Saudi Wealth Fund Starts Defense Company to Meet Military Needs

(Bloomberg) -- Saudi Arabia’s sovereign wealth fund set up a defense company to help reduce the kingdom’s reliance on foreign purchases and to diversify the economy away from oil ahead of a visit by U.S. President Donald Trump.

The Saudi Arabian Military Industries, or SAMI, will manufacture products and provide maintenance services across units, including air and land systems, weapons and missiles, and defense electronics, the Public Investment Fund said in a statement on Wednesday. The new company is wholly owned by the government.

“Expertise, supply chains, customer lines, finance, R&D infrastructure and more need to be developed,” said Paul Sullivan, a Middle East expert at Georgetown University. “These are not things you can start overnight. They will need lots of outside help at first, but with the right training and education, investments and business development it is possible.”

Trump is visiting Saudi Arabia this week on his first overseas trip as president. Executives from Boeing Co., Lockheed Martin Corp. and Honeywell International Inc. are some of the companies due to send executives to Riyadh with Trump for a business summit.

Saudi Arabia is the top purchaser of U.S. weapons, according to the Stockholm International Peace Research Institute. Saudi Arabia has switched the focus of its military spending to more-offensive programs, including items intended to boost the attacking capabilities of warplanes, such as precision air-to-ground missiles and advanced guidance systems, according to a study by IHS Jane’s.

“While the Kingdom is one of the world’s top five spenders on security and defense overall, only around two percent of our military procurement is domestic,” Deputy Crown Prince Mohammed bin Salman, who is also the country’s defense minister, said in the statement.

The company is part of Prince Mohammed’s plan to wean the Saudi economy off its reliance on revenue from oil exports by 2030. The wealth fund said SAMI will directly contribute around 14 billion riyals ($3.7 billion) to the Saudi gross domestic product by 2030, invest more than 6 billion riyals in research and development “and create over 40,000 jobs, many of which will be in the engineering and technical fields.”

Under Prince Mohammed’s Vision 2030, 50 percent of Saudi Arabia’s military “procurement spending will be localized,” PIF said.

Saudi Arabia’s announcement comes at a time that the kingdom is mired in a conflict in Yemen. A coalition led by Saudi Arabia, the predominant Sunni power in the Middle East, has been fighting the Houthis since 2015 in an effort to restore the rule of Yemeni President Abdurabuh Mansur Hadi.