The Defense industries subcontracting chain generates half of the economic efficiency of the BITD

In accordance with his campaign commitments, President Macron has implemented, since his election, a policy of rapprochement with Germany in terms of Defense programs. Two emblematic programs have already emerged, namely the FCAS program aimed at designing the replacement of Rafale et Typhoon by 2040, and the MGCS program, to replace the Leclerc tanks and Leopard 2, by 2035. 

These programs assume industrial sharing between French and German companies. Initiated even before the presidential election, the rapprochement between the French Nexter and the German Krauss-Maffei Wegmann in the field of land armaments is at the heart of this asserted political will.

The announcement at the start of the week of a possible stake in the German Defense group Rheinmetall in the KNDS group, a joint venture between the French State (50%) and KMD owned by the Bode family (50%), highlights now highlights the currently unaddressed risk that these European mergers represent for the French subcontracting chain, and by the same token, for the economic and social efficiency of the Defense industry in France.

Today, and on average, for each million euros invested by the State in the Defense industry, 10 direct jobs are created (from the BITD), 9 indirect subcontracting jobs, and 8 induced jobs. , namely the consecutive uses of consumption of direct and indirect uses. Added to this, still on average, 5 direct jobs linked to exports, with 4 indirect jobs and 4 induced jobs. 

In fact, 1 million Euro invested by the State in the Defense industry generates 40 jobs in France. Knowing that a job generates on average €52.000 per year in tax revenue for the State, the fiscal and social return on State investment is therefore €2,1 million per million euros invested. 

However, the vast majority of French subcontracting companies are Intermediate-Sized Companies, or SMEs/SMIs, whose workforce varies between 50 and 150 employees. As a result of this, the landscape of this subcontracting chain is very fragmented. In the departments of Cher and Loiret alone, the 60 companies participating in the subcontracting of defense companies established in the territory only have 5400 employees. 

In Germany, on the other hand, subcontracting is organized around companies that are much larger, more diversified, and offer financial guarantees far superior to those offered by French companies. There is therefore a significant fear that the KNDS joint venture will prefer German subcontractors to French ones, on the basis of economic and factual arguments.

The problem is even more marked with the possible repurchase of the KMW stake in KNDS by Rheinmetall, because the latter, almost 1,5 times larger than KNDS, has a very solid semi-captive subcontracting chain. , a significant part of which is integrated into the group itself.

However, what is true for KNDS and the MGCS program is also true for the French aeronautical component and the FCAS program and the Patmar program, or the Naval Group / Fincantieri merger if this were to be structured.

This development creates two significant risks with regard to the French Defense ecosystem.

First of all, the Defense industrial subcontracting chain today represents 50% of the economic and social efficiency of investment in the Defense industry. In an applied manner, where the ecosystem of the French Defense industry generates 700.000 jobs today, it could only hinder 400.000 without measures to effectively protect this subcontracting chain, all too often forgotten in national plans, and this for the same level of annual investment by the State. Tax and social returns would also be reduced very significantly, going from 2,1 to less than 0,9, representing a loss for the State of €9 to €10 billion per year.

Secondly, the consequences for the local economy are likely to be disastrous for certain territories specializing in this area. In the Center region, in the industrial basin surrounding Bourges, half of the companies in the subcontracting chain and 4500 induced jobs could be directly threatened, in turn threatening 3000 induced jobs, or 5,5% of the department's active population. , leading to an increase in unemployment of 40% in the department (from 10,5% to 14,5%).

Whether at the national level or at the local level, the consideration of the problem of the subcontracting chain by the authorities as well as by the major players in the Defense industry is a major aspect of the ongoing negotiations with our European partners. The alteration of this major economic relay would cause the Defense ecosystem to lose its unique social and fiscal potential in the French industrial and economic landscape. Because, by losing this unique efficiency allowing the State to potentially support the Defense effort despite the financial and budgetary difficulties encountered, the French Defense ecosystem would be without weapons to defend itself against the political temptations of “management by expenditure " of the defense. 

Here again, the application of the methods and economic criteria developed by the “Positive Valorization Defense” doctrine, widely used in this article, would make it possible to open up avenues for development and strengthening of the Defense ecosystem serving needs. armies, rather than remaining frozen in a defensive posture as for decades.


Sectoral study of the Defense Industry in the Center region – DIRECCTE CENTER - June 2012

French arms exports: 40.000 jobs in our regions – MINDEF/CIDEF – September 2014

Economic impact of Defense on the territory of the Brest-Lorient Defense base – ADEUPa ​​Brest-Bretagne – February 2016

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