Procurement: France Wins One


October 3, 2009: France expects its arms exports to increase 17 percent this year (from $8.28 billion to $9.7 billion), keeping it firmly in fourth place among international arms exporters. To achieve this, France cut a lot of the red tape and bureaucracy arms exporters have to put up with. France is keen on moving ahead of Britain, which has long exported more weapons, and Russia, which has been struggling of late. By virtue of a major aircraft sale to Saudi Arabia, Britain was the world's largest arms exporter in 2007, when they sold $19 billion worth of arms, passing the perennial leader, the United States. But over the past five years, the U.S. still has the lead, with $63 billion in sales. Britain was second, with $53 billion, and Russia third with $33 million.

Russia exported $8 billion worth of weapons last year, about the same as the year before. There were hopes that sales might reach $10 billion in 2008, but that stalled because of problems with their two largest customers; India and China. These exports had been growing rapidly during the last few years. In 2004, Russian arms sales were $5.6 billion, and that went to $6 billion in 2005 and $7 billion in 2006. Russian arms sales have been rising sharply (they were only $4.3 billion in 2003), as the economies of their two biggest customers (India and China) grew larger. That, and the escalating price of oil (driven largely by increased demand from China and India), has sent international arms sales from $29 billion in 2003, to over $60 billion now. Oil rich countries, particularly those in the Persian Gulf, as eager to buy more weapons, with which to defend their assets.

Russia, Britain and France  have one big advantage over the U.S., in that they are not shy about paying bribes. Britain achieved many of its large sales recently via bribes, and attempts by British legal authorities to investigate bribery in places like Saudi Arabia, are openly suppressed by the government (the Saudis threatened to take their business elsewhere, and cut off counter-terror cooperation otherwise.) France has a similar attitude towards anti-bribery laws.

Russia has a special problem with China, one of its biggest customers. Over the last decade, about 40 percent of Russian arms exports went to China. That is now at risk, as Russian manufacturers feud with the Chinese over stolen technology. The Chinese have been quite brazen of late, as they copy Russian military equipment, and then produce their own versions without paying for the technology. Worse, the Chinese are now offering to export these copies. The Russians are trying to work out licensing deals with the Chinese, but are not finding much interest. The Chinese say their generals are angry over how Russia sells technology to potential Chinese enemies, like India. Recently, China signed a technology agreement with Russia, that is supposed to halt the Chinese patent piracy. We will see.

In the past decade, global defense spending had grown nearly 50 percent, to over $1.4 trillion. That's about 2.5 percent of global GDP. After the Cold War ended in 1991, defense spending declined for a few years, to under a trillion dollars a year. But by the end of the 1990s, it was on the rise again. The region with the greatest growth has been the Middle East, where spending has increased 62 percent in the last decade. The region with the lowest growth (six percent) was Western Europe. The current recession may get global defense spending stalled at, or maybe even a little below, $1.4 billion for a year or two. But the spending growth will probably resume as soon as the recession is over.



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