Defence of the Realm

There can (or should) be no task more vital for any government than the defence of the country (or realm for those countries fortunate enough to have a monarchy). And yet, despite the lessons of history and the evidence that the world is not becoming a safer place, most countries seem to have adopted a defence policy of trying to do more with less, with emphasis firmly on the less. Therefore, yesterday’s British-Polish Defence Forum at the British Embassy here looking at the prospects for British-Polish defence cooperation in these economically troubled times was particularly interesting.

Poland has an ambitious programme of military modernization which is based on a guaranteed expenditure on defence of at least 1.95 per cent of GDP. This compares to an EU average of about 1.5 per cent of GDP which is, of course, only that because the UK and France spend more than 2 per cent of GDP (the UK 2.7 per cent in 2012) two of only four countries apart from the US to do so. But as the growth in Polish GDP slows, the prospects of fully realizing this plan over the next 10 years look rather less rosy. Nevertheless, as one of the world’s leading arms exporters, and as the EU Defence and Security Procurement Directive (DSPD) has been implemented into Polish law, there should be good opportunities for British defence contractors. Of course, as with most things in life, it is not quite that simple.

Take public procurement. The DSPD may well be essentially aligned with how the UK handled defence procurement anyway but even leaving aside the fun and games which may be had with Article 346 of the treaty on the function of the EU (put extremely briefly, an exemption from the procurement directives for production or trade in arms, ammunition and war materiel by a member state in the essential interests of its security) public procurement in Poland is still not for the faint-hearted. In each of the last three years in Poland there have been approximately 3,000 challenges to public procurement decisions compared with 30 for the whole of the last three years in the UK. The amount of management time which has to be committed and the expense of taking part in Polish public procurement exercises is certainly a deterrent (please see Public Enemies) if the result is so easily challenged or if a bid is rejected because for a petty formalistic reason. Other issues are timing and clarity. Governments underestimate the amount on internal competition for resources within large defence contractors to satisfy the demands of different markets – sufficient time has to be allowed to evaluate and prepare for a tender. This is illustrated by the withdrawal this month of a Czech aircraft producer from the tender to supply training planes for the Polish military blaming unclear tender conditions and a too short time in which to prepare the bid with tender conditions being received on 13th May for a bid required to be submitted by 7th June.

Another, perhaps surprising, issue is perception. A representative of the Aviation Valley Association (Poland’ aerospace equivalent of the US’s silicon valley) said that British defence contractors were not serious about Poland and the Chairman of the Polish Chamber of National Defence Manufacturers even stated that here had been no European investment in the Polish defence sector in stark contrast to those philanthropic folk from the US and Israel. In response the representative from the UK’s ADS defence industry group pointed out that the UK contributes 70 per cent of European aviation output through wings, powertrain and avionics and the British defence attaché suggested that if the Polish air force buys F-16s and C-130s and the national carrier, LOT, flies US and Brazilian aeroplanes, it is hardly surprising that European manufacturers are not rushing to Poland.

But, of course, they are here and their supposed absence came as news to panelists from AugustaWestland, Rolls Royce, Airbus Military, Thales and Lockheed Martin, all of which invest in Poland through their European or British businesses. The real issue behind this debate is the extent to which British and European defence manufacturers are prepared to transfer technology to Poland. Obviously, as part of the “polonisation” of the Polish defence sector, Poland seeks to maximize the manufacturing which takes place in Poland and would ideally like to see a bigger Polish defence industry with more advanced defence equipment not only manufactured in Poland but also exported elsewhere. From a European defence contractor’s point of view however, while there is clearly a desire to integrate Polish production into a global supply chain there is a reluctance to create future competitors in an existing (and shrinking) export markets. This is especially true when there is a need for more consolidation in the European defence sector. It simply has to be accepted that major defence contractors will not fragment their markets further and that it is not realistic for Poland (or any other country) to expect that a foreign defence contractor will always be able invest in the country to create local manufacturing and exports of fully finished equipment. There is simply not space for everybody – technology and access to markets are key to survival – and no company may realistically transfer technology one day to have to compete with it the next. Poland, with a well-educated workforce, also has the potential to move beyond having simply to try to compete on basic manufacturing.

Looking at technology transfer, in which Poland is very interested, the US ITAR regime does potentially provide good opportunities for European defence contractors which are not similarly restricted but, as mentioned above, it is not realistic to expect them to give all their technology away. Furthermore, ITAR aside, as US defence budgets decrease, US prime contractors will increasingly look further afield helped by the considerable US political backing on which they may count which is not to be underestimated. This is another challenge which will require greater European consolidation and cooperation if it is to be met effectively.

In summary, there are good opportunities for both Poland and those who invest in Poland but to maximize these requires patience and agility. The politicians – whose time horizons are always too near – must understand that long term investment is born of long term stability. Contractors need clarity both as to the procurement procedures and the actual needs of government and Polish companies must recognize the value of a true partnership approach. On these foundations a sustainable Polish defence industry may be built.

And, finally, it is worth remembering what this should really be about. As Vegetius wrote “if you want peace prepare for war” and as history has shown (please see Things to Come) the converse is surely true.

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