Offsets to boost defence
The governments is now hoping that the upcoming offsets with Finnish company Patria Industries and American defence company Lockheed Martin will provide sufficient funds to revive the local defence industry and bring the army up to international standards.
The maintenance and upkeep of the nearly 200-person national contingent during the Iraqi campaign will set the state budget back €5 million in addition to the €7 million that has already been spent on preparing various Polish units for overseas missions. The offset deal with AMV producer Patria Industries for the delivery of 690 military personnel carriers is estimated to bring in more than €1 billion, according to a recent statement by Jacek Piechota, secretary of state at the ministry of labour and economy.
The news comes on the heels of the country's offset deal from its purchase of 48 fighter jets from the United States, which will inject at least €374 million into its defence industry on an annual basis, according to experts.
But offset critics say the deals are less rosy than they appear and that offsets often push countries that may be in economic trouble into buying armaments they may not necessarily need, particularly if the goods and services received in the offset only deal with the arms purchase.
"When products come into a country and it is tied to an arms transfer, that is not normal economics," said Ann Roell Markusen, a public policy professor at the University of Minnesota during a recent interview. "It is tied to a corporation wanting to make a huge amount of money, not because that service or that technology has merit."
Meanwhile, here the appraisals of what the economy could gain from the offsets range from ultra-optimistic to more realistic. The optimists believe that we could make up to €9.3 billion on the F-16 deal alone, something they claim could possibly turn back the current unfavourable economic tide. Pragmatic appraisals say the deal could bring the economy approximately €3 billion-E4 billion in revenue.
Offsets have already proven successful, for example, when the Finnish government purchased American Hornet fighter jets in 1992. Prior to the purchase, Patria Aviation, the only national aviation plant, was only producing light aircraft and maintaining a small number of foreign planes purchased in the late 1970s, but it has been busy with life-cycle support for the Hornets ever since.
Markku Lakomaa, Patria Industries vice-president responsible for strategy and corporate co-operation, believes that our defence industry will be able to benefit from the offsets in the same way.
"Through these two programmes Poland will acquire the latest technology available on the market," he said. "This technology upgrade will allow the defence industry to approach the level of other western countries."
The know-how and technology acquired in the process could help the country gain more confidence as an arms exporter, something the Finns are hoping for, as it would allow them to gain access to other markets using the Polish partner's connections.
"The main idea is to invest in our export potential," said an industry expert. "As for the offsets, everything depends on how we'll use them and which directions we'll point the foreign investors in."
"If we had a clear vision of how to develop technologies, then we could take full advantage of the offsets," added the expert. "But at present such a vision regarding utilisation of our offset opportunities does not exist. It's much too late to modernise the offset law; it's like stopping a running train. We had several years to prepare the offset mechanism, and now we are trying to fix our mistakes over a few weeks."
Meanwhile, the defence ministry has allocated €575 million of its €3.5 billion overall budget for this year for the "obligatory modernisation" of the army in the coming months. The sum includes research and development expenses, as well as purchases of arms that would gradually replace the Russian or Soviet weapons which currently constitute 80% of the nation's military equipment.
"The NATO compliance process is running quite smoothly, but insufficient financial means are not allowing us to comply quickly enough," said Sławomir Kułakowski, president of the Polish Chamber of National Defence Manufacturers. "Things are difficult at the moment; this is a transformation period for the Polish army and the Polish arms industry."
Kułakowski believes that the recent plan to consolidate the sector by creating two major holding companies was "a good move," but says that the intention is not enough for a successful privatisation of the arms industry.
"It would be wise to make one government unit responsible for the privatisation of the defence sector," said one industry analyst, adding that until that move is made, three different ministries will supervise different aspects of the domestic defence industry privatisation.
"The privatisation of the arms sector did not work out, and I don't expect any successes in that field in the near future," Kułakowski said. "Arms production is a volatile business as the return on investments is low, while the risk factor is very high. We should only produce what we need to export and what we know our military needs. If we won't invest in research and development as well as new technologies, we won't get far."
