- True to its reputation as top engineering country in the world, Germany does not limit its exporting industry to high-tier automobiles, and the quality of its military equipment fuels record-level exports.
- Berlin’s military policy is traditionally very cautious on the operational level, but German factories sell to countries around the world.
- However, selling large contracts can bring firms to murky waters, and the rules of the game may be about to change.
Rheinmetall, a top-performer in arms exports
Post-war Germany isn’t the best place to manufacture and sell guns, let’s face it. Despite the difficult domestic market, Rheinmetall has succeeded in developing, through an aggressive and effective internationalization strategy.
GlobalNet analyst Otfried Nassauer writes: “For more than ten years, Rheinmetall AG has been pursuing a strategy of internationalization. Its argument is that, since Germany orders too little military equipment, and at the same time is very restrictive with arms-export licenses, the firm is forced to internationalize its business and produce increasingly abroad, and without making use of German intellectual-property rights that would give the German government the right of approval. Only in this way can Rheinmetall maintain its military competence and capacities, and utilize the production capacity.”
Rheinmetall operates today in the fields of automotive systems, armor, artillery systems, ammunition, and many others, for a revenue exceeding 6 billion euros. Its brand new, 100% in-house flagship, the Lynx Infantry Fighting Vehicle (IFV), is drawing attention from the world’s most efficient land forces, including the US Army. Rheinmetall sells to most countries in the world, and is clearly turned towards international markets, namely through regional headquarters installed in foreign countries, such as South Africa or Italy. These “foreign-based” companies enable Rheinmetall to keep sales up, even when German law restricts arms sales in general or towards specific countries.
The cost of doing business
It’s a mystery to no one that the arms market is furiously competitive and most firms can risk their entire year on one or two contracts. The secretive nature of armament contracts isn’t problematic, per se, as armies may want to keep their equipment secret for legitimate operational reasons, but it can be tempting to use the secrecy to break a few rules. Indeed, in the past, major breeches have been reported, such as kickbacks or outright crime, from arms dealers around the world. Germany, with its numerous contracts, is no exception, and has repeatedly been singled out for its commercial methods.
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Economic times Manu Pubby writes: “In a new twist to a corruption case involving arms giant Rheinmetall, the investigative agencies have got fresh evidence alleging that the company entered into a commission contract with a well-known arms dealer to sell air defence guns in India in violation of rules that bar middlemen.”
And if forbidden middlemen weren’t bad enough (they have only been forbidden in arms sales recently, and the practice was previously accepted in the trade), German firm Rheinmetall has been accused of outright bribes, which have always been illegal.
Investigator Derek Scally adds, regarding a separate scandal in 2014: “German armaments and car parts conglomerate Rheinmetall has been fined €37 million after a subsidiary bribed Greek officials to buy a €150 million air defence system. The fine is the first of its kind imposed on a German armaments company and comes amid a wider investigation into one of Germany’s most influential and secretive industries.”
Indeed, the pressure is mounting on arms dealers in general, and Rheinmetall in particular.
In Rheinmetall’s defense, pocket-lining and kickbacks had often been seen as “the normal way to do business” and was nowhere near specific to Rheinmetall. Regardless, the German government is tightening rules on arms exports, following strong social movements, and what used to be tolerated in the past is now increasingly considered to be an unacceptable ethics breach.
Deutsche Welle reports: “The apparent violation of Germany’s arms export control regulations by Saudi Arabia and the United Arab Emirates, revealed by DW and other news outlets on Tuesday, has drawn angry reactions from opposition politicians and anti-arms trade activists. DW, together with German public broadcaster Bayerischer Rundfunk, Stern magazine, and investigative networks Lighthouse Reports and Bellingcat, gathered evidence that German weapons and weapons parts were being used in Yemen by the Saudi-led military alliance.”
Arms suppliers, until now, considered that the moral and political aspects of shipments were not their concern, and simply turned a blind eye as to what the weapons may be used for. Rheinmetall had, for instance, supplied Saudi Arabia (and its arch-enemy Iran), despite doubts regarding ties between the regime and terrorist movements. The Khashoggi murder was finally the straw that broke the camel’s back, and Angela Merkel placed an arms embargo in retaliation.
“Germany banned 18 Saudis suspected of involvement in the killing of journalist Jamal Khashoggi from much of Europe on Monday and moved to halt all arms sales to Saudi Arabia. The bans bind all members of the European Union’s passport-free Schengen zone, suggesting Germany is willing to use its influence as the EU’s largest country to push for a tougher line”, Reuters reported in December 2018.
Another case, in which Rheinmetall willfully overlooks the final use and destination of its gear, is that of Turkey’s latest news. Only when the government recently took action and suspended military exports to Ankara, did Rheinmetall put the lucrative business on hold. Previously, in 2016, Rheinmetall’s Leopard 2 main battle tanks had pre-positioned in the North of Syria, on Kurdish territory, while fighting ISIS. However, the turrets turned against Kurds, in recent weeks, and German ammunition and barrels are being used against them.
Where Rheinmetall is strong, it is very strong: its engineering and production capacities is still universally recognized. But its weakness is elsewhere, in the social ethical and political sphere. These matters are increasingly addressed by the public, and placed at the center of attention for European societies. Rheinmetall, which has always adapted to changes in its environment, will surely find a way to address this new challenge.