US-Norway Defence Industry Conference

Wednesday 8 December 2010
Defence Minister Grete Faremo

Dear US guests,
Ladies and Gentlemen,

It is a great pleasure to be here today and address this US-Norway Defence Industry Conference. I fully support this initiative, organised by the Norwegian Defence and Security Industries Association (FSi) and the National Defence Industrial Association (NDIA). The transatlantic link and the close bilateral relationship with the United States of America are of special importance to Norway.

The basis for our relationship
The US is our most important ally. We cooperate on a broad spectrum of issues ranging from daily business in NATO to continual improvement of the Alliance. In international operations, our troops stand shoulder to shoulder to maintain our collective security. In addition, we have extensive cooperation in training, exercising and various officer exchange-programs. The fact that our soldiers often operate similar equipment strengthens these links, as does the cooperation between our respective defence industries.

Norway is a maritime nation. We are the world’s second largest fish exporter, third largest energy exporter, and we have one of the world’s largest merchant navies. The High North is therefore of key importance for the Norwegian government, primarily due to the need for sound resource exploitation and management. The prospect for new sea lanes of communication contributes to accentuate this focus.

Most of the identified challenges in the Arctic and the High North are related to climate change, management of resources, migration of fish stocks, pollution, search and rescue. However, media coverage of the High North tends to focus on conflicts of interest; speculations concerning competition for energy and other natural resources and the potential for disputes. I don’t agree with such alarmist views. On the contrary, the region is calm and stable. It is in all our interest to maintain this stability. It is also in our common interest to forge prosperous and stable cooperation between our defence industries.

The needs of the Armed Forces
Based on its own needs, the Norwegian Armed Forces engage in broad strategic cooperation with R & D communities and industry . This cooperation related both to procurement and operations involves national as well as international partners.

Every year, we invest about 7-8 billion NOK in new military equipment. This procurement rate is essential to equip our defence forces, and ensure that it remains relevant to meet evolving security challenges.  We have recently procured major new systems like the Nansen class frigates, the NH-90 helicopters and the Skjold class corvettes - and we are about to procure new combat aircraft.

In short, Norway has been very successful in managing to maintain a high investment rate. At about 20-25 % of the total defence budget, we have one of the highest materiel investment rates in NATO.

Other allies have so far not been able to modernize their defence forces at the same pace, and due to unavoidable cuts in defence expenditure in the years to come, they are now facing huge challenges.  The Norwegian Armed Forces, however, will most likely maintain its investment rate. This ought to make them attractive customers for both foreign and national defence suppliers in the years to come.

Role and importance of defence industry
The Norwegian government seeks to boost national employment, knowledge and competence levels. National long term focus is to create and develop companies that can accommodate the workforce of the future, and in this context, the defence sector is highly relevant.

In fact, the sector contributes significantly to employment and revenue throughout Norway. Its annual turnover is more than 10 billion NOK. It employs about 6000 highly skilled engineers and workers. And it consists of world-class, competitive and innovative technology companies that contribute to valuable spin-offs to other high-tech sectors.

In recent years, export revenues generated by the Norwegian defence and security related industry has been growing steadily. In 2009 it amounted to 4, 8 billion NOK. From 2005 to 2009 it increased by an impressive 64 %. Based on this trend, and synergies with other sectors, the government expects the Norwegian defence and security industry to be an important driver for further growth in exports.
However, the main goal of the Armed Forces’ acquisitions is to provide the right equipment, in time and at the right cost. These aspects are emphasized in order to maximize the output of our investments while strengthening our defence capability.
 
Materiel investments also have important ripple effects:  The need for advanced military materiel contributes to significant competence building, technology development, employment and exports, - in other words it boosts Norwegian value creation. For this reason, the government is also very focused on how military needs affect the national defence industry, - and we are committed to ensure that defence acquisitions also benefit Norwegian companies.

The Norwegian government pursues a Defence Industrial Strategy aimed at forging closer ties between the Armed Forces and industry. The strategy keys on developing Norwegian industry’s ability to support and supply the Armed Forces needs, as well as strengthening the potential for international armaments cooperation. This entails that the implementation of the strategy is tailored to enable Norwegian companies to become suppliers to the Armed Forces, - when and if this is found expedient.

Industrial Cooperation
The Norwegian defence industry has what it takes to succeed internationally, and is very competent within a number of technology areas. But innovative, proven and competitive solutions aren’t always enough to win international defence contracts. The defence market isn’t truly open.

Officially all NATO members agree that the main driver in military acquisition processes is to pursue the best solutions with affordable expenditures. This entails avoiding duplication of efforts when sourcing military equipment and technology. By extension, this requires a willingness to place contracts abroad. This logic applies in Norway, and we source more than 70 percent of our equipment abroad.

This philosophy ought to govern military acquisitions throughout the Alliance, especially in times when many budgets are stretched to the limit. Most of our key allies however, have a preference for “national champions” and procure most of their equipment domestically. As a matter of fact the US only imports about 2 % of their military equipment, and of that the UK has a 70% market share.

It is quite clear that defence trade is politically driven.  It has never been, and will most likely never become, a truly open market, - based solely on supply and demand.  To counteract this market imperfection, the Norwegian government actively pursues industrial cooperation, or offset to provide market access for our companies. This entails that we require offsets for all military procurement abroad that exceed 50 million NOK.

Over the years this strategy has proven very successful in terms of creating viable and long lasting business opportunities for Norwegian defence suppliers.

Kongsberggruppen is our largest defence company and the cornerstone of its local community. In addition to employing around 4000 people, it engages more than 150 suppliers from all over Norway. NAMMO is also a major economic driver in its region. Along with a number of other defence companies ranging from Kitron and Simrad Optronics in the south to Natech in the North, they contribute significantly to local employment and prosperity.

Many foreign companies have experienced the importance of establishing production facilities in the US to win US defence contracts. This type of industrial cooperation is actually very similar in nature to our policy. As a consequence of this, a number of Norwegian companies have established US divisions: Kongsberg Protech and Kitron are now operating in Jonestown, Pennsylvania, Nammo in Meza, Arizona and Vinghøg in Biddeford, Maine. All these companies have a positive impact on their local economies in terms of employment, value creation and technology development. It makes good business sense, and it contributes towards stronger bilateral ties.

International sales and export control
Our industrial strategy is effective. In recent years Norwegian companies have succeeded in a number of foreign markets. This is primarily a result of the excellent technology and marketing efforts of the companies. But without close interaction with the Norwegian Armed Forces, or market access made possible through offsets, this success would have been far more difficult to achieve.

Defence exports have expanded significantly under the current government. And, to eliminate any doubts, this government welcomes this growth, - provided that Norwegian arms exports are carried out in accordance with our strict regulations and the highest ethical standards. We have one of the strictest export control regimes in the world, and we expect all our suppliers to be compliant with all national and international standards related to ethical procurement and production. 

Norwegian export control regulations on defence equipment are strict but predictable. Like the US, we want to make sure that our equipment is not getting into the wrong hands. The Norwegian government also works towards abolishing certain weapons that are especially harmful to civilian populations. We have succeeded in banning both anti-personnel mines and cluster-munitions

And for those that may consider our strict export regulations an impediment to winning international contracts, or a deterrent to investing in Norwegian companies, - consider the following: Norwegian companies are succeeding and prospering despite these perceived limitations. That is a clear testimony to Norwegian companies’ innovation, technology level and competitiveness. In addition, it vouches for reliable suppliers and business partners.

I believe that ethics in business pays off. This belief is a growing international trend which many European and US defence companies also share. Together with Transparency International they have created a global standard for ethical guidelines. The so-called  ”Global Principles of Business Ethics for the Aerospace and Defence”  aims at making ethics a competitive element, and thus promote a more level playing field among international defence companies. A growing number of international defence suppliers now understand that this is the smart thing do; - it benefits them, industry and society at large.

F-35 and Industrial Cooperation
As you know, Norway is about to renew its fleet of combat aircraft. Industrial cooperation is an integral part of the decision-making process. Strong industrial participation will determine the way ahead, and affect the outcome of the process. F-35 Industrial Participation represents promising prospect for the Norwegian industry. The total production potential identified by the aircraft manufacturer and the engine producers is about 6 billions USD.

Through the best value system, which entails strong international competition, Norwegian companies have already won contracts for about 350 million USD. This demonstrates that Norwegian companies have the skills, competence and production facilities to meet the very demanding standards of the aerospace industry.

Furthermore, the Ministry of Defence and Norwegian industry have put substantial effort into developing products to enhance the operational capabilities of the F-35: The Joint Strike Missile and 25mm ammunition (APEX),  - products which should generate  interest in the other F-35 partner nations, the United States included.

In fact we are looking forward to the start-up of the U.S. – Norwegian Working Group on JSM. We also eagerly anticipate the results of the US Analysis of Alternatives for future Offensive Anti Surface Warfare. I expect that this joint effort and the Analysis will pave the way for a successful integration of the JSM on the F-35.

Conclusion
Earlier this week, my staff conducted talks on defence equipment with Mr Al Volkman and his team from the Departement of Defence. The meeting was a success and I trust that it will result in valuable follow-up activities in the months to come. It is vital for our bilateral relationship to maintain broad and diversified bilateral contacts. It is a prerequisite for a solid Transatlantic Link.

I therefore encourage you all to utilize this conference actively to further strengthen industrial cooperation between the US and Norwegian companies. This event should be followed by many similar encounters. The ties between Norway and the US on industrial cooperation are already strong, but there is also significant room for improvement.

I wish you all the very best with today’s conference.