Modernizing the Military-Industrial Complex
Planners in the Egyptian military want to boost the old defense-industrial complex by cultivating new smaller scale projects that partner the Egyptian armed forces with a diverse portfolio of second- and third-tier foreign defense manufacturers.
The Egyptian military produces a staggering array of manufactured goods: kitchen cutlery, flat-screen televisions, agricultural and household chemicals, refrigerators, industrial machinery, railway cars, and election booths. And while many of the military's factory webpages make a concerted attempt to promote their wares, the careful observer gets the feeling that the production of air conditioners and gas stoves has superseded the production of guns and ammo. Although the military has been co-producing weapons systems in its factories under license from Western arms manufacturers for decades, the production lines and maintenance facilities constructing and modifying American M1A1 tanks, British armored vehicles, French Alpha Jets, and Chinese versions of Soviet MiGs are remnants of agreements originally signed in the mid-1980s and early-1990s, initiated by the now-deceased former Field Marshal (and staunch US ally) Mohamed Abdel Halim Abu Ghazala.
The intervening decade saw few new agreements -- and none on the scale of these previous projects. Owing primarily to a reputation for poor quality, the Egyptian military lacks a robust export market for its defense products, many of which end up in warehouses. Yet the military's production lines continue to roll out weapons systems that exceed what even a bloated military can absorb: thanks to its continuing M1A1 co-production program with the US, Egypt is now home to more tanks than all of Sub-Saharan Africa and Latin America combined. The military's economic planners know that a revival of their defense-industrial complex will not be achieved through an expansion of these aging operations, but rather through cultivating new smaller scale projects that partner the Egyptian armed forces with a diverse portfolio of second- and third-tier foreign defense manufacturers willing to transfer modern technologies in exchange for lucrative sales contracts with Cairo.
The centerpiece of this approach is the new three billion Egyptian pound "Mubarak Complex for the Defense Industry" being constructed somewhere along the Belbeis Desert Road, which runs from the northeast section of Cairo's ring road and extends about 50 kilometers to Belbeis in Sharkeya province.[1] This project has included the re-location of several of the military's largest factories--including Shoubra Engineering Industries, Maasara Engineering Industries, Maadi Engineering Industries, Heliopolis Company for Chemical Industries,[2] and Abu Zaabal Company for Specialty Chemicals -- from residential areas on the outskirts of Cairo to this new, more remote location.
The factories are reconstructed at the new five hundred-acre industrial park, purpose-built for the military, whose leaders say the site will house twenty-eight factories by the end of 2012, with plans to ultimately add thirty-four additional manufacturing sites.[3] The location will also include a new 200 million Egyptian pound laboratory and technical education complex, which former Minister of Military Production Sayed Meshaal said would help facilitate the transfer of relevant defense technologies. Before being replaced by Ali Sabri in December 2011, Meshaal also cited the continuing construction of the "Mubarak Complex II," which he said would comprise eighteen munitions factories on a separate 1,500 acre plot.[4]
The relocation process has occurred in tandem with an expansion in investment in the military's factories -- especially those facilities that produce small arms and raw materials used in weapons production. The Ministry of Military Production's five-year development plan for the period 2002-2007 detailed the expansion in factory activities, including new production of steel and copper alloys and a wide range of chemical and explosives materials; the upgrading of machinery, including blast furnaces and chemical testing equipment; and new investments in infrastructure for the military's electronics and chemical industries.[5] Other production targets included the development of longer-range artillery and ammunition and a collaborative radar development project with an unnamed foreign partner.
Foreign firms are cooperating with Egypt in expanding the military's ability to produce raw materials for use in weapons systems, including the Austrian-based company VAIS (a division of Siemens), which is providing technical assistance on the new 1.7 billion Egyptian pound steel rolling mill at the Abu Zabaal Engineering Industries factory, which will be outfitted with equipment supplied by the Egyptian subsidiary of the German firm Ferrometalco. [insert photo] The Ministry of Military Production has slated some of the factory's future output for tank and armoured vehicle construction, as well as for use in shipbuilding.
Former Minister of Military Production Sayed Meshaal justified the cost of the new complex by citing dramatic (and therefore dubious) increases in output at the military's production facilities, giving a figure of 483 million US dollars in "production" for the 2009/2010 fiscal year, and "revenues" of 345 million US dollars.[6] Meshaal also pointed to the intensification of technology and development collaboration with foreign defense manufacturers, including firms from the United States, Russia, the UK, China, South Africa, France, and Italy,[7] which necessitated the construction of new facilities for research, manufacturing, and testing.[8]
Many of these partner countries are also home to international shipping conglomerates and petroleum companies that have recently launched joint ventures with Egyptian state-owned firms in which the military owns substantial shares.[9] The Kuwait-based conglomerate Kharafi Group -- whose operations hub is in Obour City near the new defense complex site -- has been an instrumental link in the Egyptian military's efforts to gain access to foreign technologies and investment capital. Over the past decade the Egyptian military has established a number of "private" sector ventures with the group, which have facilitated the transfer of technologies from firms in Taiwan, Germany, and elsewhere.[10] This is in addition to a number of joint ventures between Kharafi's Egyptian divisions Kharafi National and EMAK, and the various subsidiaries of state-owned holding companies widely perceived to be under the control of the Egyptian military.
In addition to investments in factories and infrastructure, the Egyptian military is adapting its protocol for eliciting co-production and licensed manufacturing agreements from foreign defense firms. Instead of focusing on domestic production of very large-scale equipment in collaboration with OEMs (original equipment manufacturers -- like Boeing, Lockheed Martin, BAE, etc.) the Egyptian military appears to be diversifying its portfolio of partners, approaching subsidiaries and smaller independent suppliers instead. The relative success of both Jordan and the UAE -- which now manufacture and export a relatively wide range of weapons and equipment through various joint ventures with smaller-tier suppliers -- may have influenced the Egyptian military's renewed vigour for this type of collaboration.
This strategy has two potential benefits. First, the related projects are more likely to result in sustainable production activities, since they do not necessitate the transfer of the most sensitive technologies that require official approval from the host states of exporting firms. This improves the likelihood of getting export contracts, since sales to third parties will not be hampered by concerns over technology proliferation. Although co-production programs are still ongoing for large-scale, highly advanced systems like the M1A1 tank, these do not provide any real possibility for generating exports, since very wealthy countries would prefer to buy equipment built in the US and Europe, and poorer countries may not get the requisite technology waivers.
Therefore it makes sense for the military to concentrate on mid-range manufacturing such as small arms, as well as on tasks like upgrading and modifying armoured vehicles, which can also be achieved through agreements with the smaller firms that generally provide the armaments, electronics, and fire-control systems that are added to the tanks and fighter jets built by the OEMs. Second, subsidiary firms and smaller independent manufacturers are probably more willing to acquiesce to co-production demands in order to secure a sale, since smaller firms have fewer capital resources and subsidiaries may be under pressure from the parent company to compete with other divisions.
The contracts concluded by the Egyptian military during the previous decade appear to reflect this strategy. Examples include a waterjet-powered fire-fighting vessel (with 4X4 vehicle deployment ramp) built in 2004 by the Helwan Company for Machining & Equipment (Factory 999) based on design technology and materials provided by Teknicraft Design (of New Zealand) and the local Egyptian agent[11] of Hamiltonjet (also of New Zealand); as well as a 2004 contract with US-based firm Accent Controls Inc. to "establish facilities required for the maintenance and repair of Egypt's fleet of high-mobility multipurpose wheeled vehicles (HMMWVs)" -- essentially military-grade Humvees -- a maintenance line that had previously gone dormant. The Department of Defense said this latter contract would "help Egypt to expand its defense industry."
The website of an Egyptian consulting firm revealed that it had worked on another product development plan, this one encompassing the military-owned firms Arab International Optronics[12] and Benha Electronics Factory, along with Motorola and the French defense firms Thales (which owns half of Arab International Optronics) and Thomson CSF.[13] Benha Electronics also signed a Memorandum of Understanding (MoU) with the Latvian firm SAF Tehnika in 2009 pertaining to the procurement of communications systems for use by Egypt's police force, which would be supplied by SAF Tehnika but built in Benha factories. The MoU indicated that the contract would be the basis for a long-term joint venture that would make Benha the local hub for the Latvian firm's regional operations.[14]
A State Department cable from the American embassy in Belgrade released by WikiLeaks suggested that in 2008, Thales and Arab International Optronics were planning to import 520 kits for the Russian-designed SA-7 man-portable air-defense systems (MANPADs), allowing Optronics to gain experience and technological know-how in assembling the systems. The WikiLeaks cables also revealed that the South Korean firm Hanwha (operating as a subcontractor under industrial giant Samsung) had requested approval from the State Department to transfer US-origin technologies to Abu Zaabal Company for Specialty Chemicals in 2008.
The specific technology in question -- a method for testing propellants -- was to be used in a production line for the manufacture of 155-millimeter ammunition (howitzers).[15] This project was meant to expand the scope of local content used in the production of howitzers, connected to an earlier deal signed with the majority state-owned Finnish company Patria Vammas (the giant European defense consortium EADS owns the remaining shares of Vammas), which granted the Egyptian military a license to manufacture its howitzers and other mortars. The Ministry of Military Production recently announced that Abu Zaabal Engineering Industries is now producing gun tubes for these 122-millimeter and 155- millimeter howitzers, as well as mortars for use on M1A1 tanks--all using locally produced steel.
Far from slowing down in the face of economic uncertainty or concerns over political stability on the part of arms exporters, co-production agreements and technology transfers may be intensifying under the leadership of the interim military government. In February 2011, Egypt requested the modification of an earlier contract signed with the American firm Swiftships (a subsidiary of Singapore-based Halter Marine). The original thirteen million US dollar contract, signed in 2008, was for four twenty-eight-meter patrol craft, but the modified contract allowed for an Egyptian shipyard to "assemble" two of the patrol craft and "co-produce" the other two--at an increased cost of twenty million US dollars.[16] In the fall, Egypt announced the purchase of six Onuk MRTP-20 fast-intervention crafts "with technology transfer" from the Turkish company Yonca-Onuk JV. Three of the units are to be assembled at the military-owned Alexandria Shipyard.[17] The increased cost that generally accompanies co-production agreements (meant to compensate foreign firms for transferring proprietary technologies) suggests that Egypt's military rulers are seizing the opportunity to expand their technological toolbox while they hold the formal reins of government--regardless of the additional cost.