Procurement: France Clears The Way

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January 25, 2009: France exported $8.28 billion worth of weapons last year, and hopes to increase that this year, even with the global recession. To this end, France is cutting 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. 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.

The United States and Russia are the largest exporters of weapons, together accounting for over 70 percent of world sales. Traditionally, the U.S. sold nearly three times as much as Russia, but lately that was getting closer to only twice as much. The reason is, more effort by the Russians to not just sell on price, but also on service and warranties. Most of the cost of a new weapon comes during the lifetime (often a decade or more) of use. In the past, Russia had a bad reputation for support, and lost a lot of those "after-market" sales. The U.S. was much better in that respect, but much more expensive. Now the Russians not only have the price advantage (often half, or less, the cost of equivalent American weapons), but an improving reputation for providing good service. The Russians are also selling more high tech, and expensive, warships. For many years, warplanes comprised about two thirds of Russian sales, but now, about half the sales were for warships.

Russia has another advantage in that it is not shy about paying bribes. Britain achieved its large sales recently for the same reason, and attempts by British legal authorities to investigate  bribery in Saudi Arabia was openly suppressed by the government (the Saudis threatened to take their business elsewhere, and cut off counter-terror cooperation otherwise.)

Russia also has another problem with China. 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.

 

 


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