Riyadh: Saudi Arabia’s plans to overhaul every corner of its economy won’t spare the military.
The kingdom will put its armaments industry under a holding company as it prepares for a post-oil era. Part of that reboot will seek to meet more of its military needs domestically and diversify its economy, Deputy Crown Prince Mohammad Bin Salman said.
Prince Mohammad, second in line to be king and the power behind the throne, is leading the biggest economic shake-up since the founding of Saudi Arabia in 1932, with steps that include selling less than 5 per cent of Saudi Arabian Oil Co., cutting subsidies and bringing more Saudis into the labour market. His goal: end eight decades of the dependency on oil.
“When I enter a Saudi military base, the floor is tiled with marble, the walls are decorated and the finishing is five stars. I enter a base in the US, you can see the pipes in the ceiling, the floor is bare, no marble and no carpets. It’s made of cement. Practical,” Prince Mohammad said in an interview with Saudi-owned Arabiya television before details of the “Vision 2030” plan were announced. “We have a problem with military spending.”
Saudi Arabian stocks surged the most in seven weeks led by a real-estate firm as the prince outlined plans that included pressing ahead with infrastructure projects, boosting home ownership and opening the real-estate sector to foreign buyers.
Saudi Arabia has one of the biggest military budgets in the world, and was the leading Middle East spender on arms in 2015 at $46 billion (Dh169 billion), according to IHS Jane’s. It allocated 213 billion riyals (Dh208 billion or $57 billion) in its 2016 budget for defence spending. “We are the third- or fourth-largest in terms of military spending in the world, yet our army is ranked in the twenties. There is a problem,” the prince said.
“We are now about to establish a holding company for military industries, 100 per cent owned by the government, that will be listed later in the Saudi market,” Prince Mohammad said. “We expect it to be launched by end of 2017 with more details.”
Raising the proportion of military equipment bought from Saudi producers to as much as 50 per cent would create jobs and boost the economy, he said. The kingdom will seek to restructure several military contracts to tie them to Saudi industry, he said.
More broadly, Saudi Arabia wants to generate 35 per cent of the economy from small and medium enterprises, up from 20 per cent, according to the plan. It also aims to reduce unemployment among Saudis to 7 per cent from 11.6 per cent.
War in Yemen
Saudi Arabia’s military has been tested in Yemen, where it’s leading a coalition of nations against the Al Houthi rebels the kingdom accuses of being backed by its chief regional rival, Iran.
“Building a military industry in Saudi Arabia would be difficult given its limited technology and skills base,” said Paul Sullivan, a professor of security studies at Georgetown University in Washington. “This could take decades. A functioning and sustainable military industry takes a lot of investment, education, training and proper policymaking.”
While an expanded Saudi defence industry may provide competition to US contractors, the Obama administration has urged Saudi Arabia and other Gulf Cooperation Council members to develop their own defence capabilities rather than depending on the US as much as they have in the past.
“US military exporters may find this something of a threat to their bottom line — even though they could be the beneficiaries in some ways,” Sullivan said. “The US government may see this as the beginning of less leverage over such things in the future.”