Military Industries in Saudi Arabia

Military Industries in the Kingdom of Saudi Arabia are the manufacturing capabilities for military equipment and technologies, which are being localized, regulated, and developed by the General Authority for Military Industries. This authority was established by a Saudi Council of Ministers decision issued on August 15, 2017, to be the responsible entity for organizing, enabling, and licensing military industries in the Kingdom.

The General Authority for Military Industries plays a crucial role in realizing the country's ambition to develop national military industry capabilities, enhance the Kingdom's strategic autonomy, and localize the sector by advancing military industries, technologies, and national competencies. By the end of 2021, the localization rate reached 12 percent. The authority aims to increase this to over 50 percent of government spending on military equipment and services by 2030, as part of Saudi Vision 2030. This effort seeks to directly contribute to the gross domestic product (GDP) and increase non-oil revenues by building a local defense and security industry sector.

The authority works in coordination with its partners from both the public and private sectors to localize the military industries sector in the Kingdom. This includes enabling local and international manufacturers, providing them with licensing opportunities to invest in an attractive military industrial environment with high-quality investment opportunities and incentives. Additionally, the authority aims to empower national talents to contribute to the ambitious localization efforts.

The organizational process for military industries is subject to regular review and development to support the sector's evolution. In this context, the Saudi Council of Ministers approved the Military Industries Sector Strategy in 2021, which aims to enhance the country's strategic independence, develop national military-industrial capabilities, and work towards localizing this promising sector to become a significant contributor to the Saudi economy.

The Military Industries Sector Strategy aims to embody Saudi Vision by achieving independence and developing national military-industrial capabilities. It seeks to localize the sector, making it a significant contributor to the Saudi economy. This will be achieved through technology transfer, supporting local investors, providing job opportunities for citizens, and increasing the sector's contribution to the national economy.

The strategy is based on three main pillars: Firstly, the military procurement pillar targets local agencies involved in the military and security sectors, organizing procurement processes to achieve cost efficiency and prioritize industry localization, while supporting local manufacturers and standardizing practices across military agencies. It also aims to leverage the sector’s collective purchasing power to secure the best contractual terms with suppliers. Secondly, the strategy seeks to achieve over 50 percent localization of the Kingdom's spending on military equipment and services by 2030. The authority has identified eleven target areas within the industry and aims to develop global regulatory frameworks that enhance transparency, encourage investment in the promising military sector in the Kingdom, offer incentives to local manufacturers, and issue manufacturing and export licenses.

Through the third pillar, military technologies, the authority aims to build national capabilities and enhance local infrastructure for research and development. This includes identifying priority technologies, fostering human capital development, and establishing specialized national research centers and laboratories in military industries. The authority has identified seven research areas with twenty-one targeted technologies to be developed and localized over the coming years. This supports the General Authority for Military Industries' efforts to lay the foundations for a work environment that will directly contribute to increasing the GDP by 2030, creating job opportunities in both the public and private sectors, driving development by boosting non-oil revenues, and supporting successful small and medium-sized local companies to further contribute to the Saudi economy.

In organizing the military sector, the Kingdom has launched the Military Industrial Licensing Program, which encompasses three main activities: military manufacturing, military services, and the supply of military products or services.

The organization and investment activities in the defense sector have achieved several milestones, including: localizing the Spanish Avante-2200 ship combat systems, localizing the production of HIS-32 fast boats, producing the Dhahran armored vehicle (4x4), initiating the development of programmable radio systems, and beginning the development of unmanned aerial vehicle (UAV) capabilities. Additionally, the first industrial cooperation agreement was signed with Raytheon Saudi Arabia for the localization of maintenance and refurbishment of the Patriot air defense system.

The significance of national military manufacturing was highlighted by achievements representing advancements in the Kingdom's industrial capabilities, with the Ministry of Defense and the General Authority for Military Industries announcing in 2020 the launch and localization of the first locally manufactured high-speed interceptor boat, the HSI32, as well as the inauguration of the first floating dock.

This batch of high-speed interceptor boats represented a significant qualitative addition to the Kingdom's military industry. It was the first batch manufactured locally and came as an extension of previous deliveries received by the Royal Saudi Naval Forces from the French company CMN. This arrangement was established through an agreement between the two parties, which included the manufacturing and supply of several HSI32 interceptor boats. Part of the boats were produced in France, while the rest were manufactured locally in the Kingdom with transferred technology.

The economic contribution of the military manufacturing sector is expected to reach USD4.5 billion in GDP by 2030, with investment levels projected to hit USD10 billion by the same year. Additionally, total exports are anticipated to amount to USD666 million in 2030.

To achieve these targets, eleven priority areas have been identified for localization by 2030. These include: defense electronics, conventional munitions and weapons, guided munitions and rockets, UAV systems and structural components, UAV maintenance and repair, cybersecurity, maintenance and repair of fixed-wing aircraft parts, land systems and structural components, maintenance and repair of land system parts, naval systems and structural components, and maintenance and repair of naval system parts.

The investment in the military manufacturing sector also includes the development of technological systems. Seven strategically prioritized categories in research and innovation have been identified, including: electro-optics and infrared, electronic warfare and directed energy, radar, radio communications, cybersecurity, electromagnetic weapons, and artificial intelligence enablers.

The military manufacturing sector gains vitality from several initiatives and programs that enhance its industrial performance. In this context, the IPP was launched in 2019, as an advanced version of the Economic Balance Program in the Kingdom. It acts as an enabler in the strategy for the military manufacturing sector in the Kingdom and contributes to creating promising economic opportunities within the sector.

The program, an agreement between the General Authority for Military Industries and the original equipment manufacturer to support local content, aims to expand the domestic military manufacturing base in value-added areas. It provides a network of services and technical support for the military manufacturing sector, stimulates direct investments and strategic partnerships with global companies in the sector, transfers technologies and knowledge in services, industry, research, and technology, develops national human resources for specialized fields, and supports small and medium-sized enterprises to ensure their participation in national supply chains.

Saudi Arabian Military Industries (SAMI) is a major player in the military industry sector, wholly owned by the Public Investment Fund. Established in May 2017, SAMI focuses on developing and supporting defense industries in the Kingdom and enhancing its self-sufficiency. The company significantly contributes to the military industry's goals and aspires to be among the top twenty-five specialized companies in this sector globally.

SAMI began its investments and achievements in its early years of operation. In 2020, SAMI announced the completion of its acquisition of Advanced Electronics Company (AEC), thereby becoming a fully Saudi-owned company.

This acquisition provides several competitive and investment advantages. It enhances Saudi Arabian Military Industries' presence in the strategically important defense industry market and supports its plans to transfer and localize military industries. Additionally, the acquisition will bolster Advanced Electronics Company's opportunities for expansion and competition within its field.

The military industries sector in the Kingdom saw a rise in the number of establishment permits and licenses by the end of 2022, with a total of 342 foundational permits and licenses for 192 facilities. The estimated investment volume for these facilities is approximately SAR43 billion by 2027.

Since its establishment until the end of November 2022, the General Authority for Military Industries has received over four hundred requests from various ministries, including the Ministry of Defense, Ministry of Interior, National Guard, State Security Presidency, Royal Guard, and General Intelligence, with a total value of SAR74.06 billion. In comparison, the total number of requests and contracts presented to the authority since its inception is 318, with a total value of SAR56.97 billion.

Since its establishment until November 2022, the General Authority for Military Industries has received approximately fifty-three programs with a total value of SAR3.61 billion. In comparison, the number of programs presented to the authority is twenty-four, with a total value of SAR2.29 billion.

As of November 2022, the General Authority for Military Industries has completed the review of approximately 327 projects related to contracts and armament. The potential savings on the total projects after bidding are estimated at 3.46 percent, amounting to a total of SAR1.8 billion.