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Early this week, the Stockholm International Peace Research Institute (SIPRI)
published its Top 100 list of arms-producing companies in the world. The
report shows an international decline of weapons sales for the first time
since the 9/11 tragedy, based on year-to-year comparisons.
Arms sales reached a total of US$410 billion in 2011, 5 percent lower than
the year before. Reasons for this sales decrease include the austerity
measures implemented in North America and Western European countries, which
significantly cut many countries’ defense spending; the withdrawal of coalition
forces from Iraq and Afghanistan; and the United Nations Security Council’s
sanctions on Libya.
Of the top 100 arms producers, 44 are US-based companies that control 60
percent of the total sales; 30 are Western-European companies, which
control 29 percent of the sales, while there are only 13 Asian companies
controlling 5 percent of the sales. Based on SIPRI data,the highest
performers in Asian defense are Japan (five companies), South Korea (four),
India (three) and Singapore (one).
Last year, Indonesia issued Law No. 16/2012 on the defense industry that
aims to revitalize local strategic companies to be able to compete with
international companies’ sales. How local companies react in the face of
the declining arms procurement remains to be seen when even established
global sellers struggle to make it work, especially when calls that
Indonesian defense actors buy locally produced arms remain neglected.
Of course, we have to appreciate the law for its strong spirit to improve
our defense industries and also to meet the need of main weaponry-system
procurement. This spirit is reflected in some paragraphs that clearly refer
to local content, countertrade and offset (article 43 paragraph 5), and
show a preference for domestic arms products (article 43 paragraph 1).
However, this law still has some problems. First, the existing ambiguity in
regulating the development of our defense industries. On the one hand, the
government (read: security actors) is encouraged to buy and use domestic arms products. But,
on the other hand, this law does not give any sanctions to users if they
buy weapons from foreign countries.
Actually, when the House of Representatives deliberated this law, sanctions
against negligence were among the hot topics discussed. Some parties
forcefully asked that sanctions be imposed on users who refuse to buy
domestic products. Some parties, including the government, opposed the
idea. Unfortunately, after much lobbying the House and the government
agreed to drop that clause.
Second, the explicit number of countertrade, offset and local content seems
difficult to be implemented. Article 43 paragraph 5 (e) regulates on
countertrade, local content and/or offset of at least 85 percent. Paragraph
5 (f) regulates on a minimum 35 percent of local content and offset with an
increase of 10 percent for every five years. This section is unrealistic
because the government never buys main weapons on a large scale, so it will
be hard to demand offset and countertrade from foreign industries.
Third, the transitional period for industries to restructure and improve
their financial performance within two years will also trigger problems.
Two years is not enough for industries to make their business “healthier”
and better.
Since the law has been enacted, there has been no significant progress
reported. It is difficult to see how Indonesian defense producers can catch
up with the technology, although the law regulates on strategic
countertrade, joint-collaboration and offset for every weapon system
procured abroad.
These strategies will be used to gain technological leverage that the
country is still lacking. However, the catch with this law is that
Indonesia should buy in bulk or buy more expensive arms to demand producers
share their technological advantage. Even then the producers are only
willing to share limited information on low-tech and high-manual work, but
not the core component that Indonesia can sustainably base its strategic
industry on.
Referring to the offset scheme stipulated in this law, we are projected to
have strong defense industries that could produce our main weaponry system
independently by 2049. This is such a good dream. But, it needs the
government’s consistency and political will to support and involve our
defense industry in any arms purchasing.
In fact, it does not happen. When President Susilo Bambang Yudhoyono
visited the United Kingdom last year, the government agreed to purchase
sniper rifles from there.
However, PT Pindad will not be able to completely produce that kind of weapon
as it will still need to import rifle scope parts. If the government has a
strong commitment to improve the capacity of PT Pindad, President Yudhoyono
should have developed cooperation in making scopes for sniper rifles in
Indonesia.
In the eyes of the skeptics, Indonesia’s law on the defense industry is
only a facade to increase arms procurements and thus, open more
probabilities for persons-in-charge to tap into the commission, rather than
genuinely supporting local strategic chains.
However, several defense experts also think that Indonesian rusty fleets
are in need of rejuvenation (Connie Bakrie 2009, Andi Widjajanto, 2012) and
“buying the technology before producing” is commonly practiced by countries
having defense companies listed in the Top 100, including South Korea and
India.
If not collaborating with the established strategic industries, Indonesia
has the option to go it alone, like North Korea, with a very slim chance to
succeed. Consequently, defenders of foreign purchase are persuasively
pushing their agenda by luring technology transfer through offset. If the
integrity of Indonesian defense procurers and their negotiation skills are
guaranteed, the country might gain more from the scaling down of the arms
market. The producers are desperate for buyers and the SIPRI report also
mentioned that these companies pursue future opportunities in Latin
America, the Middle East and Asia.
There are four keys to secure foreign arms procurement that will benefit
Indonesia in the long run. First, it needs to be wary of procuring weapon
systems that are obsolete, incompatible and unsuitable with Indonesia’s
existing fleet, terrains or perceived threats only because they are cheap
or filling the pockets of the elites.
Second, the country’s strategic industries should look at cyber-security as
an emerging market. The field is gaining popularity as data protection,
network software and simulation test programs play more important roles in
contemporary state defense. Entry to this market is relatively less expensive
in contrast to building hardware kits such as main-battle tank or fighter
plane as intelligence is the essence.
Third, to boost production, industries really need routine long-term
contracts with simple administration processes from the government. This
action should be followed by a commitment and willingness of the Indonesian
banking sector to fund the contract.
Lastly, Indonesia needs to develop its local value chains to supply big
strategic industries such as PT DI, PT PAL, PT Pindad and so on. Without
it, the growth of these companies will be hampered by high import costs as
they cannot obtain the materials domestically. The same advancement on our
human resources — via appropriate skills training — also needs to be
pursued. No doubt, on the intelligence level, Indonesia is ready to
compete. ●
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