Czech arms industry fired up on growing export sales

Czech arms companies have been in the news a lot recently with accusations that some have been exporting equipment to war torn Ukraine. That is a claim that is largely brushed off by the main industry lobby group which had its sights set on more lucrative markets. We look at how the sector is faring up and how well it is winning backing from ministries back at home in this week’s edition of marketplace.

Illustrative photo: Public Domain

The Czech arms industry has undergone one of the biggest transformations of all industrial sectors. From supplying mainly local and Warsaw Pact needs, Czech companies were forced to look abroad after 1989 with exports now accounting for around 80% of production. That makes the sector particularly sensitive to the changing world scene and willingness of local ministries to promote their wares and provide export permits.

Arms exports totaled around 7.5 billion crowns in 2013 and it is expected that this figure will be surpassed by around 10-20% when the figures for 2014 are announced in the early summer. But that sort of export reliance is also a problem for the landlocked country.

The biggest association representing around 100 companies in the sector is the Defence and Security Industry Association of the Czech Republic (AOBP according to its Czech acronym). Jiří Hynek is the association’s president.

I asked him what state the industry was in overall after several years of cuts at the Czech Ministry of Defence only now starting to be reversed, the ministry having sought to shake up its arms purchases arrangements, and a series of scandals continuing to tarnish the ministry and some of its suppliers.

“I can say that the defence and security industry is in good health in my country. I cannot compare our industry with the sector in big countries such as the USA, Germany, and France. It is not possible to compare it. But if I compare our national population and the size of the army, I think our industry is very strong. For us, exports are very important. The domestic market accounts for around 20% of our production and 80% are oriented towards export. Exports are essential for the survival of our industry.”

The international situation at the moment – there is a quasi war in Ukraine, international instability due to Islamic State, almost everywhere there is something doing on. Is that good or bad for business?

Jiří Hynek, photo: Czech Army

“That is a frequent question. A lot of people think that the international situation, Islamic State and the Ukraine crisis, means that it is a good time for the defence business. But it is not a good time. On the other hand, a lot of countries are now thinking more about defence and national protection. But it is very difficult to deliver military equipment to countries in the middle of a war. You need a lot of permits for that and sometimes it is not possible to deliver to these countries because it is not acceptable to the Ministry for Foreign Affairs. But right now I think the thinking is a little bit different because if we do not deliver our products, for example to Iraq, we cannot stop Islamist soldiers. We need to support the Kurds, we need to support everyone who is on the other side of the fighting against Islamic State. But if we are only talking about it without any action, then I don’t think it is possible to stop the Islamists.”

You talked about the example of Islamic State, but there was news yesterday that the Czech government finally supported the sale of [L-159] aircraft to Iraq. So, are there any barriers to selling arms to Iraq?

“I support this solution, I think it is a very clever solution of the government because it is not possible to be blind and pretend that you cannot see the situation in Iraq. We need to support the Iraqi government and the Kurds in their fight against Islamic State.”

Coming back generally, what is the overall situation regarding export licenses at the moment? A few years ago there were Czech companies complaining it was very difficult to get export licenses to certain countries and they said Czech ministries were being more difficult than those in other European countries, France, Germany, Britain etc. What is the attitude of ministries now, particularly the Foreign Ministry.

L-159, photo: Czech Army

“I understand, it is very difficult to compare the policy of my country and that of big countries such as Germany or the U.K. It is my view that our minister of foreign affairs is strongly opposed to us. One part of the Ministry of Foreign Affairs, ambassadors and the departments for economic support, supports us. But one part of the Ministry of Foreign Affairs hates every military export. It is the same in every country, but it is very important which part of the ministry is on the way up. But I don’t think it is easier to export military goods here than in other European countries. Across the whole of Europe it is more difficult to export military goods than in other countries. It is typical that we have lost markets because we are afraid to deliver our goods and at the same time, for example, China, Russia, or other Asian countries occupied our markets.”

Are there some specific examples you can give where you think that Czech companies have lost markets because of the attitude of ministries?

“We know of some counties (laughs) but we cannot speak about it because it is very sensitive. It is a business you know, no country wants to speak about the military business, I can say that.”

In the recent past you have had a problem with these transit permits for arms. The Czech Republic is a landlocked country and they have to go out some way in some direction and you have had problems with this haven’t you?

“The most important consideration for us is to have direct access to a sea port. If I speak to people from companies, they say 50% of the success of our exports is finding a good access to a sea port because all of our neighbours protect the transit of goods through their countries. It is very difficult to have a transport license for Germany or Poland, which are the most important for us. The southern route is very complicated and expensive. The most important transit for us is through Germany. We can avoid transit by using the plane but it is very expensive. Maybe two or three months ago one of our Czech companies needed to deliver heavy tanks and BVPs[battlefield fighting vehichle] to an African country and this company used a heavy transport plane. It was very expensive but there was no other way to transport this equipment to this country.”

Photo: Vitaliy Ankov, CC BY-SA 3.0

So these transit permits are still a problem with Poland and Germany, it is an ongoing problem?

“The biggest problem is Germany, but the reason is that transit through Germany is the most crucial for us because the biggest sea ports are there. For example, if you want to make a deal with ammunition, you have only one port in Europe, Emden, that you can use. It is not possible to use any other ports.”

We talked about the world situation, and there were some reports in the press, allegations in Polish and Swedish papers that the Czech Republic is supplying arms during the conflict in Ukraine. Is it possible that this is happening based on previous contracts, or that arms are going through third countries – because that is probably a possibility isn’t it that arms go to third countries and then get delivered to Ukraine or Russia or wherever because it is difficult to police all this…

“I can explain all this very easily. This was not a significant business. It was less than 0.2% of our annual exports. This business is about nothing. The business was based on old fashioned Soviet military products which were sent to Ukraine for overhaul and then to be sent onwards to foreign countries. It is not for the Ukraine market. And if I compare it to the exports of the European Union at the same time, our exports to Ukraine were less than 2.0% of all European exports. It is a lot of fuss about northing, just a media scandal without the real figures.”

There has been talk in various Czech ministries about having procurement of military equipment through more cooperation with Slovakia, the Visegrad Four, or going more through NATO or other NATO alliance countries. Is that sort of procurement really happening at the moment or is it the case that it is the Czech Ministry of Defence that is still the main customer for the domestic market?

Photo: Olga Haladová

“My view is that it is necessary to support this idea, but the idea is one thing and reality is another. Before 1989 we had one army, the Czechs and Slovaks together, the Czechoslovak army. But from this time we have not done any common business. We need to because our army is small, the armed forces of Slovakia are smaller than ours, and Hungary is very similar. I support the idea of carrying out procurement together with these countries. Poland is a little bit different because Poland has a very strong army and strong industry and the domestic industry is very much supported by the Polish government. But although Slovakia, Hungary and the Czech Republic are in a very similar situation, we cannot find any common business.”