The Ministry of Defense Procurement and Production Directorate today disclosed the figures for procurement in the Israeli economy in 2014 - an all-time record of NIS 14.1 billion. Ministry of Defense procurement on the domestic market averages NIS 8-9 billion a year.
According to Ministry of Defense deputy director general and Procurement and Production Directorate head Brigadier General (res.) Shmuel Zucker, the reason for last year's steep rise was the rapid procurement of various weapons for use by IDF force in Operation Protective Edge and large-scale procurement following the operation in order to replenish stockpiles. The Procurement and Production Directorate's figures show that half of the estimated NIS 8.6 billion cost of the operation was spent on procurement from thousands of suppliers in Israel. This included ammunition procured from security companies, spare parts for maintaining the air force's planes, intelligence and computer equipment, food and equipment for soldiers, etc.
Zucker added that NIS 3.2 billion of the procurement in the Israeli economy in 2014 had been from industries in outlying areas and in areas defined as being in the line of fire. NIS 6.25 billion, most of the Procurement and Production Directorate's procurement in the Israel economy last year, was for the land army, and NIS 3 billion was for procurement for the air force and navy. Procurement for intelligence and computer systems developed and manufactured by Israeli companies totaled NIS 1.8 billion.
The figures also show that procurement of services in 2014 totaled NIS 1.35 billion. Another significant expense for the Procurement and Production Directorate was NIS 550 million for ammunition from Israel Military Industries Ltd. (IMI) under the outline negotiated by the Ministries of Defense and Finance, which was one of the conditions for carrying out privatization of IMI. Munitions orders from IMI this year are expected on a similar scale. The Ministry of Defense's domestic procurement last year, considered exceptional, broke the 2012 record of NIS 13 billion.
The main cause of the increase in domestic procurement last year was an agreement between the Ministry of Defense and Tor Advanced Flying Training, jointly owned by Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) and Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1), for the operation of a fleet of training aircraft purchased in Italy. In a talk today with "Globes," Zucker said that the delays in determining the state budget for this year, including the defense budget, were making it difficult for the Ministry of Defense to conduct an orderly procurement program, and were posing challenges for many industries in Israel.
"We're nearing the midpoint of the year, and due to the absence of a budget and the need to operate on the basis of last year's budget, our domestic procurement has so far totaled NIS 1.5 billion. This situation is having a negative impact on planning by the various industries, and is delaying the stream of orders. I don't understand how the defense companies, some of which depend on orders from the Ministry of Defense, can exist in such a situation," Zucker said.
Published by Globes [online], Israel business news - www.globes-online.com - on April 29, 2015
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