth that is being planned for it. So SAMI has been as active within Saudi Arabia on the mergers and acquisitions front as it has been in developing international partnerships to establish joint ventures.

SAMI acquired a majority stake in Aircraft Accessories and Components Company (AACC), which is a maintenance, repair and overhaul (MRO) focused company specialising in aircraft hydraulics. Demand for specialist MRO and related support services are seeing massive growth in Saudi Arabia and the Gulf region. SAMI plans to expand AACC into new MRO areas, including helicopters, and wants to achieve scale by serving an expanded civilian customer base.

In June, SAMI acquired one of Saudi Arabia’s biggest and best-known defence companies, Advanced Electronics Company, which was established in 1988 together with BAE Systems as part of the offset programme. It has seen growing revenues in recent years — last year turning over $552 million.

This year, Saudi Arabia began rolling out its first batches of 22 domestically assembled Hawk Mk 165 Advanced Jet Trainers ordered from BAE Systems.

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