Analysis |

Saudis Pour Money Into Superpower Dream, but Miss a Key Ingredient

Saudi Arabia has more money than Turkey and Iran, which have managed to make their arms industries a source of major revenue

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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Saudi Crown Prince Mohammed bin Salman visits Islam's holiest shrine of the Grand Mosque in Saudi Arabia's holy city of Mecca, February 12, 2019.
Saudi Crown Prince Mohammed bin Salman visits Islam's holiest shrine of the Grand Mosque in Saudi Arabia's holy city of Mecca, February 12, 2019.Credit: AFP
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Andreas Schwer, by his own admission, has a dream job. A year and a half ago he was appointed by Saudi Crown Prince Mohammed bin Salman as CEO of Saudi Arabian Military Industries, the Saudi government umbrella organization responsible for all arms purchases and for developing a broad-based local arms industry for the kingdom.

In an interview with the Defense News website in August, Schwer said the company’s goal was to reach 50 percent local production of Saudi Arabia’s military needs by 2030, as opposed to only 2 percent today.

Meeting this goal would directly provide 40,000 jobs and about another 100,000 jobs indirectly – and would put Saudi Arabia among the world’s 25 largest arms producers. This goal, which comprises part of the reform plan announced by Prince Mohammed two years ago, Vision 2030, whose goal is to diversify the kingdom’s sources of revenues and reduce its dependence on oil – and also possibly reduce the country’s military dependence on Western arms manufacturers. This vision has a firm financial backing: $50 billion a year courtesy of the Saudi defense budget.

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But the generous funding is just part of the solution. Schwer says that Saudi Arabia’s military procurement strategy will have to transform from a vendor-client relationship to one of partnership with global suppliers. This will require foreign manufacturers to buy local Saudi products worth 50 percent of the contracts and to transfer manufacturing technology to the country, train local workers and build production lines in Saudi Arabia as a condition for the sales. This is where the real obstacles to the dream of nationalizing defense production lie, as it is for any other manufacturing that requires trained manpower and advanced technological knowledge.

Andreas Schwer, chief executive officer of Saudi Arabian Military Industries (SAMI) in Riyadh, Saudi Arabia, February 27, 2018. Credit: Bloomberg

Saudi Arabia suffers from a chronic shortage of technological manpower on which it would be able to build a sophisticated local industry in coming years. Despite the encouragement of technological education and sending delegations of students to Western countries, the gap between what exists today and what the country needs only keeps growing. Saudi universities are finding it difficult to recruit students for their technological departments because they require much harder work than in the social sciences and humanities. Most of the students prefer to study “easier” professions that will allow them to receive comfortable jobs in the government sector, or at least in private businesses.

Private foreign companies that operate in Saudi Arabia complain that Saudi workers find it hard to adopt the companies’ work culture, to meet exacting schedules, implement work plans with precision and even understand what they are asked to do. Sometimes these companies prefer to pay the Saudi employees’ wages and ask them to stay home, because their presence on the job interferes with the work of others. The requirement to hire Saudis is part of the broad legislation intended to nationalize work in the kingdom, but this legislation does not take into account the difficulties it creates for employers – in spite of the benefits they receive in return for hiring Saudis.

Saudi Arabia can only be jealous of the defense industries in countries such as Turkey and Iran, which have turned the sector into a powerful source of revenue. The revenue in turn allows the countries to rely more and more on local production, and as in the case of Iran even almost exclusively – and at the same time profit too. Iran had no choice but to develop its own technological capabilities, which has given it the ability to develop ballistic missiles, remotely-piloted aerial vehicles, warships and a wide range of ordnance – in addition to its nuclear program, which is based on knowledge it bought, but also on local management and development.

Turkey, which up until about a decade ago was dependent on foreign technology and procurement, is an example of a country that decided to change direction and produce a major part of its military needs on its own and even privatize some of its weapons manufacturers. Turkey exported $2 billion worth of arms last year and 2019 has begun with over $175 million in arms sales – a 64 percent increase when compared with sales in January 2018. Turkish Defense Minister Hulusi Akar said Turkey supplies itself with 70 percent of its military needs and intends on increasing this capability.

The difference between the Saudi vision and the Turkish capability is enormous. Turkey may not be able to compete with Saudi Arabia in the amount of money it produces, but the experienced, skilled and educated workers in Turkey give it an advantage that most Arab countries cannot supply. Turkey has markets in the West and Far East that are not open to Iran, and is also obtaining military experience on the ground and learning industrial lessons from it – in a similar manner to Israel’s military experience. Turkey is not the perfect image of a military power, but it has taken a major step forward in producing advanced weapons over the past decade, which attests to its long-term strategic thinking.

Visitors gather around the Saudi Arabian Military Industries (SAMI) pavilion at the Armed Forces Exhibition in Riyadh, Saudi Arabia, February 27, 2018. Credit: Bloomberg

Turkey’s problem in the area of skilled manpower now actually lies in the area of the “brain drain.” The military industries are worried by the emigration of at least 200 engineers to Western countries in the past few months. But it is this flow of skilled manpower that reflects the abundance of skilled Turkish workers.

As opposed to Saudi students, in Turkey young people can obtain all their necessary training at local universities and institutes. Turkey also has the advantage of being able to import knowledge, partly because it is a member of NATO. And unlike Saudi Arabia, it does not need to hire foreign pilots to fly or maintain its combat planes. Saudi Arabia will need many more years to equal Turkey in the area of defense production, but at least it can afford to continue paying until then for what it needs.

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