$60bn in defence deals expected to lift Saudi economy

The sale of Apache helicopters, F-15s and other military vehicles and arms means billions of dollars in offsets.

A picture released by the US military 07 June 2007, shows an AH-64D Apache helicopter firing flares as soldiers from the 227th Aviation Regiment, 1st Air Cavalry Brigade, 1st Cavalry Division, based at Camp Taji, conduct a mission over Iraq, 29 April 2007. At least 14 people were killed and 30 wounded today in two near simultaneous vehicle bombs north of Basra, the southern Iraqi city, police and medical officials told AFP. AFP PHOTO/HO/Chief Warrant Officer Daniel McClinton

Defence firms selected to provide Saudi Arabia with up to US$60 billion (Dh220.35bn) in arms and military aircraft will generate more than $20bn in economic benefits throughout the kingdom's economy in return.

The boost will come via the nation's offset rules, which require the contractors to help build ventures in other sectors of the economy.

Saudi Arabia's five planned economic cities, including the 173 square km King Abdullah Economic City, will become a major target of these investments, according to Grant Rogan, the chief executive of Blenheim Capital Partners, a consulting and financial advisory firm that specialises in defence deals. Other high-interest areas include education, information and communications technology and homeland security.

"The Saudi Arabian General Investment Authority [SAGIA] has a remit to develop economic cities and they see the potential of offset obligations as an excellent way of achieving national objectives," said Mr Rogan.

Offset deals have led to some of the Gulf's largest infrastructure projects including the Dolphin gas pipeline and Abu Dhabi's Al Raha Beach development. The UAE will increasingly look at ways to use offsets to further its strategic goals in the 2030 plan, such as transferring technology and industrial know-how, raising the skills and the employment levels of Emiratis and boosting exports, according to recent official statements.

Boeing is the largest recipient of a record Saudi arms package that includes orders for 84 new F-15 fighter aircraft and 70 upgrades of existing Saudi F-15s. The US firm will also supply 70 Apache attack helicopters and 36 AH-6M Little Bird light attack/reconnaissance helicopters. The company will shoulder the largest burden for offset deals.

Sikorsky is also a major player in Saudi Arabia, with orders for 72 Black Hawk helicopters. Other participants include Lockheed Martin, Raytheon and Textron, Mr Rogan said.

One potential development could be the establishment of data centres along the Red Sea, he added. "One of the four Tier 4 data centres in the world is in Abu Dhabi, and the Saudi's have aspirations for a capability of their own," Mr Rogan said. "Some of the ideal locations are along the Red Sea."

The requirements will trigger opportunities for offset firms such as Blenheim, which Mr Rogan said was in discussions with SAGIA and the defence contractors. "It is a massive obligation and we are looking at ways to participate," he said.

Previously, some offset deals in the kingdom focused on meeting the needs of the military's maintenance requirements, such as the creation of the Alsalam Aircraft Company and the Middle East Propulsion Company.

In addition, Saudi Arabia could follow its record arms order with equally large air and seaborne packages, including the Patriot and Thaad missile defence systems from Raytheon and Lockheed Martin and ships from General Dynamics and Lockheed Martin. "You could be looking at a total of $120bn, and it could happen in the next 12 months," said Mr Rogan.