Middle East arms fair, forecasters see 10% drop in Gulf spending

Crown Prince Mohammed bin Zayed bin Sultan Al Nahyan (C) of the Emirate of Abu Dhabi, Deputy Commander-in-Chief of the UAE Armed Forces, has a look at a scale model of a T-14 Armata tank by UralVagonZavod Research and Development Corporation at the IDEX 2021 International Defence Exhibition & Conference.

Photo by TASS | TASS via Getty Images

DUBAI, United Arab Emirates — Defense spending across the oil-rich Gulf states — among the top buyers of U.S. arms globally — is expected to drop by nearly 10% in 2021 after increasing significantly the previous year.  

That’s thanks to tighter budgets due to the fall in oil prices over the course of the coronavirus pandemic, defense intelligence firm Jane’s said in a new report.  

“Defence spending in Gulf Co-operation Council (GCC) countries is to decline by 9.4% in 2021, as countries in the region face pressure due to the impact of Covid-19 and low oil prices,” Jane’s wrote in a report published Friday, adding that it “expects a swift rebound in coming years” — but no return to pre-pandemic levels until 2024. That’s a significant change for a region whose arms imports increased by 61% between 2015 and 2019, according to the Stockholm International Peace Research Institute.

“The significant drop in oil prices during 2020, coupled with a corresponding decline in demand from the manufacturing and transportation sectors, resulted in increased pressure on government budgets,” Charles Forrester, lead analyst at Jane’s, said in the report. He noted the decline of oil and gas revenues, as well as the fall in revenues from non-oil sectors like tourism, finance and travel as a result of countrywide lockdowns.

In 2018, the firm expected Gulf defense spending to increase consistently over the coming years and top $110 billion by 2023. Defense expenditure jumped by 5.4% in 2020 from the previous year to $100 billion, but is projected to drop to $90.6 billion this year and $89.4 billion in 2022.

Gulf Cooperation Council states: Defense expenditure and GDP growth, 2010-2025. Source: IHS Markit/Janes Defence Budgets

IHS Markits/Janes

Procurement spending, which is the purchase of defense equipment but doesn’t include things like salaries, operations and maintenance costs, and R&D, will also fall slightly to $13.25 billion from $13.38 billion in 2021, Jane’s predicts, after surging 4.5% in 2020. 

The report came ahead of IDEX, the Middle East’s largest defense expo, taking place in Abu Dhabi this week. Despite the pandemic, IDEX was still busy with participants. Ahead of the event, organizers expected more than 70,000 attendees and 900 exhibitors to gather at the Emirati capital throughout the week to display their newest technologies and broker deals in a region that accounted for 35% of total global arms imports in the last five years, according to SIPRI.

Israel absent at arms fair

Absent at the arms fair was Israel, despite its historic normalization and rapid warming of ties with the UAE after the signing of the Abraham Accords in September. Talk of defense and technology cooperation has abounded since then, but a surge in Israel’s Covid-19 cases prompted the country’s leadership to shut down its main airport, halting international travel.  

The advent of diplomatic relations with Israel means new technologies and more competition for the Gulf market, offering greater options for equipment that’s still compatible with that already purchased from the West.

Lockheed Martin F-35 Joint Strike Fighter Lightning II

Robert Sullivan | FlickrCC

One big question mark remains the Lockheed Martin F-35 Joint Strike Fighter jet, for which the UAE inked a $23 billion purchase in the final days of the Trump presidency.

It would become the first Arab country to get the highly advanced and secretive system, greenlighted in the aftermath of its accord with Israel. Israel’s military already flies the jets; the UAE’s acquisition “will help to link the U.S., Israeli, and Emirati defence industries together,” the Jane’s report said. 

Developing local defense industries

But the sale is currently on hold pending review by the Joe Biden administration, who has shown far more restraint in his relationship with the Gulf states so far compared to his predecessor, who circumvented Congress to push through large arms deals with the UAE, Saudi Arabia and others.  

This is seen as one of many reasons the UAE and other Gulf states, namely Saudi Arabia, are pouring money into developing their own indigenous defense industries — aiming to increase their self-sufficiency, grow local jobs and compete in their own right as arms exporters. 

Both Saudi Arabia and the UAE, with the help of state-owned entities like Saudi Arabian Military Industries and the Emiratis’ EDGE, “are also working to leverage new technologies in the defence sector — in order to build out their own conventional deterrence capabilities and to reduce the reliance on foreign suppliers,” Forrester said.

Those technologies include armored vehicles, naval vessels, smart missiles, electronic warfare capabilities, and unmanned systems including aerial drones, EDGE CEO Faisal Al Bannai told CNBC at the expo on Monday. EDGE is an advanced technology group that consists of 25 Emirati companies and ranks among the top 25 arms suppliers in the world. 

“As these solutions start evolving and maturing, for sure the local client at least prefers to buy local sovereign products, because it has more flexibility and it can meet its needs in the much shorter term,” he told CNBC’s Hadley Gamble.

The CEO aims to see the UAE’s firms competing at the international as well as regional level.

“I can definitely see, as you grow your capabilities, as the needs keep increasing, I think it’s only good for local industry and for local talent to grow such capabilities,” he said.

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