Raise the subject of Arab military-industrial production and the country that springs to mind is Egypt. A historian might recall Iraq’s early arms industry; a Gulf analyst might think of the weapons development projects being financed by the United Arab Emirates. Few would think of Jordan. But according to promotional literature, Jordan’s armed forces have entered joint venture partnerships with at least 26 foreign defense companies, [1] to produce everything from pre-packaged field rations and boots to backpack-portable drones and armored vehicles. The partnerships are concentrated in the King ‘Abdallah II Design and Development Bureau (KADDB, or “kad-bee,” as it is commonly known) — the military-industrial arm of the Jordanian Armed Forces established by royal decree in 1999. The bureau’s website and press releases issued with foreign partners show at least 20 distinct product lines with defense firms from Australia, Austria, Belgium, Canada, Italy, Germany, Great Britain, the Netherlands, Russia, Saudi Arabia, South Africa, South Korea, Sweden, Switzerland, Turkey, the United States and the UAE, as well as a commercial firm from Malaysia. According to its website, KADDB “aims to be the globally preferred partner in designing and developing defense products and security solutions in the region.”
Defense Offsets
Advocates of KADDB link its expansion to Jordan’s skilled labor force, low production costs and proximity to the world’s largest regional arms market. But the bureau’s apparent commercial success has less to do with principles of neoclassical economics than with an evolving system of incentives from foreign firms seeking to entice countries to sign costly arms procurement deals. In industry parlance, these incentives are known as “defense offsets” — designed to “offset” the cost of arms by directing investment dollars from the weapons firm back to the procuring country through collaborative manufacturing projects. Although nearly every country has established guidelines for defense offsets — for instance, requiring that the foreign firm reinvest 35 percent of the overall contract value — Jordanian officials deny the existence of any such program.
Because Jordan gets much of its defense budget from US military aid, demanding offsets from US firms would be the commercial equivalent of double dipping — getting the arms for free and asking to be paid for accepting the largesse. Instead, Jordanian procurement decisions depend on the individual firms’ willingness to include some form of joint weapons production in the contract — anything from limited assembly of components to full-scale co-production. This requirement operates as a sort of quid pro quo that uses the Jordanian arms procurement budget as a subsidy to lure foreign partners into joint ventures with KADDB. This inducement — combined with access to wealthy Gulf customers and an array of preferential tax policies and industrial discounts provided by the Jordanian state — makes KADDB a highly attractive business partner. The Jordanian armed forces recognize this comparative advantage, and by requiring firms to establish joint production facilities as a condition of securing a sale to the kingdom, the officers have ensured a continued supply of jobs, export earnings and prestige for their peers.
The tit-for-tat dynamic is visible in numerous cases where firms that sell off-the-shelf items to Jordan are engaged in co-production with KADDB. In early 2009, Jordan purchased surplus F-16 fighter jets from Belgium and the Netherlands; [2] that same year, Strategem, a logistics firm with offices in Belgium and the Netherlands, received a contract from the Dutch Agency for Economic Development to conduct a feasibility study for an F-16 maintenance facility in Jordan. [3] The hangar is now under construction by the Dutch company Daedalus Aviation. Likewise, three years after Jordan purchased six Russian-made KA-226 helicopters in 2003, the manufacturer Oboronprom signed an agreement with KADDB to establish an in-country production and maintenance facility for the helicopters. These joint ventures are possible, in part, because Jordan frequently purchases decommissioned hardware — the armor, mounted weapons systems and electronics can be quite old. Thus, Jordan can focus on deals with the subcontractors and suppliers that produce the components of the products finished by the multinational, “tier one” firms. Many small manufacturers are eager to pursue joint ventures that offer such plums as guaranteed future sales to Jordan, access to neighboring markets, tax exemptions and free factory space.
As a subsidy, the program has been relatively effective. The scope of KADDB’s activities has widened dramatically since operations began in 1999 — and now includes arms exports. As of 2011, the KADDB subsidiary Jordan Light Vehicle Manufacturing (formed with Britain’s Jankel Armouring) had shipped upgraded armored vehicles to over 20 countries. KADDB companies also make helmets and clothing of Dyneema — a patented body armor plate produced by NP Aerospace Jordan (formed with NP Aerospace of Britain); unmanned vehicles, including aircraft, patrol boats and robots designed to detect and dismantle bombs; grenade launchers; sidearms; ammunition; and sensors and radar. Like the Gulf states, Jordan has capitalized on its technology partnerships to create academic links, such as the Prince Faisal Information Technology Center (in partnership with Britain’s Cranfield University Defence Academy). These institutions are platforms for exchange between Jordanian soldiers and foreign counterparts, and also generate prestige for KADDB, which is seen as augmenting its manufacturing with research and development, the highest rung on the ladder of military-industrial accomplishment. [4]
Regional Instability and Arms Production
War has been a boon for KADDB’s business. A significant share of its exports has gone to Iraq, including during the brief period when the US-led Coalition Provisional Authority ruled the country. Documented exports to the CPA in 2004 included 100 “modernized” tanks and an unspecified number of drones. Several big arms firms have sought partnerships with KADDB in order to exploit Jordan’s proximity to Iraq. One clear case is a KADDB collaboration with ITT Industries to refurbish US military vehicles for sale to the Iraqi army — a project in which the French defense giant Thales also expressed interest. [5] Similarly, in 2009, one year after the maritime firm RiverHawk set up a joint venture with KADDB to build “offshore support vessels,” the Iraqi navy issued a $70 million sole-source contract to RiverHawk for the same ship model. Several of KADDB’s partner firms were also born out of the post-war reconstruction boom.
Other KADDB partner firms are owned by Iraqis, and are therefore well placed to target Iraq’s rehabilitated military as a major customer. Jordan Aerospace Industries belongs to the al-Samarra’i family, whose patriarch is the grandson of the man who established Iraq’s first military-industrial projects in the early twentieth century. Thus far, the Iraqi and Jordanian air forces have bought the firm’s small trainer/reconnaissance aircraft, and its joint venture with KADDB has produced a range of drones that look poised for export in the future.
There is also a burgeoning defense relationship between Jordan and the UAE. The Emirati conglomerate Bin Jabr Group and the Jordanian military co-own a factory in the Dulayl industrial park, where their joint venture Advanced Industries of Arabia builds the Tiger tactical vehicle. According to the Bin Jabr Group website, Advanced Industries of Arabia supplied 500 Tigers to the UAE in 2005 and exported a number of the vehicles to Libya and Lebanon as well. And the UAE has assisted Jordan’s military in other ways. The UAE’s Offset Program Bureau used some of its considerable funds to help procure aircraft for the state-owned Royal Jordanian Airlines, in which the Jordanian armed forces’ pension fund is one of the five largest shareholders. The UAE allegedly financed the purchase of other big-ticket items for the Jordanian armed forces, such as 50 armored personnel carriers from the Ukrainian company Malyshev in 2000.
Equipment used for internal policing is in particularly high demand in Jordan’s neighboring states — and KADDB markets many products designed for riot control, reconnaissance and surveillance. Examples include the Stallion armored vehicle — equipped with .50 caliber weapons stations — that KADDB advertises for use in “peacekeeping, internal security and patrols,” as well as SkyWatch, a drone ideal for such purposes as “dignitary protection” and oversight of prisons and “border entries.”
Private Profit
The involvement of private capital in Jordan’s indigenous arms industry has been limited thus far, but trends suggest that enterprising financiers will soon gain a foothold. According to KADDB chairman Shadi Ramzi al-Majali — a 12-year veteran of the Jordanian armed forces and a graduate of both the Military College of South Carolina and the George Washington University — the ultimate goal is to build up the private sector:
We always envisaged KADDB as being the catalyst for the creation of an independent, sustainable, defense industrial base…. Our strategy is that once a product is commercially viable, it is passed on to our joint venture companies for manufacturing. We offer our international partners a gateway to the Middle East, and for our Jordanian partners we provide access to programs, markets and international exposure that otherwise may not be available. [6]
Despite KADDB’s reliance on foreign sources of investment and technology, Jordanian businessmen have entered into joint ventures with KADDB as well. Yazan al-Mufti, owner of Jordan Radio Paging, formed a joint venture with KADDB called Applied Defence Systems to develop defense electronics. In 2002, the company was chosen to partner with a BAE-Finmeccanica consortium to develop a high-frequency maritime radar system. [7] (The consortium was subsequently dissolved and the deal canceled.)
Other examples are Majdi al-Ya‘qoub, whose company Orangeville Consultants received support from KADDB to build an assembly and maintenance facility for Russian helicopters, and Ziyad al-Ya‘qoub, whose company Gravity Integrated Solutions resells many of the items produced by KADDB, including ballistic resistant enclosures, vehicle armoring technology, engine kits and spare parts, and other “special forces supplies.” The chairman of Gravity Integrated Solutions, ‘Arif Samawi, spent seven years working for KADDB, and before that, 20 years in the Jordanian armed forces and the Royal Maintenance Corps. These few cases suggest that the ownership and management patterns of Jordan’s nascent military-industrial complex reflect those of other sectors, with Jordanians of Palestinian origin providing private investment dollars and joint venture partnerships, and Jordanians of East Bank origin serving in executive management posts for KADDB and its parastatal subsidiaries.
Domestic Subsidies
In addition to promotional literature and direct government funding of about $12 million per year, [8] the Jordanian state has provided KADDB with many of the same supplementary services and infrastructure granted to the military-industrial complex in the US and Europe. KADDB’s list of assets includes a commercial investment division staffed with finance experts who evaluate the viability of potential partnerships, as well as financial support for SOFEX, a huge biannual defense exhibition held in Amman. SOFEX, or the Special Operations Forces Exhibition and Conference, is unique in that it focuses explicitly on equipment for commando raids and internal policing — the same sectors in which much of KADDB’s manufacturing activity is concentrated. KADDB also displays its wares at arms shows outside Jordan, including the 2011 Defense and Security Equipment International Exhibition in London, where KADDB managers took pains to note that they were the only Arab participants. [9] KADDB also benefits from the services of Jordanian defense attachés, who promote the organization’s products and services overseas, while the government ensures that visiting defense officials and corporate executives get tours of KADDB facilities. [10] Lastly, KADDB has been active in forming strategic partnerships with trade publishers — notably IHS Global Insight, which owns the preeminent Jane’s group of magazines and newsletters. [11]
In addition to these perks, KADDB enjoys a host of special economic privileges through the KADDB Industrial Park — the first free zone in the Middle East to specialize in military production. The bureau’s website boasts of the park’s “reliable electricity and water” and “attractive landscaping,” as well as its “ongoing support for issuance of documentation, invoice certification, [and] transfer of ownership of goods and other paperwork required for international trade.” The park’s amenities include a ballistics missile lab and a “high-security environment,” all subsidized by the Jordanian government. This last feature is probably provided by KADDB subsidiary JoSecure, which also has contracts to provide security at the ‘Aqaba Special Economic Zone, Jordanian Customs, the Public Security Directorate, the General Intelligence Directorate, Greater Amman Municipality and the Jordanian Petroleum Refinery Company. [12] In 2009, JoSecure launched a joint venture with the Swiss firm Securitas to lease armored vehicles to private companies and provide armed protection for cash-in-transit vehicles.
Even the 1,235-acre King ‘Abdallah Special Operations Training Center, which was built with $99 million in US aid and designed by the US Army Corps of Engineers and prime contractor General Dynamics, is a profit-generating operation. The facility, which is 100 percent owned by KADDB and modeled on Blackwater’s compound in North Carolina, is open for training of “coalition allies.” In 2010, the US-led Multi-National Security Transition Command in Iraq earmarked funds to send 20-30 elite members of the Iraqi National Counterterrorism Force to the Jordanian center, [13] where they could practice urban warfare tactics amidst a sprawl of 52 buildings built to mimic banks, embassies and gas stations, complete with simulated smells, including “dead body,” manufactured by ScentAir of Charlotte, North Carolina.
KADDB executives (mostly retired officers) tout the profits the bureau generates for the armed forces — a recent estimate priced export income from the industrial park at nearly $400 million a year. And though the salaries of KADDB workers are paid through the Jordanian army budget, the revenues accrue to the books of the specific ventures, granting them significant financial independence. The free zone status of KADDB’s eponymous industrial park exempts its operations from corporate income taxes, import fees and customs duties, as well as building and land taxes. Quasi state-owned companies also provide services to KADDB, including Orange Jordan, which signed an agreement in 2013 to provide telecommunications infrastructure for KADDB and its affiliates. Although the contract is not public — and it is impossible to say for sure that these services are coming at a discount — the Jordanian armed forces’ pension fund is a partial shareholder in Orange Jordan, and the military’s long history of subsidized services would suggest that this partnership also comes with preferential terms. KADDB’s operations may also be supplemented by revenues generated by Jordan’s largest property developer Mawared, which manages the armed forces’ real estate assets. According to an online profile produced by the public relations agency Marcopolis, titled, “KADDB Success Story,” Mawared generates profits for the army by “selling land, doing master planning and managing real estate.”
In keeping with classic liberal economic discourse, KADDB managers emphasize the financial benefits of the bureau’s product lines over their potential strategic advantages. Rhetoric focuses not on securing the domestic supply of war materiel, but rather on exporting products and services to neighboring states and therefore contributing to national income. In another KADDB profile that appeared in a Jordanian promotional publication, the majority of the text deals not with military readiness or goals of self-sufficiency, but with KADDB’s success at “providing vital linkages between Jordan’s public and private sectors…scores of employment opportunities for Jordanian graduates…[and] ongoing training schemes for Jordanian engineers and technicians.” [14] At the 2010 SOFEX the bureau signed contracts for about $100 million worth of exports to Kenya, Oman, Saudi Arabia and Yemen. [15] Its Desert Iris — an armored personnel carrier — has also been a regional bestseller. In fact, KADDB has become so successful that it is now signing its own offset agreements, including a deal inked in 2011 to transfer technology to the Ministry of Defense and Industry in Azerbaijan, which will produce KADDB’s patented body armor in its own factories.
Nevertheless, the benefits of KADDB’s activities to the Jordanian regime are not economic — nor were they meant to be. They are political. Because military service has traditionally been an avenue of social mobility for East Bank Jordanians, making more high-skilled technical jobs available within the military is an absolute necessity in the face of mounting demographic pressures. Resentment over the allocation of scarce state resources to military pensions, health care, subsidized housing and other perquisites is also attenuated by the perception — valid or not — that the military is “earning its keep” through partnerships with foreign firms and lucrative export contracts.
The Jordanian government has been particularly adept at generating positive spin for its military industry. One example can be viewed at www.marcopolis.net/Jordan-industry-sector.htm. The site, which looks like a news aggregator, with the New York Times and International Herald Tribune mastheads running across the top of the page, is in fact operated by the selfsame Marcopolis, a French public relations firm that produces economic literature on behalf of Arab governments. The particular report available at the above site labels the King ‘Abdallah II Design and Development Bureau one of the “greater success stories” of Jordan’s entire industrial sector, and cites a “turnover of $100 million” per year as part of the bureau’s ability to “bring in value to the government.”
Although the Jordanian army does not release statistics on military budgets or military production that would substantiate or refute claims of profitability, it is clear that military-affiliated enterprises enjoy many advantages that non-military enterprises do not, including exemption from corporate taxation and regulation and subsidized access to inputs and intermediate goods like land, raw materials and foreign imports. The additional investment in military enterprises generated by defense offsets helps promote the false narrative that outfits like KADDB deserve state support because they provide an engine for economic growth, employment, industrial modernization and export earnings. But the consensus among economists is that public investment is more productive when it is directed toward civilian industry rather than defense-related production — and government support for defense projects acts like a giant economic vortex, sucking private funds and skilled labor away from civilian enterprise. Although these principles are almost universally accepted among contemporary development scholars, governments continue to subsidize the manufacture of weapons and the provision of security-related services while slashing spending on public infrastructure and social services. Americans have lived with this dynamic for decades — it has just taken Jordan a few years to catch up.
Author’s Note: Parts of this article are drawn from Shana Marshall, “The New Politics of Patronage: The Arms Trade and Clientelism in the Arab World,” Brandeis University, Crown Center for Middle East Studies, Working Paper 4 (October 2012). The paper is accessible at: http://www.brandeis.edu/crown/publications/wp/WP4.pdf.
Endnotes
[1] Zaina Steityeh, “Out of the Dusty Labs,” Jordan Business (undated).
[2] Defense Industry Daily, January 26, 2009, http://www.defenseindustrydaily.com/More-Belgian-F-16s-for-Jordan-05261/.
[3] Jordan Times, November 19, 2009.
[4] Keith Krause, Arms and the State: Patterns of Military Production and Trade (Cambridge: Cambridge University Press, 1992).
[5] DefenseNews.com, March 30, 2006. Cited in Jomana Amara, “Military Industrialization and Economic Development: Jordan’s Defense Industry,” Defense Resource Management Institute (Naval Postgraduate School), working paper, 2006, p. 29.
[6] Steityeh, “Out of the Dusty Labs.”
[7] Jane’s Defence Weekly, October 12, 2002.
[8] Estimate as of 2008. Amara, p. 141.
[9] KADDB Investment Group Newsletter, August-September 2011.
[10] Steityeh, “Out of the Dusty Labs.”
[11] KADDB Investment Group Newsletter, August-September 2011.
[12] Virginie Collombier, Private Security…Not a Business Like Any Other (Arab Reform Initiative, September 2011).
[13] “Measuring Stability and Security in Iraq,” December 2009 Report to Congress in Accordance with the Department of Defense Supplemental Appropriations Act of 2008, January 29, 2010, p. 67.
[14] Steityeh, “Out of the Dusty Labs.”
[15] IHS Jane’s, May 12, 2010.
