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WEEKLY NEWSLETTER
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Saudi Arabia
Index
A small defense-manufacturing industry based on coproduction,
offset, and licensing agreements with Western arms suppliers was
still emerging in 1992. Saudi policy was to reduce its exposure
to the political uncertainties of importing arms and to achieve a
degree of self-sufficiency as a source of prestige in the Middle
East. The chronic shortage of trained technicians and lack of
skilled manpower, however, forced the industry to rely on
expatriate managers, technical assistance, and imported labor.
Such joint ventures were entitled to industrial development
loans, tax holidays, and other subsidies.
During the 1970s, Saudi Arabia had been involved with Egypt,
Qatar, and the United Arab Emirates in establishing the Arab
Organization for Industrialization (AOI). Its goal was to combine
capital of the gulf oil states with Egyptian production
capabilities to create an arms industry located mainly on
Egyptian territory. Although Egypt carried out a number of
coproduction schemes under the AOI designation, the plan
foundered because of Arab anger over Egypt's 1979 peace treaty
with Israel.
Saudi Arabia later established its own small arms industry at
Al Kharj, producing United States and Federal Republic of Germany
(West Germany) rifles, machine guns, and ammunition under
license. In 1985 a royal decree by King Fahd led to the creation
of the General Establishment of Military Industries to oversee
and coordinate the kingdom's existing and proposed domestic
defense projects. In the same year, a contract was concluded with
a Boeing-led consortium committing the consortium to US$350
million worth of investments in Saudi Arabia as an offset to the
cost of the Peace Shield air defense system. Under this
arrangement, the Boeing group agreed to enter into a US$130
million joint project for an airframe maintenance facility and a
US$117 million advanced jet maintenance and repair facility. A
ten-year agreement was also concluded to develop a computer
center and an aircraft hydraulics maintenance center, all to be
built at King Khalid International Airport at Riyadh. The Boeing
consortium also held a 50-percent interest in a local company to
produce military tactical radios.
The Al Yamamah I arms agreement with Britain committed BAe to
offset US$7.5 billion in Saudi arms purchases with US$1.5 billion
of investments in Saudi Arabia. Three such projects were underway
in 1991. They included a British-American joint venture to
produce missiles for Tornado fighter aircraft, the local assembly
of heavy-duty trucks, and a BAe investment in an aluminum smelter
at Yanbu. A West German company had built a plant to produce
mortar shells and as of 1990 was negotiating a contract to
produce tank and howitzer ammunition.
Data as of December 1992
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