The COVID-19 crisis has forced the adoption of emergency measures to protect the health of citizens and prevent the collapse of the economy. Likewise, it has revealed some problems due to the excessive dependence on the tourism sector and the falling short of certain industrial goods. On a smaller scale, it has led to changes and resignations in both private and institutional customs. Thus, for example, the delivery of dispatches from the General Military Academy of Zaragoza (AGM) has been suspended for the first time since 1940.
The AGM, as the spearhead of the Ministry of Defence, has an important presence in Aragonese society, especially in Zaragoza. However, little has been analysed of the economic impact of this institution and of the defence and security industrial sector of Aragon. The defence industrial sector has undergone major changes in recent years. On the one hand, the products have an increasing technological content, having increased R&D expenses and collaboration with other industrial sectors. Thus, many of the developments end up having not only a military use, but a dual one. Second, the new threats have renewed the needs of the armed forces.
The 2008 economic crisis led to a significant reduction in the defence budgets of European countries (overall, a drop of 11%), Spain was not an exception. From this moment on, the European Union (EU) has tried to deepen and enhance cooperation on defence and security, for two main reasons. On the one hand, to increase European strategic independence and autonomy. On the other, to develop a single defence market that could take advantage of economies of scale in a sector characterized by high investment in R&D, high production costs and volatile and fragmented demand. This impulse materialized at the end of 2016 with the approval of the European Defence Action Plan (EDAP) more focused on the industry than in interoperability, aimed at constructing in Europe a solid technological and defence industrial base, backed up by an ambitious program to support research, development and innovation. This base should serve to stimulate cooperation and provide the EU member states with the capabilities required to achieve strategic autonomy. Since its approval, different financial instruments and tools have been developed. In 2018, the commission proposed that in the next multi-year budget (2021-2027) the fund would be endowed with € 13 billion to finance collaborative competitive projects throughout the entire research and development cycle. The projects had to be promoted by companies / institutions from more than two countries, and it was also intended to encourage the participation of small and medium-sized companies. The existence of EDAP and the planned financing represented an opportunity for the Spanish industrial sector, which had suffered a significant drop in sales to the Spanish Ministry of Defence, because of the budget reduction.
However, the impact of the pandemic on the economy of the European partners has substantially modified the planned multi-annual budget project, introducing specific measures for recovery within the framework of the “Next Generation EU”. One of the items affected has been defence and security, which has seen the budget reduced to 7,014 billion euros. This reduction, though important, keeps the interest of the EU to strengthen its autonomy and develop partnerships that enable better utilization of resources and reduce duplication. In this sense, the Spanish Ministry of Defence, together with the ministries of Germany, France and Italy, sent a letter in June to the rest of the EU partners highlighting the importance of maintaining the ambition for cooperation and development of a European defence industrial base, even in the current moments.
Can this new scenario benefit the Aragonese industrial sector in general and the Aragonese defence industry in particular? The answer is yes, but the existence of the European defence plan should not be used only as a vehicle to raise funds, but as a tool that promotes the development of the sector and auxiliary industries that can increase the spillover effects on the rest of the economy of Aragon. The conditions are already in place.
The defence industry of Aragon accounts for 10% of the companies supplying the Ministry of Defence, some of them participating in special weapons programs (PEAs). The Small and Medium Enterprises (SMEs) account for over 90% of the sector and are mainly specialized in electronic subsectors, materials, weapons, and land vehicles. They are companies with innovative capacity, as evidenced by the technology collaboration contracts or recurring participation in R&D programs of the Ministry of Defence, such as the COINCIDENTE program. Their productivity per employee is higher than the Spanish average for the sector, they export more than the rest of Aragonese companies and sell to both civil and military sectors. This point is interesting because they can take advantage of synergies and incorporate strategies that have been proven successful in other sectors. In addition, the important presence of the Ministry of Defence in Aragon (multitude of military units located in the region demanding the latest technologies, good integration of the personnel assigned to the units in Aragonese society, possibility of testing new materials at CENAD San Gregorio ... .) places the Aragonese sector in an advantageous position that should be exploited. In this sense, recently, a TFM of the Master of Acquisitions for Defence of the University of Zaragoza conducted by Jesús Alierta led by associate professor Natalia Utrero González of the Defence University Centre, has analysed the recent evolution of the sector and the possibilities of the creation of an innovation cluster in Aragon. Previous empirical research has found that in this type of cluster, the most dynamic and innovative companies, with international experience, but with local relationships, what is known as tractor companies, can help other local companies with worse external connections to access new knowledge and improve their capacity for innovation and internationalization. The TFM concludes that this type of business organization can be useful to consolidate and expand the defence industrial base in Aragon, improving the innovative capacity and increasing the possibility of reaching international agreements that allow participation in the projects of the European Defence plan and increase the internationalization of the sector. The development of this strategic sector would allow to increase the industrial capacity of Aragon and help the economic recovery. The improvement in the possibilities of participation of the Aragonese defence industry in the projects of the European Defence plan seems, therefore, a good opportunity for the sector and the region.
Authors: Natalia Utrero-González and Francisco José Callado-Muñoz
(The opinions expressed in this article are the sole responsibility of the authors)