Arms unto the nations: In its largest export market, Israel plays by very different rules than in any other sector.

<a href=www.globes.co.il>Israel' Business Arena Oren Persico   5 May 03   09:49

Israel manufactures and exports a great many weapons. The subject almost never arises in public debate, and when it does, people yawn, as if the Jewish people have always been arms manufacturers and merchants.

After all, a nation living under the threat of war naturally makes weapons, and a country that makes weapons naturally looks for foreign markets for them. How large is Israel’s arms industry and how much does it export? Government ministries classify this information as privileged, but it is possible to learn about the extent of exports from foreign institutes and publications that monitor the international arms market.

“Defense News”, one of the world’s most respected journals covering the arms market, recently reported that Israel is now the world’s third largest arms exporter, after the US and Russia, with arms exports worth $3.7 billion in 2002.

Israel’s ranking jumped from its previous position in the bottom half of the top ten arms exporters. In 2001, Israel’s arms exports totaled only $2.6 billion. Israel’s arms exports rose 40% in 2002, and the country overtook Germany, UK, and France, to become a global arms power.

The nature of Israel’s arms deals in recent years can be found in the Stockholm International Peace Research Institute (SIPRI) publications. SIPRI’s yearbooks report large-scale arms deals, among other things. Following are some prominent Israeli arms deals in the 1990s: 96 Barak air-to-ground missiles to Singapore; 100 Popeye air-to-ground missiles to the US; six Kfir jet fighters to Ecuador; 15 Kfirs to Sri Lanka for use against the Tamil Tiger rebels; ten rocket launchers to Chile; 18 radars to Singapore; 130 anti-tank missiles to Estonia; ten anti-ship missiles to Chile; 18 155-mm artillery pieces to Slovenia; 100 unmanned aerial vehicles (UAVs) to South Korea; 15 tanks to Uruguay; 600 Python air-to-air missiles to Singapore; 46 Popeye missiles to Turkey; five 155-mm towed-artillery pieces to Botswana; ten radars to Chile; 48 Python missiles Ecuador; 28 UAVs to Switzerland; eight 155-mm towed artillery pieces to Cameroon; 960 Spike anti-tank missiles to Romania; six UAVs to Finland; two UAVs to the Philippines, for use against the Abu Sayyaf and other Muslim guerillas; 54 Barak missiles to Venezuela; 84 Python missiles to Chile; a landing craft (LCT) to Eritrea; a Bell helicopter to Argentina; and four Skyhawk jets to NATO.

Israel Aircraft Industries VP Corporate Communications Directorate Doron Suslik says IAI signed $3 billion worth of new contracts in 2002. Assuming that almost 60% of the amount consists of arms exports, IAI exported almost $1.8 billion worth of military equipment last year.

The Golda Meir era is over

SIBAT - Foreign Defense Assistance and Defense Export Organization deputy director Meir Shalit declines to either refute the truth of SIPRI’s figures or to comment about specific deals. He estimates there are 150-200 Israeli defense exporters, ranging from major government companies to tiny two-man firms. 50,000-60,000 people work in Israel’s defense industry, and they generate up to 25% of Israel’s annual exports. It is a huge industry that maintains a low profile.

IAI president and CEO Moshe Keret praised his marketing staff at IAI’s latest marketing convention. Yet, in the arms market - Israel’s largest exporter - advertising and marketing are largely irrelevant compared with political calculation and proven battlefield effectiveness.

Shalit says the time when politics played the dominant role is over, “In the 1960s all the countries in the world exported arms as part of their foreign policy, but that has passed. The defense market is just like any other market now. Sometimes it’s a buyers market, and sometimes it’s a seller’s. The customer buys the best product at the best price, because there’s an over-supply. Many companies from many countries compete for the large-scale tenders in an attempt to expand their market share. This is because, except for last year, due to the impending US-Iraq war, the defense market has been shrinking.”

Shalit admits, however, that Israel’s foreign policy dictates to whom its defense industries can sell arms. In his book “A Double-Edged Sword. Israeli Defense Exports in the 1990's" (Am Oved, 1992. In Hebrew), Prof. Aharon Klieman wrote, “Arms transfers are a dual-purpose political-security tool, essential for Israel’s security position, and an unavoidable critical component of foreign policy. Consequently, Israel’s diplomacy of arms exports is a kind of extension of Israel’s general approach to foreign affairs.”

This means that in its largest export market, Israel plays by very different rules than in every other sector. Arms customers are usually sovereign states, and purchasing calculations are not always based on advertising or marketing, but on a wide range of influences and pressures.

IAI has an extensive marketing deployment with offices or local representatives or agents in 85 countries. Suslik says IAI budgets $1.6 million a year for advertising in foreign publications, such as “Defense News”, “Aviation Week”, and “Jane’s Defense Weekly”, and on pertinent websites. That is only a fraction of IAI’s annual budget, but the advertising is mainly directed at creating market awareness about the company, rather than actually trying to convince a customer to buy the company’s products.

Suslik says, “We use integrated marketing tools, including traditional advertisements in journals, and participating in fairs and exhibitions. But the moment the Israel Air Force revealed, in April 2000, the Arrow anti-ballistic missile system in a public ceremony at Palmachim in the presence of the US ambassador, IAI executives, the Air Force commander, and Israeli and foreign media, and announced it was adopting the system for the country’s defense, it gave us an extraordinary first-class marketing edge.

“If I obtain pictures from the Ofek 5 reconnaissance satellite a few days after launch, and Minister of Defense Benjamin Ben-Eliezer then shows pictures of Iraq at a cabinet meeting, and the story is leaked to Hebrew daily “Yediot Ahronot” the next day, we get an exceptional marketing boost.”

Psst! Wanna buy an air-to-air missile?

Advertising for IAI and Rafael (which SIPRI ranked as the world’s 43rd largest arms exporter in 2000) is handled by an ad agency that prefers to remain anonymous and uncredited for this article. The reticence might be out of moral consideration, and what agency would like to be associated with ads that encourage the consumption of weapons that might kill innocents, or even boomerang to hit Israeli targets. Or the reticence might be out of professional considerations, since some of the ads provide a healthy dose of humor in a very serious industry. An ad for Rafael’s device to break down doors, for instance, shows a picture of a soldier firing and a huge explosion, with the caption, “Open Sesame”. Another ad for Rafael’s Spike anti-tank missiles shows a missile and a massive explosion, with the caption, “Spike was here”. The pictures are accompanied with systems’ technical details and advantages written as if for a sophisticated radio: “Easy to use, easy to assemble, fire and forget.”

Rafael marketing director Dr. Eitan Yudilevich says weapons have to sold like toothpaste. For him, the company’s ads meet their purpose. Rafael spokesman Noah Shahar says marketing weapons is different than marketing ordinary products.

Shahar says, “Let’s be honest, if I were to simply advertise an air-to-air missile, no one would buy it. You don’t buy air-to-air missiles in the supermarket. So why do I advertise? I’ve argued with the company’s executives and financial managers about this for years. I show them that companies like IBM (NYSE:IBM) and Coca-Cola (NYSE:KO) advertise constantly. The question is whether that’s appropriate for defense products, too.”

War as sales promotion

“Globes”: What is the concept behind the advertising? Will an admiral leafing through the magazine see the ad and say, “Ah, ha!”?

Shahar: That’s the million dollar question. I don’t have an answer, but magazines are full of ads for major players like Boeing (NYSE:BA) and Lockheed-Martin (NYSE:LMT). Are products bought on the strength of these ads? I don’t know, but my advertising concept is show that we exist; we’re on the map.”

It often seems like the advertising efforts are dwarfed by battlefield results. Suslik tends to concur, “Some of IAI’s products have combat reputations, which gives them a marketing boost over competing systems. The defense industry makes weapons, and weapons must be tested on the battlefield. That’s their real test.”

So the Iraq War was a superb sales promotion campaign.

“Unfortunately, during the run-up toward the war and during the war itself all intelligence, UAV, and command and control systems get a major push. If this were peacetime, countries would still be examining their operational and financial needs for procuring weapons systems, as these are not cheap, the examination and procurement processes would take longer. Since this was a time of war, and countries were worried about missile attacks from Iraq, the feasibility studies about the Arrow anti-ballistic missile system or UAVs, for instance, took on a whole new urgency.”

Shimon Peres’s mettle

Klieman’s book “Double-Edged Sword” is one of the most thorough analyses of Israel’s arms exports. He concludes quite simply every Israeli government since Ben Gurion has supported arms exports. Israel’s governments have invested vast sums in the country’s defense industries, and encouraged manufacturers to export. Klieman writes, “The question whether Israel should participate in the arms export business as a matter of principle was never discussed, nor is there any evidence that the various aspects of this question has ever been a matter for serious public debate.”

The only time an arms deal aroused a storm of controversy and Knesset debate was in 1959, when it was revealed that Israel had sold mortar bombs manufactured by Soltam to the Federal Republic of Germany. The debate was not about the fact of arms sales in general, but the particular customer, only a few years after the Holocaust. In his defense of the sale, Prime Minister David Ben Gurion revealed the protocol of the cabinet meeting in December 1958 that decided to give the Ministry of Defense the authority “to sell arms to foreign states in all cases where the Ministry of Foreign Affairs does not object.” Ben Gurion told the Knesset, “In all matters of foreign affairs, we ask ourselves one simple question: ‘What is best for Israel?’ If it is good, then all my emotions and Jewish instincts, and all my Jewish pride and humanity tell me, ‘Do what is best for Israel and what is necessary for its defense.’”

Arms exports had actually begun several years previously. In August 1954, Israel sold $1 million worth of Spitfires and $700,000 worth of rifles to Burma. That same year, Israel also sold artillery shells to the Netherlands, and other defense products to Belgium, Turkey, Italy, Ceylon (now Sri Lanka), Nicaragua, and the Dominican Republic. The customer list has grown longer since then.

As Ben Gurion’s protégé, Shimon Peres was an enthusiastic supporter of Israeli weapons development. While serving as Ministry of Defense director general and Deputy Minister of Defense in 1953-65, he encouraged military technology development. As Minister of Defense in the first Rabin Government in 1974-77, he completed a plan he had personally prepared a decade earlier. Kleiman quotes Peres as saying, “The defense relations of some countries do not necessarily conform to their ordinary foreign policies… and we must recognize this fact.”

Guns and avocados

Israel’s arms exports surged after the 1973 Yom Kippur War. Unprecedented global demand, the lifting of arms sanctions on Israel, and the IDF’s combat experience in two critical wars pushed Israel’s defense manufacturers into international markets. In the years after the war, Israel’s arms exports grew almost geometrically. The exports were frequently described as forced on Israel by circumstances. In 1982, then-Minister of Defense Ariel Sharon told Hebrew daily Ma’ariv, “We’d be delighted if Israel’s exports consisted solely of flowers, avocados, tomatoes, computers and advanced medical devices. But that is not enough to ensure what is necessary and essential… With all due respect to those who what to make moral considerations paramount, there is no choice but to recognize a matter that touches on our very existence and survival… Israel must therefore develop military research and exports.”

In “Double-Edged Sword”, Klieman writes in depth about the necessity of developing Israel’s defense industry. In addition to government encouragement and the inexorable inertia of local manufacturing leading to exports, another factor behind the accelerated development of Israeli weapons was arms embargos imposed at various times by the UN, US, France, and others that blocked sources of needed weapons systems.

The problem is that the expanded arms production intended to supply the IDF without relying on foreign sources was not achieved. Israel is also one of the world’s largest arms importers, and needs US military aid to help pay for it. More seriously, increased arms production combined with reduced procurements by the Ministry of Defense necessitated the search for foreign markets. Otherwise Israel’s defense industries would collapse and its tens of thousands of employees laid off. Moreover, the international arms market is not exactly stable, and it suffers from unpredictable fluctuations in demand. Consequently, Israel also has to consider its potential arms customers in terms of market fluctuations and jobs of thousands of its citizens.

Export or die

Former Ministry of Foreign Affairs director general Alon Liel puts his finger precisely on this dilemma and its consequences. “The overall picture is that since the 1970s, we’ve had an arms industry that would die if it didn’t export. Consequently, there is intense pressure to find customers, because without them there are no arms for the IDF either. Every serious arms industry must be large-scale, otherwise you become obsolete and non-competitive. A small arms industry cannot survive, especially for heavy arms and aerospace. For the same reason, there cannot be a small car industry. You’re either big or dead. If you’re big, you need a market, and the IDF isn’t a big enough customer for the defense industry. The IDF procures a third of Israel’s defense industry’s output, which means two-thirds must be exported.”

Haim Tal, today a documentaries film director who in the past worked on the Arrow’s development, adds, “It sometimes happens that the Ministry of Defense and IDF’s interests diverge. The defense industries want to supply work and the IDF wants to deliver security, and these are not necessarily the same thing. The IDF’s combat doctrine is now derived from the tools at its disposal, not the threats or advantages it could create.

“Take the Merkava tank for example. The Merkava is too big for the IDF and the country, because there are weapons systems much more effective than endless columns of tanks. Consider the potential enemies: Syria’s tanks are obsolete, and the Palestinians have homemade Qassam missiles. A couple of months ago, at the height of the Ministry of Defense caterwauling over its budget, IDF GOC Army HQ Maj.-Gen. Yiftah Ron-Tal said at a press conference after a training exercise that the situation was critical. The IDF is beginning to procure the Merkava Mk. 4 tank, but probably cannot afford it, with the result that a lot of people will lose their jobs. Why should an army commander be concerned about Ministry of Social Services matters?”

Another dilemma arising from the manufacturing paradox is that Israel frequently sells arms to regimes of dubious reputation.

Liel says, “This wasn’t a problem until the 1970s, but when you start large-scale arms manufacturing, exports are essential for the industry’s survival. You have to find a major new customer every 5-10 years. This is how we found all our major customers like Iran, South Africa, Turkey, and India. Whether the regime is democratic or not is irrelevant, because it’s a matter of survival. If you have ones arms order for $1.5-2 billion, even if it’s spread over several years, you can barely keep your head above the water, and if you don’t have a customer like that, you’ll drown.”

Iran, South Africa… who’s next?

Liel says, “The defense establishment tends to develop special relationships with major arms buyers. Iran and South Africa were examples of non-democratic countries that were customers for Israeli arms. It’s actually easier to sell to democracies, because you can do so openly. We sell openly to India and Turkey. But there are always smaller customers in the shadows, and you convince the Ministry of Foreign Affairs that the deal is important. If the Ministry of Foreign Affairs concludes that the deal won’t cause diplomatic complications and will help the defense industry, it usually approves the sale.”

Liel once wrote Hebrew daily “Ha’aretz” stating his objection to the sale of riot control vehicles built by Beit Alfa Technologies to Zimbabwe’s dictatorial President Robert Mugabe, who has imposed a regime of terror against political and tribal opponents, most notably the country’s white farmers, including Jews.

Pinochet is too hot to handle

As Liel hinted, Israel’s relations with some of the world’s less salubrious regimes have long been a source of worldwide obloquy. The clearest examples of dirty arms dealing are with the Apartheid regime of South Africa (whose sophisticated arms industry began selling Israeli-based arms to Israel’s Arab enemies after the Apartheid regime fell in 1994), and the Shah of Iran before the 1979 revolution. The 1973-90 dictatorial regime of General Augusto Pinochet of Chile is another example.

Not all Israeli arms sales are conducted by defense companies’ sales reps. Arms merchants sometimes broker deals between manufacturers and potential customers. These brokers usually get a percentage of the deal as a commission, which they sometimes use to bribe the potential buyers to choose Israeli arms. Another sales method is a direct official approach by the Israeli government to a foreign one. The most bloodstained of the three sales methods is usually the use of independent arms brokers, because they offer the government plausible deniability for transactions that cannot receive official sanction.

The arms sales to Pinochet’s Chile were official and aboveboard. In 1978, then-IDF Chief of Staff Lt.-Gen. Mordechai Gur visited Chile to promote defense sales, and claimed that allegations of large-scale torture and murder by the regime were untrue. Israeli arms sales to Chile at the time included three missile boats for $100 million, maintenance equipment for air-to-air missiles, anti-tank missiles and radars.

International embarrassment

Another dubious customer was Angola. The Angolan Civil War between the MPLA government and UNITA rebels, which had been ongoing since independence from Portugal in 1975, broke out anew in 1994 after a recently-signed peace agreement broke down. The UN Security Council imposed an arms embargo on the region, but foreign reports claimed that Israel had sold millions of dollars of light arms and ordnance, two helicopters, and a reconnaissance plane to the Angolan government. Israel also helped maintain and upgrade Angola’s Russian-built tanks and MiG fighters.

Israel also reportedly sold arms to UNITA, including anti-tank RPG bazookas, munitions, and 2,000 AK-47 Kalashnikovs.

Israel suffered another international embarrassment in 1989, when it was revealed that Hod Hahanit (Spearhead), a company headed by Yair Klein and Col. (res.) Yaakov Biran had trained Colombian drug cartel death squads.

Shalit stresses that things are different now. “Arms sales to dictators are a thing of the distant past. The approval procedure for arms sales is a two-stage process. First, the manufacturer applies for a permit to open negotiations. This includes the preliminary stages that precede negotiations, such as sales promotions, exhibitions and advertising. Manufacturers apply to SIBAT, whose procedure includes committees of experts from the Ministry of Defense, IDF, and other organizations. The committee decides whether or not to approve the permit, and under what conditions.

“At this point, the customer gets a permit that stipulates the name of the manufacturer, marketer, product, ID number, and end-user. There is no room for error. After the contract is signed, comes the actual export. The customer again applies to SIBAT for an export license. We again check the application, to see if there has been a change in policy or parameters.”

What are the parameters?

Shalit: “Israel’s defense export policy is based on several cornerstones. The Ministry of Foreign Affairs gives the first input. Then there are UN resolutions. We are members of the UN, so we comply with all [Security Council] resolutions regarding arms exports. Israel fully complied with the UN arms embargo on Yugoslavia [during the civil wars of 1991-95]. Israel also complies with international inspection regimes, even when it is not a member of them, as well as with legislation by foreign countries that block follow-on exports.”

Can you cite an example of Israeli arms exports that were blocked because the customer might use them in an unacceptable manner?

“A few years ago, we gave a permit to a certain company to negotiate with Rwanda. They applied for an export license after the contract worth tens of millions of dollars was concluded. SIBAT refused because Rwanda began throwing children out of helicopters, and the UN also imposed an embargo. The manufacturer accepted the loss and didn’t export the munitions.”

The Rwanda affair

Meanwhile, “Financial Times” reported that Israel was a source of arms shipments to the Rwanda government responsible for the genocide of almost a million minority Tutsis and moderate Hutus in one of the most brutal campaigns of mass murder in human history.

“ Financial Times” claims that the arms were sent from Tel Aviv to Albania, where they were trans-shipped to Rwanda in April-July 1994, when the genocide was at its height. The Ministry of Defense was almost certainly unaware of the deal, which was a gross violation of international treaties.

In 1998, it was reported that then-Prime Minister Benjamin Netanyahu decided not to cancel a deal to sell upgraded MiG 21s to Ethiopia, despite its ongoing border war with Eritrea. Eritrea’s ambassador to the UN condemned the deal. Netanyahu’s media advisor Aviv Bushinsky said the deal had been approved because the planes would have been delivered only a year later, in the hope that a peace agreement would be worked out in the interim.

If that were not enough, there is the 1986 Irangate affair, which proved that Israel’s arms sales to Iran did not end with the 1979 Khomeini revolution. Then there was the case of PAD Ltd., owned and managed by Avihai Weinstein, which is suspected of involvement in the sale of military products to Iran, including US-made rubber pads for M-113 APC tracks. The shipment was seized by German customs in August 2002. PAD Ltd. naturally did not have a SIBAT export permit for Iran.

Tal says, “SIBAT can decide to sell arms to a dictatorship, and there is no one sufficiently sensitive to notice, because there are no peaceniks on its committee, only former combat veterans who were comrades in arms. They’re the ones who sell military know-how and weapons. If it were up to me, I’d sever SIBAT from the Ministry of Defense, and subordinate it to the Ministries of Foreign Affairs and Justice, which would be much more logical. I’m sure they comply with all the sales criteria, but something always reeks over there. Greasing the wheels is an inseparable and acknowledged part of the deal. A lot of money goes to all kinds of characters, without tax receipts, in order to promote sales. A sale is declared at a particular price, but in practice, part of the money is kicked back to the buyer. No one talks about it; it’s part of the rules of the game.

“There are also a lot of back-scratching. If you’re a slick and well-connected arms trader, you’ll find the connections to make a deal. The Karine A [an arms shipment to the Palestinian Authority seized by Israel in January 2002] had permits, bills of lading, etc. Israelis can’t do the same thing? You can always find a legitimate customer who resells the arms to a third party. I doubt if SIBAT will scrupulously send agents to investigate the end user of an arms shipment.”

Last, but not least, are Israel’s arms sales to China. In early 2002, the world saw pictures of Chinese F-8 fighters carrying Rafael Python 3 air-to-air missiles, taken by US planes, after a Chinese jet and US reconnaissance plane collided off the Chinese coast. Israel also contracted to sell to China IAI’s Phalcon AWACS, equipped with Elta Electronics Industries’ sophisticated electronics, until heavy pressure by the Clinton administration lead to the cancellation of the deal in July 2000.

Tal says, “When I spoke with Keret after the deal fell through, he told me, ‘Look, if we were talking about a deal worth a few million dollars, $50 million, or even $70 million, I’d worried. But when we’re talking about a $250-500 million deal, I’m less worried, because it affects both of us. Understand? It’s on both our accounts.”

These are only a few of the details known to anyone who bothers to seek them out. This is not an investigative tale or a scoop, merely a selection of the inevitable consequences of Israel’s large-scale arms exports. The question of whether it is justifiable to invest so much money in developing an Israeli arms industry is no longer relevant. The industry exists and employs tens of thousands of people who build some of the best weapons in the world.

The question that remains to be asked is why all this doesn’t lead Israelis to question their country’s arms industry.

Published by Globes [online] - www.globes.co.il - on April 29, 2003 Next article:   Drunk with success