Egypt, with the earliest industrial economy in the Middle East, has engaged in some military production for many years, supplying its own armed forces with light arms and small naval ships. Such production remained minor until recently, both in terms of the Egyptian economy and in terms of the arms purchases of the Egyptian armed forces. Now, with encouragement from the United States and other Western governments and arms manufacturers, Egypt is planning a major arms industry. In the past, such investment plans have fallen short in actual implementation. If these plans do materialize, however, Egypt may soon fill much of its domestic arms orders and begin sizable arms exports to other countries in Africa and the Middle East.
In 1981, Egypt produced $400 million worth of arms in more than 30 factories, with a labor force of over 100,000 workers. This was equivalent to eight percent of total employment in manufacturing and 15-20 percent of employment in the “modern” manufacturing sector.
Both proportionately and absolutely, the Egyptian arms industry is small by comparison to Israel’s. In 1981, Israeli exports alone were five times the total output of the Egyptian arms industry. But leaders of both countries see an arms industry as key to their survival and prosperity in international trade as well as to their function as regional client states. At present rates, Egypt will remain a small producer (and a less sophisticated one) compared with Israel. Nevertheless, with output growing at 20 percent per year and ambitious plans for the future, Egypt could become a significant force in the region’s arms trade.
From 1956 until 1971, Egypt got most of its arms from the Soviet Union at low cost, in exchange for cotton. Because arms did not require hard currency expenditures, some plans for local production were actually abandoned during this period. A jet fighter aircraft had been developed, for instance, but it never reached the production stage.
Three developments lie behind the growth of the Egyptian arms industry. The first is the break after 1971 with the Soviet Union and the turn towards Western arms sources. This has meant the complete re-equipping of the Egyptian armed forces. Parallel to this was the new economic program of infitah, opening up the Egyptian economy to the world market. Infitah forced Egyptian authorities to look for competitive exports, and arms was one of the candidates. Infitah also opened up the Egyptian economy to foreign investments, hence to co-production and other deals with Western arms manufacturers. A third factor was the huge petrodollar surpluses of the Arab oil states after 1973. Several Gulf states proposed investments in Egyptian arms industry.
The Gulf states argued that Arabs should be less dependent on foreign arms suppliers: They should use capital from the oil states, labor from Eygpt and technology from the West to construct a new “independence.” The Arab Organization for Industrialization (AOI) was set up in Egypt in 1975 to carry out this plan. Saudi Arabia, the United Arab Emirates and Qatar put up $1.4 billion of initial capital. Discussions got under way with dozens of arms manufacturers from France, Britain, the United States and Italy, aiming at co-production and licensing agreements on a wide range of weapons. Some important agreements were signed, notably a 1978 agreement with the French firms Dassault, SNECMA and Thompson-CSF for co-production of the Alpha Jet trainer/ground support fighter.
The AOI faltered when the Arab states imposed an economic boycott on Egypt in March 1979, in response to the peace treaty with Israel. The Gulf partners withdrew from AOI, leaving its status ambiguous. Western arms manufacturers were hesitant to go ahead, and production agreements languished. Finally, the Sadat government “Egyptianized” the AOI, taking sole legal responsibility so that at least some of the projects could be rescued. Interestingly enough, it maintained the AOI as a separate entity, under the Ministry of Industry, rather than integrating it with other national arms manufacturing, organized within the Ministry of Military Production. This indicated that Sadat looked forward to reconciliation with the Arab world, and hoped that AOI could assume an export role more effectively as a separate entity. Today, as relations between Egypt and the rest of the Arab world improve, those expectations are proving correct.
The Egyptian armed forces are the major market for the new arms industry, at least initially. The shift to Western arms makes for a large local market. Much equipment was also destroyed during the 1973 October war. To date, large quantities of new heavy arms have been imported fully assembled. Increasingly, though, arms deals are being made on the basis of co-production, with Egyptian final assembly and parts production. In some cases, whole weapons are being produced under license. Egypt is also developing a maintenance capability for aircraft and other sophisticated military hardware, enabling it to become a regional maintenance center as well as an arms supplier to the Middle East and Africa.
Assessment Teams
Egyptian government officials say they hope to move from final assembly to full production under license as labor skills, production equipment and infrastructure reach the necessary levels. Gen. Mustafa Sadiq, assistant defense minister for technology affairs and procurement, recently told a Western correspondent: “We don’t want to assemble weapons from kits, we want to produce them here, where we have adequate skilled manpower at a wage rate approximately one sixth that of the US. That is the reason we are negotiating production here of a new generation of weapons such as the TOW antitank missile system.”
Western arms manufacturers are apparently interested in deals of this kind. Their assessment teams have visited Egypt. Egyptian and Western sources mention Egypt’s several advantages as a production site: available skilled labor, low wages, local infrastructure and management, no interference from unions, low taxes, and proximity to clients in the Middle East and Africa. After a recent inspection tour of Egyptian arms factories, a US arms industry executive commented: “They want the work, they want the technology and they are easy to deal with. Facilities are excellent and they can do the job. It’s the combination of attitude and capacity that works in Egypt’s favor.”
New arms production facilities cover a broad range of weapons including planes, ships, missiles, ammunition, bombs, heavy guns, armored vehicles, and light weapons. Since light weapons are the easiest to produce, they are furthest advanced toward self-sufficiency and export status. Six new small arms factories have recently been opened. Production of both arms and ammunition is already substantial, mostly under license from European companies. Sales to Africa and the Middle East are already underway.
Egyptian factories are also turning out larger guns and munitions. The country is selling 23 mm ammunition to Morocco. A twin 23mm air defense gun system (a towed anti-aircraft gun with two muzzles) is being readied for full-scale production in 1983. Its design is based on a Soviet gun, and a number of countries have expressed an interest in purchasing it, including Sudan, Somalia and Iraq.
The AOI factories are involved in many of the more sophisticated production deals. The most important of these is the Saqr munitions works in Heliopolis, a suburb of Cairo. This factory, which occupies nearly a half square mile, employs over 5,000 workers, including 400 engineers. It contains about 1,000 machine tools as well as sophisticated computers and control equipment from DEC, General Electric, and other top suppliers. This factory specializes in the production of missiles, rockets and special munitions. One of its products is the Saqr 30, a 122mm rocket designed to be launched from Soviet-made aircraft racks. The Saqr factory plans licensed production of the Hughes Improved TOW wire-guided anti-tank missile (US) and the Matra Magic R-550 air-to-air missile (French). It might also produce Matra Crotale surface-to-air missile batteries.
AOI’s Banha electronics factory had only 150 employees in late 1981, but it is expanding rapidly and incorporates the most modern equipment. It is producing radio equipment of the Freneh company TRT. Banha has been negotiating to co-produce with GTE-Sylvania the SB-3614 automated tactical telephone switchboard, an item currently in use by the US Marine Corps. The Banha works is also planning co-production of the Watkins-Johnson wide-range high frequency radio receiver. The first 1,000 units will be for the Egyptian army, and production thereafter will be for export. There is also talk of possible co-production of the Westinghouse TPS-63 air defense radar system. Given the importance of electronics in modern warfare, this factory is bound to assume an important place in the AOI system.
The Qadir works of the AOI has specialized in the production of armor, beginning with light armored vehicles. This factory has produced the Walid armored car and future plans include licensed production of the Alvis Scorpion light armored vehicle. Egyptian officials anticipate eventually moving to production of tanks.
AOI operates two large aerospace works, the Helwan aircraft factory and the Helwan engine factory. The aircraft factory has already produced 63 HA-200 jet trainers of Spanish design (Hispano Saeto), powered by the E-200 turbojet produced in the engine works. These factories are the site of the most ambitious AOI project to date — the production of the French Alpha Jet. The production line for the Alphas is now in operation, and the first jet was turned over to the Egyptian air force in November. Initially, 37 of these aircraft will be assembled in Egypt, along with 80 Larzac jet engines co-produced with the French engine company, SNECMA. There is talk of later co-production of the Mirage 2000, but French arms manufacturers fear that the US may use its considerable influence to substitute co-production of the McDonnell-Douglas F-5G. The government of Francois Mitterrand is under heavy pressure to extend favorable financing terms to Egypt to sweeten the deal. Several dozen French technicians work in the factories to supervise the work, and they profess to be satisfied with the quality of what has been produced. As part of the deal, Egyptian industry is manufacturing some engine and airframe parts which are shipped to France to be incorporated in all new Alpha Jets. These parts include the rudder, ailerons and flaps, amounting to about 5 percent of the total plane.
The AOI operates other factories as joint ventures. Arab-British Dynamics produces, among other things, the Swingfire anti-tank missile. Arab-British Vehicles produces jeeps and light trucks in cooperation with American Motors Corporation. These vehicles are designed for mountings of anti-tank weapons and rocket systems. Two other joint ventures were established to produce Westland SH-60 Lynx commando helicopters (a British product) and their Rolls-Royce jet engines. The program was never implemented, but the companies remain. They are Arab-British Helicopter Company and Arab-British Engine Company. Lacking a prime contract, they have worked on maintenance of Egypt’s Soviet helicopters. They may soon begin co-production of 30 Gazelle SA-343 helicopters with the French firm, Aerospatiale.
Egypt’s plans for its own military-industrial complex represent an ominous development in a region already choking with arms. As Cairo’s relations with its Arab neighbors improves, large export deals may materialize. Beyond the Arab world, though, Egypt may be competing for the same customers as Israel. Egypt’s military production plans may be exaggerated and overblown, but Western governments and companies are pushing sales to this sector of Egyptian industry. At one level, arms production represents a part of a general shift of industrial production to Third World countries.
For the Egyptian economy, the value of the new arms sector remains suspect. Egyptian officials argue that the military production will have many technological “spinoffs,” helping Egyptian industry to produce sophisticated consumer durables in the near future. It is at least as plausible to argue that labor power and resources which might otherwise be invested in civilian production are being drained away into the military sector.
Sources: Aviation Week and Space Technology, December 14, 1981 and January 4, March 22 and February 1, 1982; Le Monde, November 23, 1982.
