A New Arms Race: Exports Booming for German Weapons Manufacturers
MILITARISM, 18 Jul 2011
Dietmar Hawranek, Markus Dettmer and Ralf Beste – Der Spiegel
A decrease in orders from its own military has led Germany’s arms industry to turn the focus of its sales efforts abroad. It has recently enjoyed amazing successes despite seemingly strict export controls.
For Frank Haun, it’s all a matter of “red” or “blue,” a minor color change on his map of the world.
Haun is the boss of Krauss-Maffei Wegmann (KMW), a Munich-based defense company whose product line includes tanks and other armored vehicles. Not long ago, Haun used a projector to display a map of the world on the wall for some visitors. Countries his company could export arms to — such as Canada, Brazil and Chile — were in blue. Those in yellow could only import arms under certain conditions. And, as a general rule, the firm considered those in red to be off-limits for exports. The Gulf region was lit up in red.
At the time, KMW figured that it wouldn’t get official permission to export its wares to the crisis-hit region. “Whether a country is red, yellow or blue is something the German government decides,” Haun says.
But now, red might suddenly turn blue: Germany’s Federal Security Council, a group that decides which weapons exports to allow, has green-lighted the sale of more than 200 model 2A7+ Leopard tanks to Saudi Arabia.
News of the deal has unleashed a controversy in Germany over the country’s foreign and arms export policies, the likes of which hasn’t been seen for quite some time. But the tank deal with Saudi Arabia has also thrown a spotlight on an industry that prefers to do business in the shadows. In fact, the industry usually only causes a stir once a year: when the Stockholm International Peace Research Institute (SIPRI) publishes its annual ranking of the world’s largest arms exporters.
Behind the Big Guns
Germany is in third place among the world’s biggest weapons suppliers, behind only the big guns of Russia and the United States and in front of France and Great Britain. Its arms are coveted around the world: tanks from Krauss-Maffei Wegmann and Rheinmetall; submarines from ThyssenKrupp; fighter jets, helicopters and drones from EADS; missiles and munitions from Diehl; rifles from Heckler & Koch; torpedoes from Atlas Elektronik; and telescopic sights from Carl Zeiss.
The United States military is generally only allowed to order armaments from domestic suppliers. But even it makes an exception when it comes to Germany: For their tanks, they order the smooth-bore guns made by Rheinmetall because they are more precise than those developed in the US.
The international arms industry doesn’t face crises; crises are its business. In 2010, global arms expenditures rose to $1.63 trillion (€1.14 trillion). This represents a growth of 56 percent over the last decade, according to SIPRI. Indeed, almost one-tenth of all the money generated by global weapons exports ends up in the pockets of the German defense industry.
But what is it about the German arms industry that has made it so successful? And how can it still succeed in exporting so many weapons despite what appear to be strict export controls?
‘The Number of Global Trouble Spots is Rising’
In late February, Abu Dhabi is pleasantly warm; the temperatures stay far below the 40 degrees Celsius (104 degrees Fahrenheit) found here in the summer. Indeed, it is the best time to take a trip to the United Arab Emirates. And, every other year, it is also the best place to be if you’re in the global arms business as the executives of arms companies meet here with military and government officials for the industry’s largest worldwide trade fair.
The hosts of the 10th International Defence Exhibition & Conference, which was held in mid-February, reported record figures. The trade fair saw 1,060 exhibitors from 52 countries showcase their wares for everyday military needs. There were helicopters that can destroy any kind of ground targets and ground defenses that can shoot any helicopter out of the sky. There were tanks that can withstand any attack, and defensive weapons that can penetrate any armor.
The pavilion in Abu Dhabi reserved for German companies included displays from Diehl, Krauss-Maffei, Rheinmetall, Carl Zeiss Optronics and many others, and was bigger than those of the United States and Russia.
Rheinmetall was displaying tanks and defensive weapons systems. Company head Klaus Eberhardt will admit that “the number of global trouble spots is rising,” but won’t say he is pleased about that fact. Either way, his company is benefiting from the increase. Eberhardt estimates that the global arms trade will increase by between 5 and 6 percent this year.
Changing Times
Like most other German arms companies, Rheinmetall has adapted its business to fit changing times. A decade ago, the companies primarily supplied Germany’s military, the Bundeswehr. But these days, roughly 70 percent of their products are sold to foreign clients.
German arms companies enjoy a reputation for delivering high-tech weapons of the highest quality. For example, the ThyssenKrupp submarines outfitted with fuel cells are considered the best in the world because they are practically undetectable.
Several large corporations dominate the market in Great Britain, the United States and France, but that is not the case in Germany. Indeed, the industry is just as broadly diversified as the German export industry as a whole, and in addition products intended for civilian use account for a large part of the sales of many of these companies.
The companies are also profiting from how military conflicts have changed. Gone are the days when huge formations of soldiers faced off against each other. These days, fighting is conducted in many places at the same time and often by small units. This type of fighting calls for high-tech solutions, including drones, satellites, radars and electronic gadgetry. Much of this is based on technology in fields where Germany companies are among the world’s leaders.
Precision Firing at Full Speed
What’s more, manufacturers are increasingly taking know-how that has been employed in civilian products and putting it to use in military projects. Take the example of Carl Zeiss, the optics company with a long and distinguished history that is primarily know for making lenses for glasses and binoculars. Through its Carl Zeiss Optronics subsidiary, the company now offers telescopic sights for gunners and alignment systems for the “Leopard 2” tank that allow for precision firing even at full speed.
Optronics is the defense division of the Carl Zeiss Group and numbers among the leading companies in the world when it comes to optical systems. Its product portfolio includes infrared cameras for border surveillance, multi-sensor systems for drones, laser communication systems that cannot be intercepted and night-vision devices that can be employed at sea, on land and in the air.
The German arms industry is made up of both lesser-known companies and big names. Global giants Siemens and SAP offer military software solutions. At the same time, Kärchner, a medium-sized company known for high-pressure cleaners, is also a world leader when it comes to NBC (nuclear, biological, and chemical) protection and water treatment. And, whether big or small, they all see their future in exports.
“Growth doesn’t come from Europe anymore,” says Stefan Zoller, head of Cassidian, a defense company that is an offshoot of EADS. Defense budgets in Europe are stagnating, Zoller explains, and the biggest opportunities are to be found in the Middle East, India and Brazil. Over the next decade, Cassidian hopes to double its sales volume to €12 billion. At the moment, a quarter of the company’s sales are generated outside Europe, and it expects this figure to rise to 40 percent in the near future.
German Arms Manufacturers ‘Need Government Support’
For years, executives from German arms companies complained about the competitive disadvantage they faced compared to rival companies in France, Great Britain and the United States. They bemoaned the fact that politicians from these countries didn’t think twice about promoting their arms manufacturers abroad, while German ministers and chancellors steered clear from doing so. But, to the great joy of the German arms industry, things have now changed.
As Zoller puts it, German arms manufacturers “need the support of the federal government in this global race.” His company has high hopes in border security, a branch of the industry recently enjoying increased attention. The company has been contracted by Saudi Arabia to set up radars, sensors, cameras and other electronic gadgetry to safeguard 9,000 kilometers (5,600 miles) of border as well as air and sea ports.
Cassidian’s success in landing the €2 billion contract was probably helped by the fact that the German government had just recently signed an agreement in Riyadh to collaborate with the Saudis on security issues, which involves having officers from Germany’s federal police force train their border police. Zoller was recently quoted as saying that the Saudi government “had put the country’s security in our hands to a major extent.”
Since then, it has emerged that the Saudis aren’t just depending on Cassidian, but also on Krauss-Maffei Wegmann, the manufacturer of the “Leopard 2” tanks.
Almost half of KMW’s sales continue to come from the “Leopard 2,” which was originally developed in the 1970s. But in most cases, modern armies need different kinds of tanks. As the website of KMW puts it, “the clearly defined frontlines of the Cold War era have been replaced by a multitude of globally dispersed hotspots as the primary deployment scenarios of modern armies.” To respond to these changing needs, KMW has outfitted the “Leopard 2” with an “obstacle clearance blade,” which can push either cars or demonstrators out of the way, as well as a mounted machine gun as a “secondary weapon.”
With this “upgrade kit,” the “Leopard 2” becomes the “Leopard 2A7+.” This is the model that won over the Saudis, the model that is apparently superior to the tanks made by French and American competitors.
‘The Export of Weapons of War Is Not Approved, Unless…’
Each December, Germany’s federal government releases a report on the previous year’s arms exports. The report includes a list of all the permits issued to export weapons and other military equipment. Since 2000, Saudi Arabia has numbered among Germany’s top 20 clients for such goods. Deals involving the export of missile parts, machine guns, munitions and artillery shells to Riyadh were approved — even in the years when Germany was led by a coalition government made up of the center-left Social Democrats and the Green Party (1998-2005).
The planned tank deal, however, would take things to a whole new level. In 2009, Germany’s government green-lighted deals worth a total of €167.9 million in arms exports to Saudi Arabia. But a contract to supply 200 “Leopard 2A7+” tanks would be worth roughly €2 billion.
In total, Berlin approved about €7 billion in global arms exports in 2009. The most important buyers were the United States, followed by the United Arab Emirates and Great Britain.
German regulations on arms exports are found in the Foreign Trade and Payments Act (AWG) and the War Weapons Control Act (KWKG). There is a list of what the federal government defines as military equipment, which can range from software with military purposes to “lead beta resorcylat” chemicals. Exporting such goods requires a permit from the Federal Office of Economics and Export Control (BAFA). The rules are stricter for 62 items on the list of weapons of war, including tanks, missiles and attack helicopters. Decisions on the export of these items are usually made by the Federal Security Council, which is chaired by the chancellor.
The “political principles” that the federal cabinet last tightened on Jan. 19, 2000 are meant to provide guidelines which the Federal Security Council can base its decisions on. These guidelines are supposed to attach “particular weight” to the “observation of human rights in the destination country.” This criterion alone would have been enough to block the export of tanks to Saudi Arabia.
The guidelines are also meant to block the approval of arms exports to countries “in which there is a risk of armed conflict breaking out.” The Middle East is considered a trouble spot, so it would only seem logical that Saudi Arabia would not be allowed to receive tanks.
But these “political principles” also offer some loopholes, which usually start off along the lines of: “The export of weapons of war is not permitted, unless…” For example, an exception is possible when “special interests of foreign or security policy” argue in its favor. Indeed, this was the exception the Federal Security Council cited in justifying its approval of the tank deal with Saudi Arabia.
Redirecting Export Deals through Other Countries
Still, for many arms export deals, German companies do not have to get the government’s blessing. Indeed, international collaborations allow members to redirect their deals through countries with more liberal export regulations.
The best example of this practice is the “Eurofighter,” which was developed by a collaboration of Germany, Italy, Great Britain and Spain. Since each of these countries handles its own exports, Great Britain can close deals that wouldn’t get the blessing of Germany’s Federal Security Council — but Germany benefits from the transaction either way. Indeed, the British closed a €6.4 billion deal with the Saudis for 72 of the fighter jets.
Since it is getting increasingly expensive to develop new weapons systems, this type of collaboration is becoming more common. Likewise, it’s not just airplanes that German manufacturers are jointly developing with foreign partners; it’s also helicopters and missiles. And these partners can take charge of the export deals at any time.
The potential consequences of this kind of structure can be seen in the conflict in Libya. When the UN Security Council voted on whether to establish a no-fly zone in Libya, Germany abstained. The stated reason for the abstention was the desire to not have German soldiers participate in the war.
Despite this desire, however, Germany is still playing a role in the fighting, with “Made in Germany” written on many of the weapons used — by both sides. For example, the military transports ferrying Gadhafi’s tanks to the frontline are made by Mercedes-Benz. His soldiers are using German jamming devices to disrupt communications between their opponents. And Gadhafi’s troops can shoot down low-flying helicopters with the French-German “Milan 3” anti-tank missiles, whose launchers are manufactured at a factory in the Bavarian town of Schrobenhausen.
NATO troops also rely on German technology in the form of the “Eurofighters.” And even the Libya rebel forces can make use of German engineering after having reportedly been supplied with “Milan 3” missiles by Qatar.
Fundamental Problems
All of this would seem to make the war in Libya good business for the makers of the “Milan 3.” But the fact that three parties involved in the fighting are all using weapons made in Germany shows the fundamental problem of these kinds of arms export policies.
Tanks, helicopters, airplanes, missiles and guns can often be in service for several decades. This makes the chances slim that the buyer countries will only use them in this period for defensive purposes and not for attacking another country or suppressing the domestic population.
This is what makes each decision on whether to approve an export deal so difficult. And the debates on such issues will only increase.
Under these circumstances, Germany’s federal government must avoid liberally handing out export permits in order to safeguard the survival of the domestic arms industry. Though most German arms manufacturers rely on exports, the health of German’s export economy does not depend on the arms industry.
Roughly 80,000 people work in Germany’s arms industry. In terms of sheer figures, this makes the wind-energy industry — with its 100,000 jobs — more important.
What’s more, many of the weapon makers are also involved in producing items with non-military uses, and they could strengthen these activities if their arms business declines. Rheinmetall, for example, generates almost half of its sales with components for the automotive industry.
Indeed, Krauss-Maffei Wegmann is the only company whose well-being is solely dependent on military deals. At the moment, the company has declined to make any statement on the planned tank deal with Saudi Arabia and will only say that “the permit situation has not changed.”
On the company’s boss’s world map, the Middle East is still marked in red.
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