During the IDEF arms exhibition in Istanbul in late July, Saudi autonomous system maker Intra Defense Technologies signed a licensing agreement with Turkish aerospace company ESEN granting the latter manufacturing and selling rights for the Saudi-designed ASEF-I unmanned aerial vehicle. In early August, Saudi Arabian Military Industries, a wholly owned subsidiary of the Saudi Public Investment Fund, signed a localization agreement with Turkish drone company Baykar to manufacture its advanced drones in Saudi Arabia. Riyadh made headlines again in mid-August by expressing interest in becoming a full partner in the Global Combat Air Programme, a British-Italian-Japanese initiative to develop a sixth-generation fighter aircraft. The considerable scale and accelerating pace of Saudi aerospace deals underscore air power’s integral role in shaping Saudi military doctrine and economic planning.

Adjusting to a Fast-Evolving Environment

Since Saudi Arabia’s 2015 intervention in Yemen, the Houthis have targeted Saudi civilian, military, and energy facilities with hundreds of cross-border aerial attacks, exposing major gaps in the kingdom’s air defense system. Combined with faltering confidence in U.S. security guarantees and Saudi Arabia’s traditional Western suppliers’ increasingly restrictive weapons export policies, these threats have compelled Riyadh to enhance its military readiness and strategic autonomy by building domestic military capabilities and diversifying its defense procurement.

Saudi Arabia’s estimated military expenditure in 2022 was $75 billion, positioning it as the biggest Middle Eastern buyer and the fifth-largest spender globally. With defense spending accounting for 7.4% of the country’s gross domestic product in 2022, Saudi Arabia had the second-highest military expenditure globally as a proportion of GDP.

However, increased volatility of global energy prices and mounting pressure to reduce the Saudi economy’s reliance on oil revenue have pushed Saudi Arabia to reduce the burden of sky-high military expenditures. While fragile regional security conditions make a substantial reduction in defense spending unfeasible, Saudi Arabia has sought to offset the impact of military expenditures by developing a local military-industrial complex and awarding major arms deals to domestic firms. This effort aims to create job opportunities for Saudi youth and absorb military spending within the domestic economy. In the best case, if the kingdom is able to become a competitive seller in the global arms market, this strategy could also bolster Saudi export revenue.

Shifts in Saudi Localization Efforts

While the Saudi push to localize defense manufacturing has gained significant momentum over recent years, efforts to build a homegrown military industry date back to the mid-1980s. Lacking an advanced technological-industrial base and skilled national workforce, Riyadh established offset programs to fuel indigenous military industrialization. As a form of countertrade between foreign suppliers and local buyers, offset programs aim to reduce the economic burden of procurement deals by requiring the international contractor to invest in the importing country’s economy. For Saudi Arabia, offset programs primarily included technology transfers and training for local workers.

Despite high expectations, offset program-led industrialization endeavors delivered mixed results. On the one hand, some of the most renowned Saudi defense firms, including both the Aircraft Accessories and Components Company and Advanced Electronic Company, were created as joint ventures under the Saudi-Boeing Peace Shield-I offset program. On the other hand, offset policies struggled to produce revenue-generating projects, high-level jobs for Saudis, and advanced technical training opportunities. The lack of an efficient science-based educational system, informal barriers in the Saudi bureaucratic system, and the fact that most foreign direct investments went to industrial sectors that were not related to defense contributed to offset policies’ shortcomings.

The appointment of Mohammed bin Salman as defense minister in 2015 and crown prince in 2017 significantly impacted Saudi localization efforts. The young crown prince’s rapid political rise brought the development of a sustainable domestic military-industrial base to the top of Saudi strategic priorities. Under Vision 2030, the roadmap guiding Saudi Arabia’s economic diversification push spearheaded by Mohammed bin Salman, the kingdom aims to localize over 50% of its defense spending by 2030.

Executing Vision 2030

With only 2% of Saudi military spending in 2017 going to indigenous defense firms, Saudi Arabia has sought to make progress on its lofty localization targets by reorganizing the domestic defense environment and revamping its business approach to the military sector.

The kingdom launched two new public entities: Saudi Arabian Military Industries and the General Authority for Military Industries. Inaugurated in May 2017, SAMI has rapidly turned into Saudi Arabia’s top defense company and developed manufacturing capabilities in aerospace, advanced electronics, and defense systems. As of late June, the firm had a backlog of more than $10 billion in arms deals and a localization rate close to 15%. Established in August 2017, the General Authority for Military Industries is the government’s principal authority in the defense sector and is responsible for overseeing and expediting efforts to develop domestic military industries.

While Riyadh continues to value technology transfer and local workforce training, it has displayed a preference for business partnerships emphasizing joint production and subcontracting clauses. To this end, Saudi Arabia has recalibrated its industrial model around three main pillars: establishing manufacturing-focused joint ventures with top defense firms, acquiring companies with valuable technology and manufacturing knowledge, and signing localization agreements to set up indigenous production lines for platforms critical to national security.

SAMI has established several partnerships with major aerospace manufacturers. In January 2019, SAMI and French aerospace company Thales signed an agreement for a joint venture to produce air defense radars, missiles, and communications equipment. In February 2021, SAMI and Lockheed Martin established a joint venture to enhance Saudi aerospace manufacturing capabilities, with production at a joint facility likely to start at the end of 2023.

During the Saudi-French Investment Forum in late 2021, SAMI and the French company Figeac Aéro established a joint venture to build a high-precision manufacturing facility to produce aerostructure components and bolster Saudi engineering, technical, and manufacturing capabilities. At the bilateral summit, SAMI also launched a joint venture with Airbus to provide maintenance, repair, and overhaul services for the Royal Saudi Air Force’s Airbus fixed-wing fleet. SAMI-Airbus cooperation expanded in mid-2022 with a contract to strengthen Saudi maintenance and repair capabilities for rotary-wing aircraft.

At the inaugural World Defense Show in Riyadh in March 2022, SAMI signed a preliminary agreement to form a joint venture with Boeing to provide maintenance, repair, and overhaul services for the Royal Saudi Air Force’s rotary platforms. The deal follows a 2018 SAMI-Boeing agreement for localizing over 55% of such services for the Royal Saudi Air Force’s air assets. In mid-2022, SAMI and Singaporean firm ST Engineering set up a joint venture to work on defense systems and autonomous solutions. Finally, in June 2023, SAMI and the French aerospace company Safran signed a deal for cooperation on helicopter maintenance, repair, and overhaul services.

SAMI has also significantly expanded its portfolio of defense subsidiaries. SAMI purchased a majority stake in Aircraft Accessories and Components Company in 2019 and bought Advanced Electronics Company a year later. In mid-2022, it secured a 51% stake in the Saudi Rotorcraft Support Company, a Saudi-Boeing joint venture. SAMI has sought to promote deeper integration of local firms and has prioritized purchasing companies with manufacturing expertise, a history of profitable business in the kingdom, and a high employment rate for Saudi nationals.

Finally, Riyadh has made progress in scaling up the sophistication of in-country production lines of foreign defense platforms by broadening its industrial capabilities from the mere domestic assembly of imported items and building low-technology components to manufacturing and designing more sophisticated systems. At the 2022 World Defense Show, SAMI and European missile systems conglomerate MBDA inked a memorandum of understanding to set up a joint venture to produce tactical missile systems. The deal also included the establishment of a missile maintenance, repair, and overhaul center in Saudi Arabia and opportunities for SAMI employees to receive training at MBDA’s Missile Systems University. In February, the Saudi company SRB Aerial Systems and Collins Aerospace, a subsidiary of RTX Corp., signed an agreement to produce drones starting in early 2024.

Bumpy Runway to Air Defense Self-Sufficiency

Now past the halfway point for Vision 2030, Riyadh needs to significantly scale up industrialization efforts to meet its ambitious localization targets. However, three main obstacles loom over Saudi Arabia’s self-sufficiency ambitions.

First, most Saudi defense companies have not mastered the industrial capabilities needed to independently produce highly sophisticated weapons and continue to rely on external partners for design and engineering. Developing advanced air defense platforms requires local, skilled human capital and a thriving scientific community, two areas where Saudi Arabia still falls short.

Second, Saudi Arabia’s multilayered air defense system remains heavily reliant on imported weapons. Saudi efforts to diversify suppliers for its air defense structure, while maintaining strong security guarantees from traditional partners, are unlikely to deliver meaningful results in the short term; alternative arms providers do not offer the kind of defense products necessary to meet Saudi Arabia’s specific security needs.

Finally, Saudi Arabia will likely face tough competition in the global arms market. Several midsize industrial powers are also eyeing weapons production to bolster export revenue. As Saudi-made products are comparatively pricier than those produced by competitors, Saudi defense firms may struggle to generate significant profits.

Although the ongoing de-escalation in Saudi-Houthi relations has significantly decreased the number of cross-border attacks against Saudi Arabia, the region’s fragile security environment continues to pose complex air defense challenges and threatens Saudi ambitions to become a top tourist destination and global logistics hub. Therefore, although the underlying shortcomings of Saudi Arabia’s industrialization push might lead it to revise its lofty localization targets, developing a credible tactical edge and generating independent air defense capabilities will remain top strategic priorities.