Serbia takes up arms

By bne IntelliNews May 14, 2010

Ian Bancroft in Belgrade -

Though heavily impacted by the break-up of the former Yugoslavia, economic and arms embargoes during the 1990s, and the Nato bombing in 1999, Serbia's defence industry continues its gradual return to prominence. Facing production constraints and foreign policy dilemmas, however, doubts remain over its capacity to drive the Serbian economy forward over the longer run.

The sector primarily consists of six companies - Zastava Oruzje, Prvi Partizan, Prva Iskra, Milan Blagojevic-Namenska, Sloboda and Krusik - which are all majority-owned by the Serbian state; meaning that whilst some of the profits are reinvested, some go towards covering the costs of, for instance, modernising the armed forces. In an effort to improve the industry's profitability, an extensive programme of job cuts has been implemented.

Totalling some €407m in 2009, Serbia's military exports are expected to grow again this year. Future sales are expected to come from members of the Non-Aligned Movement (NAM) - a Cold War-era organisation that Serbia has been eagerly promoting. In April, Serbian President Boris Tadic met with his Libyan counterpart, Muammar al-Gaddafi, to discuss various military deals, whilst Defence Minister Dragan Sutanovac recently announced a €112m agreement with Kuwait, which includes the overhaul of around 150 M-84 tanks purchased from the former Yugoslavia in 1991.

Iraq is a particularly lucrative market, accounting for more than a third of Serbia's military exports in 2009. Under the terms of a €238m contract that's expected to create some 20,000 new jobs, Serbia will supply 20 Lasta 95 training aircraft manufactured at the Utva factory in Pancevo, outside Belgrade, which was heavily damaged in the Nato bombing.

It's also hoped that the revitalisation of military ties will help other Serbian companies, particularly those in the construction sector, to benefit from various post-war reconstruction contracts.


Obstacles to maintaining the growth of the sector loom on the horizon, though. "The main problem will be a lack of new technology, meaning that the defence industry will continue to develop new products essentially based on the technical solutions that were mastered before the nineties," Aleksandar Radic, a military analyst based in Belgrade, tells bne.

Such a situation won't be helped by Serbia's declared military neutrality and antipathy towards possible Nato membership. As Marko Savkovic, a research associate at the Centre for Civil-Military Relations (CCMR) in Belgrade, points out, "though Serbia is capable of producing solid [small arms and light weapons] and quality ammunition, manufacturing more sophisticated, and therefore more expensive, products requires some form of cooperation - to share technologies and transfer know-how. Whilst we can still export to a number of countries that are looking to cheaply upgrade or replace their aging Soviet-made arsenal, this is only a short- to medium-term solution - one that suggests an apparent lack of vision."

Radic adds that, "in the next few years the industry will have to introduce new technologies through licensing or joint operations, probably with foreign companies which would not be able to work independently with weapons clients from Serbia."

Change, however, may be afoot. Savkovic says that the recently unveiled unmanned aerial vehicle (UAV), called Vrabac (the Sparrow), was likely inspired to a certain extent by the Orbiter - an Israeli-made UAV found in Serbia's inventory. "The Sparrow is extremely light, can be carried by only one soldier and is used for gaining immediate tactical advantage in the field. This might indicate a shift in thinking towards more mobile and self-sufficient infantry units," he says.

Diversifying military exports away from a reliance on hardware will also help underpin growth. As Radic notes, "a special branch of export will be the professional education of students and postgraduate training for officers and experts, for which a particular interest is expressed by countries such as Libya and Algeria, who used to educate hundreds of their officers in the former Yugoslavia."

The diversity of its military exports will also depend upon Serbia's capacity to foster the integration of regional defence systems. Croatia and Serbia recently signed a military cooperation agreement - an agreement driven in part by the latter's interest in the Croatian manufacturers of uniforms and helmet, called Kroko and Sestan-Bush respectively. A similar deal was signed with Turkey in 2009, demonstrating Serbia's commitment to bilateral defence sector cooperation.

To ensure the long-term competitiveness of its defence sector, analysts say Serbia needs to keep pace with the technological changes that define the industry globally and ensure its military exports are sufficiently well diversified, both in terms of markets and content. Though foreign policy dilemmas remain, recent signs suggest a willingness to adapt to changing market demands and the need for greater bilateral cooperation; whilst reintegration of the region's defence industries - a process that Serbia presently leads - provides opportunities to further diversify and enhance Serbia's defence products.

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