Editorial

Economic recovery: EDITORIAL bet on the defence sector!

By Joseph Roukoz

While our citizens are still trying to figure out how to cope with their daily lives post-Covid-19, governments are already thinking about the other plague that awaits us in the near future: The economic meltdown.

However this time the blow will not only remotely affect a few countries, as it did after the 2008 crisis. Analysts agree to say dozens of millions of people will be thrown out of work across the world, thousands of companies will go bankrupt, understanding among Nations will keep eroding (as has already started between USA, China, Europe, Brazil) and civil unrest threatens the most vulnerable countries.

Only in Europe, one third of the economic activity stopped abruptly, already shrinking the growth by 7.5%. The lack of preparation has already affected the relations between European countries, as Italy and Spain, the most affected countries, blamed the Netherlands, Austria and Sweden for the lack of coordinated support at European level.

As budgets are being reconsidered and despite the mobilization of Defence actors to protect their sector, it is still early to know whether the European Union will follow. For example, it is still unclear whether the Union will finance the European Defence Fund, (already cut from 13 to 6 billion Euro before the crisis) that could stimulate a cross-border recovery of the R&D in the Defence sector while giving incentives to European countries to keep up with the ongoing programmes.

Actually Defence should be considered a priority sector, not only because it represents a considerable amount of public investment, but also because it can open a virtuous circle with positive consequences on the global economy, whether on the short or longer run. First, the European Defence industry employs around 2 million people, either in direct or indirect jobs covering operations, logistics or supply chains. In a country like France, the industry gravitates around 10 major contractors and 4,000 SMEs and generates 20,000 highly qualified jobs. Thirteen percent of the industrial employment is linked to the Defence sector, without mentioning the added value generated at regional level in terms of employment and wealth.

It is therefore extremely important to rescue and protect companies by maintaining critical factories working, and by relaunching the industry on a concerted European level. The positive outcome of this will relieve the entire Defence Industry as previously experienced. It is not a coincidence if the USA usually relies on major accelerated Defence production programmes to overcome the economic recessions that affect them. During the early 1980’s recession, not only did the arms race against the USSR helped the USA overcoming the crisis, but it also helped them preserving their economic prominence at length after the end of the Cold War.

Public investment in the Defence sector results in a multiplier effect that can be ultimately positive for growth, as well as a profitable social and fiscal return on investment.

First, cost-efficiency is maximal on the production level. Most European countries’ Defence supply chain is mostly national, given its specific strategic nature and the high confidentiality of its components. In France, Germany or Italy, where factories are well distributed across territories, they ensure the long-term protection of an entire chain of professions, including highly qualified jobs. This helps generating wealth and development across territories for a maximal profitability at a reduced cost.

And despite the situation, countries like Germany, the USA, Turkey or China kept some of their key production factories functioning.

Even if today’s context is different from the 2008 crisis, mainly because the lockdown has also limited our ability to move, and affected our production and logistical chain, this strategy has already been tested successfully back then, where investment in Defence programmes were speeded to safeguard jobs and economic attractivity. At the end of the day, successful export, that play a key role in the Defence sector, includes the ability to generate trust. It is therefore obvious that maintaining an operational offer and production chain is a positive incentive to international buyers, especially if the crisis shrinks the demand.

Part of the political role in rebuilding the Defence industrial landscape should consist in alleviating custom or tax regulations and backup the loan payments of the industry to accelerate the delivery of ongoing contracts. This, added to the fact that the Defence sector benefits from exceptional derogations of common trade regulations, (whether European or International), should certainly help rebuilding a robust win-win dynamic in this profitable sector.

European prime manufacturers count among the most dynamic in the world despite international competition. Many of their products are combatproven and these countries usually have the necessary resources to deliver.

A quick glance at their trade balance over the past decade shows just how structurally important the weight of the Defence industry is in improving economic performance. Some European countries owe their favorable balance to Defence exports and other ones compensate their global deficits with a fruitful year of armament sales.

“We are at war”, said French President Emmanuel Macron a few hours before announcing the lockdown. As a matter of fact, Europe is at war. Last time our continent was confronted to such a collective disaster, was during the Second World War. Only this time, the “foe” doesn’t have a human face and the “friend” is not really identified.

But if our leaders remember correctly, the last European war was also the igniting point of building the European community that led to the Union. This is where we have a true opportunity to show our citizens that Europe is not lost. Countries should learn from their mistakes and lack of anticipation during the crisis to initiate a new way of coordinating their actions to face any given danger, including the invisible one. It was only a matter of time before pandemics become a global threat just as natural resources or the environment did before them. The Defence sector’s dynamism could not only help stabilizing the growth in Europe and reversing its deficient tendency by continuing national and cross-national programmes, but it can also be the starting point of a joint planned action to foster innovation in the medical sector. This is the path that was already taken by the French Defence Innovation Agency (DIA). The DIA, fully integrated to the Ministry of Defence structure, has recently opened a call for tenders to military and nonmilitary companies, including SME’s and startups, to help find the best technological responses to the COVID-19 crisis. Innovation in Defence is known for its ability to filter through the civilian sphere and adapt into a broader range of products that can be used by all sectors (Artificial Intelligence, medical or domestic technology, etc.).

In Europe, as well as elsewhere, the armed forces contributed to the COVID-19 crisis management by mobilizing all of their efforts in the R&D as well as at operational level, displacing infectious people from overcrowded regions through, military airlift, transporting critical materiel where needed, building field hospitals, and providing military medical personnel to increase their countries capabilities. In perspective sharing those capabilities might contribute to rebuild trust among the nations.

The world will probably be very different after this bad storm has passed on so many levels, whether it is social interactions or international relations, but it doesn’t mean that it must be all negative.

We have a real opportunity to quickly control the damage by betting on key sectors such as the Defence one, even if they don’t seem as obvious priorities to the majority of people. They are important because they will help us enhancing relations with our partners, fostering rapid growth and innovation, preserving jobs and wealth in our nations, and giving a serious push to build the Europe of tomorrow.

All it takes is political courage and vision. This is how leaders will be measured and remembered.