Procurement: Buy American If You Want To Live


August 31, 2012: Largely because of large sales to oil-rich Arab states in the Persian Gulf, arms exports hit a record $71.5 billion last year. The year before (2010) the total was only $32.7 billion. In 2011, 84 percent of those exports went to developing nations (mainly in the Middle East) while for period 2004-11 the percentage was only 69 percent. Developing nations can produce most of their own weapons but often do not because it's cheaper to buy them overseas. Even the United States does this. For example, a Norwegian firm has supplied American troops with billions of dollars' worth of remotely controlled gun turrets over the last decade. Norway in turn buys combat aircraft and anti-aircraft missiles from the United States.

For the last four years the United States supplied 54.5 percent of those exports. The next largest supplier was Russia, with 15 percent. Last year, the U.S. accounted for 79 percent, mainly because most of the sales to the Arab oil-states were American.

The U.S. has long had the most export sales, despite having the most expensive weapons. But the American stuff had a good reputation for effectiveness and reliability. American manufacturers provide excellent support. Most countries, if they could afford to buy American, did so. The others searched for someone offering cheap but effective weapons. The supplier has often been Russia.

Russian sales had been stalled for the last few years. Five years ago there were hopes that sales might reach $10 billion in 2008. That didn't happen because there were problems with their two largest customers, India and China. Russian exports had been growing rapidly during the last decade. They were only $4.3 billion in 2003. In 2004, that increased to $5.6 billion and that went to $6 billion in 2005, $7 billion in 2006, and then $8 billion in each of the next two years.

Russian arms sales rose sharply a decade ago because the economies of their two biggest customers (India and China) were increasing rapidly. That and the escalating price of oil (driven largely by increased demand from China and India) have sent international arms sales from $29 billion in 2003 to over $70 billion last year. Oil rich countries, particularly those in the Persian Gulf, are eager to buy more weapons with which to defend their assets from an increasingly aggressive Iran. But last year's sales are recognized as a fluke and sales for this year will be about half that.

The stall in Russian sales after 2007 arose from 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 began to shrink as Russian manufacturers feuded 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 tried to work out licensing deals without much success. Recently, China signed a technology agreement with Russia that was supposed to halt the Chinese patent piracy. We will see. Other Western nations are also finding themselves victims of Chinese piracy and, like Russia, are getting angrier at the situation.

Meanwhile, the U.S. continues to be the leading arms exporter followed by Russia, France, Britain, China, Germany, and Italy. The sharp growth in arms exports is largely because in the past decade global defense spending has increased 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 trillion for a year or two. But the spending growth has resumed now that the recession is over in many parts of the world.




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