Prospects for Indian Defence Manufacturers in the Evolving Middle East Market

The trade and cultural links between India and various Middle Eastern nations are centuries old. However, in the current global scenario, the opportunity in the fast expanding Middle Eastern countries for self-reliance in the defence-manufacturing sector could be used by the Indian defence manufacturers for mutual benefit

By Dr Md. Muddassir Quamar

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Prime Minister Narendra Modi with UAE President Mohamed bin Zayed

The Middle East is one of the most dynamic defence markets in the world. Violent conflicts, external and internal security threats and tensions among regional states generate strong demands for defence procurement. The region has remained unstable for over a century, and for long the regional countries have spent a substantive proportion of their annual budget on defence. The Middle Eastern and Gulf countries have traditionally depended on external supplies to meet their defence and security demands. However, with the global geopolitical and geoeconomic shifts, reduced US inclination to meet their needs and transitions in the energy market, the regional countries have expedited their efforts to reduce dependence on external defence procurement.

While Israel and Türkiye are the leaders in this regard, the UAE, Saudi Arabia, and Qatar too have been working towards consolidating their defence industry sector. In addition, Egypt and Iran too have put greater emphasis on meeting their security and defence requirements indigenously. These developments underline the shifts in the regional defence market, with the Middle Eastern and Gulf countries looking beyond the traditional industry leaders to forge futuristic partnerships. From an Indian point of view, with greater emphasis on developing the defence industry, this generates an extraordinary prospect for cooperation and collaboration with the defence industry in the Middle Eastern and Gulf markets.

Middle East Defence Market

According to the Stockholm International Peace Research Institute (SIPRI), during 2019-23, the Middle East accounted for 30 per cent of all arms imports globally, second only to Asia and Oceania, which accounted for 37 per cent. During the same period, three regional countries, Saudi Arabia, Qatar and Egypt, were among the top ten global arms importers, ranked second, third and seventh, respectively. Notably, four of the Gulf Cooperation Council (GCC) countries, Kuwait (12) and UAE (14), in addition to Saudi Arabia and Qatar, are among the top 15 global arms importers.

A Forecast International report notes that in 2022, the Middle East defence market comprised 6.7 per cent of the total global spending on arms purchases, amounting to US$ 127 billion, with Saudi Arabia, Israel, UAE, Iran and Oman, respectively, being the biggest spenders. Additionally, other regional countries, including Iraq, Kuwait, Egypt, Qatar, Jordan, Lebanon and Bahrain, have a strong defence budget with near total dependence on external procurements to meet military and security equipment requirements.

The biggest suppliers to the Middle East market, according to SIPRI, are the US (52 per cent), France (12 per cent), Italy (10 per cent) and Germany (7.1 per cent). Among others, Russia, Spain, Türkiye, China and South Korea have emerged as prominent suppliers of arms and military equipment to the Middle Eastern countries. Among the international defence manufacturers, Boeing, Lockheed Martin and BAE Systems are the top three market leaders in the region, with Saudi Arabian Military Industries (SAMI) and Israel Aerospace Industries among the regional market leaders. Military vehicles, weapons and ammunition, communication systems, and personnel training and protection are the leading segments in demand and will lead the compound annual growth rate in the next five years.

From an Indian point of view, with greater emphasis on developing the defence industry, this generates an extra-ordinary prospect for cooperation and collabo-ration with the defence industry in the Middle Eastern and Gulf markets

Another important regional trend is the consolidation of defence manufacturing with emphasis on localisation through international collaboration, technology transfer, strengthening of domestic manufacturing through partnership with global market leaders, and expanding exports to reduce the cost of defence expenditure, as well as focus on the need for economic diversification. Hence, countries such as Türkiye, Saudi Arabia and the UAE, have worked towards strengthening their defence manufacturing companies and industries. Israel has a traditionally strong manufacturing industry and export network among the regional exporters. Nonetheless, Türkiye has quickly emerged as one of the strongest exporters, ranked 11th in the world during the 2019-23 period, while UAE and Iran have also consolidated their positions, ranked 20th and 25th respectively.

Besides Israeli and Turkish manufacturers, Saudi Arabia’s SAMI and UAE’s EDGE have been spending heavily on developing their manufacturing and research and development (R&D) capabilities. The UAE established EDGE Group in 2019 by bringing together the country’s defence companies to create a mega-conglomerate with 25 subsidiaries. In 2023, in the fourth year of its formation, the company announced a 400 per cent increase in orders since inception, with US$ 5 billion worth of orders in 2023 alone. The company focuses on autonomous systems, smart weapons, and electronic and communication systems. Similarly, Saudi Arabia established SAMI in 2017 to reduce its external dependence to 50 per cent by 2030 as per Vision 2030 plan, and although this is an ambitious target, the company has moved fast to create infrastructure and capacity to meet the target mainly through joint ventures and incorporating local manufacturing terms in new agreements such as with Türkiye’s Baykar, a global leader in drone manufacturing, to locally produce its Akinci twin-turboprop medium-altitude, long-endurance uncrewed aircraft system (UAS).

Theunis Botha, CEO of AL TARIQ and S. Krishna Kumar, Executive Director of HAL at Aero India 2023

Indian Defence Industry

India is the global leader in defence expenditure. The defence requirements are highly diverse and complex due to its vast and complex geography and varied security threats. In 2019-23, India’s share in global arms imports was 9.8 per cent higher than any other country. High dependence and expenditure on defence imports have prompted the Government of India (GoI) to nudge the domestic defence industry towards creating local capabilities, increase R&D investment, encourage localisation through joint ventures and develop a defence manufacturing ecosystem in the country to reduce external dependence. Consequently, there has been a significant increase in the defence industry’s value, which stood at US$ 1.068 trillion in 2022-23, with US$ 160 billion in defence exports.

In its 2022-23 defence budget, 25 per cent of the R&D budget was earmarked for private industry and start-ups. Notably, as of 2023, 606 new industrial licences were issued to 369 companies operating in the defence sector. Under the Aatmanirbhar Bharat initiative, the GoI has issued four positive indigenisation lists with 411 products to be manufactured domestically. The MoD plans to have a US$ 26 billion turnover in aerospace and defence manufacturing by 2025 with a US$ 5 billion export target. The GoI has also set an ambitious target of US$ 15 billion in defence exports by 2026 and has been encouraging state governments to support local defence industries to set up bases.

The growing security and defence cooperation between India and the Middle Eastern countries, with a focus on military-to-military and defence industries’ cooperation, has opened up space for Indian and Gulf and Middle Eastern defence companies and start-ups to seek partnership and collaborate in defence sector

The Indian defence industry is a mix of public and private sector companies. Major public sector defence manufacturing and R&D companies are Hindustan Aeronautics Limited (HAL), Bharat Dynamics, Bharat Electronics, Bharat Earth Movers Limited (BEML), Defence Research and Research Organisation (DRDO), MTAR Technologies Limited and Indian Ordnance Factories. Among the private sector companies, Tata Advance Systems, Larsen & Toubro Defence, Bharat Forge (Kalyani Group), Adani Group, Mahindra Defence Systems, Reliance Industries and Ashok Leyland, with proven track records, have stepped up their defence arms and subsidiaries. Some of these, including Tata Defence, L&T Defence, Bharat Dynamics Ltd, HAL, DRDO and Kalyani etc. are industry leaders and have forged partnerships with international manufacturers for capacity building and local manufacturing.

Prospects for Collaboration

The emphasis on strengthening local defence industries in India and the Middle Eastern countries, especially in the GCC states, has created a strong prospect for collaboration at multiple levels, including joint R&D projects, joint ventures in manufacturing and growth in defence supplies. In February 2023, during the International Defence Exhibition and Conference (IDEX) in Abu Dhabi, EDGE and HAL signed a memorandum of understanding (MoU) to explore areas of cooperation, including the joint design and development of missile systems and drones. Another Indian defence company, ICOMM, signed a technology transfer agreement with UAE’s CARACAL (an EDGE subsidiary) to manufacture the latter’s complete line of small arms for the Indian market. Many other such partnerships, joint ventures in design and manufacturing and collaboration agreements have also been signed or are under consideration with defence manufacturers based in Israel, Saudi Arabia and Egypt.

Among the most important areas where Indian companies can explore cooperation are electronics and communications technology, radar systems, precision equipment, small arms, military vehicles and personnel protection and training equipment. Among strategic areas with prospects for collaboration and cooperation are space exploration, missile and drone systems, aircraft and engine design and manufacturing and surveillance systems. There is also scope for collaboration among start-ups, especially in technological innovation that has the potential to attract investments, including from Gulf-based defence-tech giants.

The growing security and defence cooperation between India and the Middle Eastern countries, especially with the GCC States, with a focus on military-to-military and defence industries’ cooperation, has opened up space for Indian and Gulf and Middle Eastern defence companies and start-ups to seek partnership and collaborate in defence R&D and manufacturing sector. Among the leading countries where the prospects for cooperation are high so far as the Indian industries are concerned are Israel, UAE, Saudi Arabia, Egypt, Bahrain, Oman and Jordan.

India’s growing political, diplomatic and strategic relations with the Gulf and Middle East have opened up newer avenues for cooperation in various sectors. One of the key sectors where there is a greater prospect for collaboration is the defence industry, which is at a nascent stage of growth in India and the region. Indian defence industry leaders and start-ups can, and should, explore the possibilities of forging partnerships in defence R&D and manufacturing with their counterparts in the Gulf and Middle East, especially in the UAE, Saudi Arabia and Egypt, as their strategic goals align with India’s, opening up durable and lucrative prospects.

–The writer teaches Middle East Studies at Jawaharlal Nehru University, New Delhi. X: @MuddassirQuamar The views expressed are of the writer and do not necessarily reflect the views of Raksha Anirveda