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DSEI 2015 Provides HMG With Urgently Required Defence Export Policy Opportunity By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

dsei109 Sep 15 Just days before the UK hosts the world’s largest defence and security exhibition, DSEI 2015 at the ExCel Centre, London during which a record number of companies from all over the world will participate showing their various defence and security wares I intend this morning to raise some serious issues of concern together with some solution to the currently, in my view, misguided approach that the Government is taking toward UK defence and security export requirements.

DSEI 2015 will be attended by a great many foreign military delegations and others from all over the world. These important people will be casting an eye on the vast amounts of superb technology, capability and services being shown and demonstrated by companies from across the world. And as always at events such as this, they will be networking and looking for new concepts and ideas that provide solutions to their immediate and longer term requirements. UK based defence and security companies from large primes to the many small and medium sized enterprises that will attend and who make up the important component supply chain or supply specific technology, equipment capability and services that employ many thousands of highly skilled jobs will also be at DSEI 2015 in record numbers this year as well. So too will senior UK Government Ministers, Ministers of State, Members of Parliament and the most senior representatives of all three of our Armed Forces – the Royal Navy, the Army, the Royal Air Force and also from Joint Forces Command.

DSEI may be a showcase for global defence equipment but it is also the primary showcase for UK produced defence and security equipment, components and services. Britain remains the world’s second largest exporter of defence equipment but whilst we have done well over the past few years we have recently lost out to the French in some major competitions. The bottom line is that we have lost out to the French because we have failing to match what competitor governments are doing. We have failed to accept the need for Government to Government arrangements and MOU’s. It seems to me that our Government no longer has the mechanics or the will to create solutions that the potential customer desires.

Far from being onside supporting defence exports the Ministry of Defence is putting hostages to fortune in the way of achieving success. We need to widen bilateral relations and if we are to have a real chance of succeeding in defence export markets we need to have all government departments working together for the same ends and singing from the same hymn-sheet. We must embrace the potential of more Government to Government based arrangements, ensure that these are cross departmental and that a culture change is put into operation inside the MOD. We must listen to the customer, provide the customer with answers when they are requested and embrace what they require. If the deal requires inward investment and that the UK needs to provide additional none defence related technology expertise we must embrace that too. If the customer requires aspects of international defence training on an initial or permanent basis we must ensure that we are in a position to always say yes. And if that means we need to further invest in defence training and to take a degree of risk then so be it, we should.

In addition I would say that the Prime Minister must, when it comes to matters of defence exports, always be fully involved meaning that as this is about foreign governments and peer equals being potential customers those directly involved in exports must be required to report to him directly.

Moreover, I believe that we need to significantly strengthen as opposed to further weaken UKTI DSO and to provide this organisation with the necessary resources that it requires and that will ensure that in the future we succeed in the defence export market as opposed to losing out. For too long we have tried to do things on the cheap and in the process of cutting and slashing back organisations such as this we have lost far too much of the expertise that we need.

So, can, does and should Whitehall stand accused of burying its head in the sand when it comes to supporting defence exports? I believe the answer is yes and that despite nice sounding words and some actions from the Prime Minister, the Secretary of State for Defence and the very good work being done by others such as the Minster of State Defence Procurement, Philip Dunne, that too many others are standing in the way of progress. Industry is prepared to play its part and while it may need to take a higher degree of risk and be prepared sometimes to share IP that it owns it quite rightly looks to government to accept the need to understand that potential customer governments for defence equipment desire government to government arrangements as opposed to dealing directly with contractors.

It is of course true that following publication of SDSR 2010 and the subsequent National security through technology white paper the Government sponsored a number of ideas designed to encourage investment in the defence and security industry and to increase exportability. One of these was the Defence Growth Partnership, a joint government/industry partnership designed to secure what was rightly considered a thriving sector. Following on for creation of the Aerospace Growth Partnership and creation of the Aerospace Technology Institute the Defence Growth partnership was a bold new approach to improve the UK defence sectors competitiveness in the international market place. It was undoubtedly a good idea and in the forward to the ‘Delivering Growth’ paper that launched it the Prime Minister, David Cameron said of the UK defence industry that “it is important for our prosperity too, employing over 160,000 people including 4,900 apprentices and trainees and generating an annual turnover of £22bn with exports of £9.8bn in 2013”. I am a great believer in the Defence Growth Partnership and I await to see whether industry and government have through many discussions found a better way to secure more UK defence exports.

Can the attitude and approach of our Government to defence exports really get much worse? Sadly I fear that when it comes to properly understanding perquisites required by foreign governments that if we are to ever again be successful in selling the superb range of defence products to nations that we are attempting to build new relations with and that perhaps we have not done business with before we need to buck up our ideas and accept that the present system of being unable or unwilling to give the government customer want they want is unacceptable.

The bottom line is that despite protestations to the contrary, despite helping to set up and jointly fund the Defence Growth Partnership I am left with the view that our government either doesn’t understand or even worse, that deep down there is little real interest in being involved in defence exports because, in relation to the overall £500bn of UK exports, they see defence as being a small piece of the overall jigsaw.

Certainly the present Conservative Government and its two immediate Coalition and Labour predecessors can be accused of failing to understand the value of government to government partnerships, of cross departmental relationships required and of understanding the mechanics required to create solutions and the requirement that translates to meaning that governments like to deal with government and prime ministers with prime ministers. To succeed means that Britain not only has to get out and sell itself it has to be pro-active in doing so. That means that the Prime Minister must visit countries that we are talking to on a very regular basis and visit again if that is what is required to pull off a deal.

I may be wrong but I do not believe that the Government understands that to succeed in defence exports requires that core tasking within the MOD and that to succeed requires the same attitude and approach to be taken across all government departments meaning Cabinet Office, Treasury, Ministry of Defence, Foreign and Commonwealth Office, Home Office and probably the Department for International Development (DFID) as well. And while I perfectly well understand that our Prime Minister carries a heavy burden of responsibility and schedule to match, success as I have already suggested requires that Mr. Cameron must be far more pro-active in foreign visits.

Unless we really do change our ways and get our act better together it really will be too late to save the UK defence export industry. Bogged down as it sometimes appears to be while I absolutely applaud the work of the Defence Growth Partnership I have to accept that we need to see results soon. And then I mentioned earlier, there is UKTI DSO, formally the Defence Export Services Organisation (DESO) that I genuinely believe because of its long history of success was one of the best decisions that Dennis Healey ever made. Set up in 1966 to be the government body responsible to the Ministry of Defence for defence exports and working closely with them and the whole of the British defence industry small and large in terms of providing them with export support DESO worked extremely well for the whole nation until in 2008 Gordon Brown, presumably on the ‘orders’ of Shriti Vadera, despatched it into UKTI and what she probably hoped would be obscurity. As UKTI DSO subsequently the organisation has thankfully survived and much reduced in size still managed to play a big part in securing 2013 defence and security exports well in excess of £11bn.

But along with many other sections of government including the Foreign and Commonwealth Office UKTI DSO today resembles an organisation that has suffered death by a thousand cuts. At a time when we should be investing in resources if we are to increase our export targets when it comes to the primary external self-financing government support that industry has enjoyed over almost five decades UKTO DSO is a shadow of its former self. Are we mad to have allowed this fine organisation to run down? We are and I am far from being alone in believing that. The French, Australians, Canadians and the US cannot believe that we have been so stupid as to allow our defence support organisation to be run down in the way that it clearly has and there are those such as the Swedish Government that would love to copy what we have achieved.

But our stupidity goes a lot further and deeper than that. Within the MOD there is a team known as the Export Support Group that was supposedly designed to do everything that it can to support defence exports. Sadly, it appears to be doing quite the opposite and seemingly putting every obstacle and hostage to fortune in the way that prevents export success.

Here is another example of the way that we make life so complicated and difficult for ourselves. The Secretary of State for Defence, the Rt. Hon Michael Fallon chairs a body called the Defence and Security Export Work Group. Until recently this group reported directly to the Prime Minister. This is sadly no longer the case as from a reporting element it has apparently been lumped in with the rest of UK exports. My current understanding is that the direct reporting line for this group is no longer direct to the Prime Minister but through the Export Implementation Task Force which as I have already suggested embraces the whole of the £500 billion UK export market. Defence is thus to be seen as a minnow in comparison and yet it employs vast numbers of jobs and retains crucially important UK engineering skillsets.

In my May 18th piece entitled ‘Strategic Political Narrative Urgently Required’ I wrote that ‘one may be entitled to ask at this juncture that having been beaten by France in both India and Qatar Typhoon campaigns what has the British government actually done to assist our defence industry in creating a win for this exceptional aircraft in the two separate contests? The honest answer is not very much’. I went on to remind that ‘in the world of defence exports ‘there is only ever one customer – governments and that they will always seek to deal with the opposite number in the government of the country competing to sell equipment and for the most part, complete arrangements based on structured government to government deals’. I said that ‘even allowing for the fact that the UK had not led the India sales campaign [in this case it had been down to German Eurofighter Typhoon partners although UK industry was extensively involved in support] had the UK Government been prepared to match what the French government had offered to the Indian Government in terms of inward investment we could well have won. Sad to say that when it comes to top level British Government involvement in Qatar and India involvement was, to say the least, minimal.

In my view the French achieved success in both exports contests because they listened to the customer governments and gave them all that they wanted. For a start the French really do understand bilateral relations and what these mean. They understand the value of all round relationships and that Government to Government arrangements mean more than one thing. They are not just about one country attempting to sell specialist defence equipment to another but spread far more widely than that. They can be equally as much about inward investment or, in the case of the French in India, agreeing to build a civil nuclear power plants    at Jaitapur adding to the seventeen other deals that France and India have agreed across various sectors in recent times.

The French also realise the real value of proffering access to finance and training. They understand about assured delivery and they generally ensure that an export element is built into large contracts awarded to its own industry. In effect this means that the producer company is obliged to take on a sizable element of risk by perhaps building military aircraft before a buyer has been found. One might ask why they do this and my answer is that they take the view better to do this than face the enormous scale of closure costs for which, in France, the Government would bear the main burden. Most of all and forgive me for repeating what I have said before, the French realise that as potential buyers of defence equipment, Presidents and Prime Ministers of a buying country wish to speak and deal with the Presidents and Prime Ministers of the selling country.  The most senior defence minister wishes to converse and perhaps negotiate with his equal number just as it is the most senior military individual of the buying air force or navy that wishes to converse with his or her equal number in the selling company.

I am told that the French Defence Minister, Jean-Yves Le Drian visited India and Qatar many dozens of times and the President Francois Hollande did so many times as well. What they would not do is to send anyone other than a very senior minister.

The door is far from being shut on Britain and there are many very active campaigns that we are involved in. Neither is the door shut in those countries that we have recently failed such as Qatar, India and the UAE but unless we get our action together very soon the future for UK defence exports may not look so bright.

(Note that copy of the earlier paper referred to above – Strategic Political Narrative Urgently Required and that covers the lack of ambition and Foreign Office policy is available separately on request)

CHW (London – 9th September 2015)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710 779785

 

 

 

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