How the Swiss arms industry is profiting from the war in Ukraine

An employee of the weapons company Mowag in the canton of Thurgau conducts tests on a Duro all-terrain vehicle. © Keystone / Christian Beutler

Production lines struggling to keep up, rising stock prices and demands pouring in from all over Europe: The global rearmament linked to the war in Ukraine is a boon for companies producing weapons in Switzerland.

This content was published on April 29, 2022 – 10:50 am

Just days after the Russian invasion of Ukraine began, German Chancellor Olaf Scholz announced:External link that his country would release an exceptional €100 billion envelope to modernize its military. In the wake of this, the Scandinavian countries and those in Eastern Europe have also indicated that they want to drastically increase their military budget to counter the Russian threat.

In Altdorf and Zurich, in the Swiss factories of the German equipment supplier Rheinmetall, which mainly produce anti-aircraft systems, radars and ammunition, the personnel were instructed to speed up production. In a message to staff, revealed by the weekly HandelszeitungExternal linkThe director of Rheinmetall’s Swiss subsidiary, Oliver Dürr, protested against “too long delivery times”, even though market conditions are at their highest.

Investors appreciate Rheinmetall’s efforts to pick up the pace: the value of the move has more than doubled since Vladimir Putin’s attack on Ukraine. The German arms company expects a turnover increase of almost 15 to 20%.

Major NATO candidate countries

The other major companies operating in this sector in Switzerland are also benefiting from these large-scale rearmament announcements. The Swedish Saab, where about 80 people workExternal link at its site in Thun, in the canton of Berne, notes: “Like the majority of the defense industry, an increased interest in [ses] products”, without giving further details, however. Here too, investors are confident: the action of the Swedish group, which is mainly active in the field of aviation and anti-aircraft systems, takes since February 24, the date of the outbreak of war Ukraine, constantly increasing.

Same story at Ruag, reporting an “increase in applications” [pas nécessairement des commandes] from NATO countries. The leading manufacturer of small-caliber ammunition in Europe, the Swiss federally controlled group, claims to be in close contact with its key customers for long-term production capability planning.

Maintenance work on an F/A-18 fighter aircraft of the Swiss Air Force in a Ruaghal in Emmen, Canton of Lucerne. © Keystone / Peter Klaunzer

At Rheinmetall, too, the member states of the Atlantic Alliance account for the lion’s share of new contracts. “The order book for the entire group now consists of about 87% of orders from NATO member countries and the trend is increasing,” said German group spokesman Oliver Hoffman.

The armored vehicle manufacturer Mowag, based in Thurgau and owned by the American General Dynamics . since 2004External linkwould also be in contact with Germany and other European countries, according to the Tribune de GenèveExternal link† “Arms activities are subject to lengthy acquisition cycles. It is currently totally impossible to know whether and to what extent these future needs will have a concrete impact on our order book,” said spokesman Pascal Kopp, however, with disappointment.

Steady rising exports

Last year, Switzerland exported 742.8 million francs worth of arms and ammunition. A decrease of 18% compared to 2020, a record year for the Swiss arms industry. In the long term, however, the trend is clear: sales of military equipment abroad have almost tripled in 20 years. This leap forward must continue or even accelerate, if we are to believe our poll of the main companies active in this sector in Switzerland.

Even the State Secretariat of Economic Affairs (SECO), which grants export licenses to arms manufacturers, expects good times for the industry. “The demand for armaments goods is expected to increase worldwide. It is easy to imagine that this will also affect the demand for arms goods from Switzerland,” said Fabian Maienfisch, spokesman for SECO.

In international comparison, Switzerland remains a dwarf in this sector, with a share of global exports of less than 1%. The world market is unsurprisingly dominated by the United States (40%), followed by France and Russia (each 13%). Two other European countries, Italy (5%) and Germany (4%), complete the top five.

Technology transfer

Apart from Ruag and some large international groups that have specific activities on Swiss soil, the manufacture of parts for weapons or ammunition is spread over almost 3,000 small and medium-sized enterprises (SMEs). These subcontractors are mainly active in the civil sector and occasionally produce military equipment.

For example, many machine tool manufacturers sell machining solutions for metal parts found in watches, medical devices and also precision weapons.

According to the research center BAK Economics, the arms sector represents a total of just under 10,000 jobs in SwitzerlandExternal link† A relatively modest number compared to the 300,000 jobs in the Swiss Machine, Electrical Equipment and Metals (MEM) industry. However, these military contracts are very important for Swiss SMEs, as they allow a technological transfer from the military to the civilian sector, according to industry representatives.

“International military-industrial groups operate at a very high technological level. This know-how can then be applied to many other applications, enabling our companies to gain competitiveness,” confirms Philippe Cordonier, Director of Swissmem, the umbrella association of the MEM industry.

“Non-assistance to Ukraine”

Even though it weighs less than 1% of the country’s industrial exports, the arms industry regularly invites itself to political debate in Switzerland. This sector is indeed very sensitive to a country that likes to emphasize its neutrality on the international stage.

The most recent controversy concerns the refusal by BernExternal link Enable Germany to export Swiss-made ammunition to Ukraine. The Confederation justified its decision by the fact that Swiss law prohibits exports to countries involved in internal or international conflicts. An interpretation that was not to the liking of certain political figures, right and left. The President of the Center, Gerhard Pfister, in particular accused the Federal CouncilExternal link of “non-assistance to Ukraine”.

In recent years, scandals over the illegal presence of Swiss military equipment in the battlefields of military operations have increased. Last example, a consortium of journalistsExternal link disclosed the use of a PC-12 Pilatus in a deadly bombing raid in Afghanistan and Swiss-made assault rifles by Saudi Arabia against Houthi rebels in Yemen in February.

Exceptions are always possible

Switzerland prides itself on having one of the strictest laws on the export of war material. A legal framework that was further tightened on 1er May: Swiss companies are banned from exporting weapons to countries that “seriously violate human rights”. This is the case, for example, of Saudi Arabia, which has been on the de facto red list since 2015 for its military intervention in Yemen.

However, in 2021 Saudi Arabia was in 6and position of countries receiving Swiss arms, with orders exceeding 50 million francs. All this on the basis of Article 23 of the War Materials ActExternal link which will allow “the supply of spare parts for air defense systems and the associated ammunition previously supplied by Switzerland,” according to SECO.

The Qatar case has not yet been decided, although human rights groups have accused the Gulf state of being responsible for the deaths of 6,500 migrant workers on the construction sites of football’s next cup. “SECO does not maintain a list of countries that systematically and seriously violate human rights. The evaluation is done on a case-by-case basis,” emphasizes spokesman Fabien Maienfisch.

However, the war in Ukraine marked a turning point. With the increase in arms purchases in western countries, Swiss companies could pay more attention to certain problem countries. “The need to do business at all costs will be less felt in the industry,” said Socialist MP Pierre-Alain Fridez, interviewed by Weather

“Good offices and bargains”

Not enough to reassure Swiss anti-militarists. “The question is not whether there will be another scandal, but when. The experience of recent years has shown that despite all the controls in place, Swiss weapons are still found in war zones,” said Green MP Fabien Fivaz.

With each revelation, the Confederacy suffers significant image damage. A game not worth the candle in the eyes of Fabien Fivaz. “By exporting weapons worth several hundred million francs, we contribute to the war effort on a global level. Switzerland practices good offices as well as good business. I understand that it is poorly perceived abroad’, he criticizes.

On the side of the industry defenders, we are much more pragmatic. “We already have much stricter rules than most other European countries. Further tightening of this legislation would only penalize our sector. If it’s not us who sell these weapons, others will do it for us,” estimates Philippe Cordonier.

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