Summary of the 7th in the series of webinars «Les entretiens de l'ECODEF», on the theme of the economic impact of ocean deterrence
The 7e edition of this webinar, entitled «Ocean deterrence: what are the economic spin-offs?», was broadcast live on Tuesday 30 May 2023.
Focusing on a major theme often described as strategic, this webinar, which drew extensively on the work carried out by the Foundation for Strategic Research (FRS) and published in January 2017, was held against a particularly interesting backdrop:
- Current budgetary and economic debates underline the general advantage of a sovereign industry for France's industrialisation, innovation, employment and balance of trade.
- The Ukrainian conflict illustrates the contribution of deterrence to the non-extension of this conflict.
Moderated by the Engineer General of Armaments (2S) Olivier Martin, Chairman of the Chair's Steering Committee, this issue featured a discussion with Yves Moreau, Defence Sales Director at ArianeGroup, and Paul Hérault, Research associate at the Economics of Defence Chair - IHEDN and Strategic Resource Management Project Manager at Naval Group.
The Chair offers you a summary of the main lessons learned from this webinar, including the full video is available on the Chair's YouTube page.
Presentation of the speakers
Olivier Martin: You are the two major industrial players in France's ocean deterrent, which must of course be totally sovereign. What are the economic consequences of this sovereignty, particularly in terms of organising the industrial sector?
Paul Hérault / Yves Moreau : The ocean-going deterrent industry is structured around the complementary skills and expertise of Naval-Group (for the nuclear-powered ballistic missile submarine) and ArianeGroup (for the strategic ballistic missile system), TechniAtome for nuclear propulsion and CEA/DAM for nuclear warheads. Each of these players has its own area of responsibility, but a de facto partnership has been established between all of them in order to meet the requirements of the two contracting authorities (DGA and CEA).
Maintaining this industrial base is an ongoing challenge, in order to meet the challenges of sovereignty and posture continuity. For example, at the height of the COVID crisis, this constraint of permanence enabled the entire industry to carry out an acceptance firing in June 2020.
This sector also requires a high level of industrial efficiency, as it involves very long-life products (some of which last more than 30 years) with a very limited volume of series production, given the principle of fair sufficiency applied by our country and the obvious lack of export prospects.
Ocean deterrence is therefore a sovereign industry that creates added value and industrial jobs in France.
As an area of sovereignty par excellence, with total national control of political, operational, technological and industrial aspects, ocean deterrence relies on skilled industrial jobs (white and blue collar) that cannot be relocated. The map and table below show the main employment areas [1] the industrial workforce in this sector, corresponding to more than 17,000 people in France, i.e. almost 95% of the total workforce in the sector [2].
Fig. 1 : Direct, indirect and induced industrial jobs generated in France by the deterrent's oceanic component
For example, the nuclear-powered ballistic missile submarine (SNLE) and the ballistic missile (MSBS) are designed, built, maintained, modernised, dismantled and deconstructed in France. [3].
Industrial activities are spread across the’entire territory :
- La industrial sector for the oceanic component of deterrence is made up of a very large majority of French companies (large groups, ETIs, SMEs). For an SNLE, 99% of the volume of purchases in tier 1 is made in France; ;
- Nearly 80 departments are involved in the construction of the SNLE, with a particular focus on the employment areas corresponding to Naval Group sites: Cherbourg, Brest, Lorient, Nantes, Angoulême, St Tropez and Toulon.
- The same applies to the MSBS ballistic missile, where the supply chain is almost exclusively national, with very rare exceptions such as certain raw materials that are not available in France.
- The main sites of ArianeGroup and its subsidiaries (Nuclétudes, Sodern) for deterrence purposes are located at four regions in France (New Aquitaine, Ile de France, Brittany and Occitania) but they are also boosting a an industrial network of over 1,000 suppliers (including 75% from SMEs and VSEs) covering the’the whole country.
The technological and industrial sovereignty of the oceanic deterrence system is based on a broad portfolio of skills that meet the highest standards.
Thus, the oceanic component of deterrence is a key element in the fight against terrorism. a concentration of both technology and complexity. To illustrate this, several launchers carrying nuclear weapons can be deployed underwater from a submarine powered by a nuclear boiler, all operated by a crew of around one hundred sailors in conditions of absolute discretion.
Le skills portfolio The technological expertise required for this sector is both very broad and very specific. So :
- In addition to overall prime contractorship of the missile system, ArianeGroup and its subsidiary must have expertise in simulation, energetic materials, metallic and composite materials, electrical systems, pyrotechnics, inertial navigation, command and control, cyber systems, resources and infrastructures equipped for a pyro-nuclear environment, etc.
- Naval Group is responsible for project management for large complex projects, systems architecture and engineering, signature control (acoustic, electromagnetic, etc.), special steel welding technologies, boiler making, mechanical engineering, machining, electronics, software, cyber security, etc.
Olivier Martin: At a time when our country is having to face up to the return of the risk of high-intensity conflict, making it essential to restore the depth of our defence capability, some might consider that a «small» country like France, which is also heavily in debt, can no longer afford the costs required to have a credible ocean deterrent. What is your reaction to this?
Paul Hérault / Yves Moreau : First of all, although as industrialists we do not have the legitimacy to intervene in the debate on defence policy and strategy, we feel it is important to point out that the funding of Deterrence is certainly a cost, but it is also an investment that generates significant returns. The return on investment needs to be taken into account for an overall economic assessment.
And so, the primary benefit of this investment is the security it brings to our nation. Even if this result is difficult to quantify, the Ukrainian conflict can give us an appreciation of the significant cost of the high-intensity conflicts that our country has avoided for almost 60 years.
The second benefit lies in the economic impact of the programmes carried out by the oceanic deterrence sector. via :
- The direct, indirect and induced jobs generated by national contracts and maintained by the industry, generating significant tax revenue for the State,
- The civil-military duality and the export spin-offs, which make the investment both more attractive and less costly:
- And so, the civil-military duality implemented within ArianeGroup brings clear benefits to both activities. For over 60 years, the French nuclear ballistic missile industry has been built on a strong technological synergy with the development of European space launchers. This duality is based in particular on technologies and skills that are largely shared, but also on the critical mass brought about by this dual activity, making it possible to support heavy investment and sustain a largely shared chain of suppliers over the long term.
What's more, these benefits are largely mutual. For example, the maintenance of flight engineering skills benefits from the fact that they are more common in the civil sector than in defence, enabling the consolidation of a common base of cutting-edge expertise in the calculation tools used for both applications. Conversely, the civil launcher sector has benefited from the mastery of inertial navigation conferred by the Defence activity, to offer remarkable precision in the positioning of the James Webb Space Telescope.« [4] and the Juice probe by Ariane 5 [5].
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- Naval Group has drawn heavily on its expertise in nuclear submarines to become a major player in the international conventional submarine market. [6]. Naval Group has exported the Scorpene submarine family to countries such as Brazil, India, Chile and Malaysia, thanks in particular to the technical-operational, technological and industrial credibility conferred by its expertise in the design and production of SSBNs. First and foremost, this export activity generates significant direct, indirect and induced economic impacts linked to the industrial activity generated in France by these international contracts. It also benefits the French customer by reducing the cost of national programmes through the amortisation of fixed costs over a broader industrial activity, and by maintaining the technical and industrial skills of the national industry during periods of reduced activity for the benefit of the national customer.
In short, France has been optimising this model for many years in order to be able to have a credible oceanic deterrent and autonomous access to space, with a level of investment that cannot be compared with that of other major nations. In fact, the French deterrent is based on an economy of resources in relation to the desired effect, based on investment requirements in France that are significantly lower than those of our allied powers. This result is achieved by combining the efficiency of the French industrial sector and the quality of the relationship between the State and industry. [7]. The table below provides a comparison of the budgets allocated by the three major Western powers in the field of ocean deterrence for their respective new programmes.
Fig. 2 : Comparison of budget paths in millions of euros [8]
Olivier Martin: Our country has been undergoing a massive process of de-industrialisation for almost 20 years now, so how are you dealing with skills issues?
Paul Hérault / Yves Moreau : For ArianeGroup, the sector remains attractive because of its high level of technology, its links with the space industry and the sovereignty issues it represents. In addition to smoothing out budget requirements, the incremental development of missiles also makes it possible to fluidify resource requirements and facilitate the maintenance of our skills and our supplier base.
However, we face two major challenges:
- As in many industrial sectors, our industry is experiencing high levels of tension in many technical and engineering occupations. To address this, we are implementing a number of human resources measures, including :
- Improving our skills management tools;
- Strengthening our in-house training, in particular through partnerships with specialist organisations;
- Developing the versatility of our staff;
- The introduction of specific recruitment plans in certain sectors;
- And finally, maintaining our attractiveness, in particular through an appropriate remuneration policy.
- What's more, we are seeing greater «volatility» in the career paths of our staff, particularly our younger employees. To counter this trend, we are putting in place a major programme to encourage innovation in our «historic» areas, but also in new activities (space surveillance, hypersonic weapons, etc.).
In general, Naval Group is facing the same challenges and is adopting similar measures. The main measures implemented are as follows:
- Implementation of a «Strategic Workforce Planning» system to better anticipate our human resources needs in terms of volume and skills, in anticipation of changes in workload plans;
- The attractiveness of our industry will also be enhanced in terms of recruitment and retention, by focusing in particular on the importance of the new technical challenges to be met;
- Specific awareness of the shipbuilding industry («Navalisation») via various internal skills development levers: Seamanship, Shipyard schools, Design school, welding training centre, etc;
- Lastly, we are working with the naval industry as a whole, since the SSBN industry is not a «self-sufficient» industry in its own right. In this respect, we have structured, ongoing exchanges with DGA and the industry, through GICAN and its Naval Industries Campus (CINAV).
Lastly, the implementation of all these measures has historically taken place against a backdrop of discretion in the activities of the deterrent's oceanic branch, notably linked to legitimate restrictions on communication on confidential aspects. However, the geopolitical context has changed, leading to a desire to make these activities more visible. This is also an imperative for the attractiveness of the industry and an opportunity to promote our expertise more and better through more open communication about our successes. Thanks to the oceanic deterrence industry, France has unique expertise in developing some of the most complex and optimised operational systems in the world: it's important that we get the word out!
[1] Ref: FRS study «Impact économique de la filière industrielle « Composante océanique de la Dissuasion » (January 2017) : https://www.frstrategie.org/publications/recherches-et-documents/impact-economique-filiere-industrielle-composante-oceanique-dissuasion-volet-un-snle-2017
[2] The industry's workforce outside France is mainly made up of raw materials suppliers who do not have a presence in France.
[3] More than 90% of added value is generated in France for the production of an SNLE.
[4] NASA has declared that the accuracy of the Ariane 5 launch (Dec 2022) has exceeded all the requirements necessary to put the JWST space telescope on track to reach its Lagrange point. In practical terms, this should double the lifetime of the observatory.
[5] Thanks to the precision of Ariane 5's flight (April 2023), no post-launch trajectory correction will be necessary for the European Juice probe (exploring the icy moons around Jupiter), which will also extend the mission's lifetime.
[6] Naval Group is the only submarine manufacturer in the world offering conventional submarines for export, without being able to rely on national orders for conventional submarines.
[7] «The 3rd generation nuclear-powered ballistic missile: a strategic investment and an economic lever» (RDN no. 832, summer 2020)
[8] Sources: Author's work based on official reports: DoD (2018), House of Commons, successive Finance Bills.
Questions from the audience
- How does deterrence have a different influence on the economy than other public spending?
Paul Hérault : Firstly, the subcontracting chain for the deterrent industry is essentially domestic. So this public spending will not stimulate imports. Secondly, this is capital expenditure, not consumption. The work of J. Malizard (Chair in Defence Economics - IHEDN) has shown the impact of this type of expenditure. The impact of defence R&D is also highly beneficial. R&D will enable companies to increase their productivity, which in turn generates long-term competitiveness. Not all expenditure is comparable.
Yves Moreau : It is also an expense that requires continuity. If we want to be able to maintain what underpins our nuclear deterrent, we need continuity in funding, capabilities and industrial skills.
- What are the links between military and civil nuclear power?
Paul Hérault : First of all, there are historical links, a shared genesis, between the French nuclear power programme and naval propulsion, with the same desire for autonomy and ambition. Nevertheless, we have been able to retain skills in defence that may have been somewhat undermined by the Stop and Go effects in the civil sector.
Yves Moreau : The very creation of the CEA, which brings together civil and military activities, is also an illustration of the synergy that exists between the two fields.
- How do the different components of the deterrent, oceanic and aeronautical, complement each other economically?
Yves Moreau : Although there are two different prime contractors for these complementary components, there are certain technological synergies. ArianeGroup has joined forces with MBDA to bring certain skills to bear on studies for the future airborne component missile.
Paul Hérault : Similarly, Naval Group is exploiting its skills in the field of deterrence on both the SNLE and the aircraft carrier, which deploys the airborne nuclear component.
- Are there any orphan skills (skills that you alone have developed) and how important are these orphan skills to your business?
Yves Moreau : As far as the skills we use are concerned, some may have resonances in other environments. Others are highly specialised and specific. What's more, our field is one of the only ones to bring all these skills together for the benefit of a system. So there is one skill, the ability to manage this type of programme, which is also quite specific. We may have difficulty finding these skills on the market, but on the whole we manage to build them up during our professional careers. The other specificity is the requirement for reliability and very high performance. Here again, we have policies for developing and transferring these skills internally.
Paul Hérault : We do have some skills specific to the deterrent business. For example, some welders specialise in a type of steel that will only be found on SSBNs. The same applies to engineering for certain expertise related to the specific performance or requirements of SSBNs.
- Does the deterrent industry have financing problems due to the nature of its activity, particularly because of ESG criteria?
Yves Moreau : After all, our industry is heavily funded by the state. This may be an issue, but more so for some of our suppliers.
Paul Hérault : Naval Group doesn't have any particular concerns about direct financing because our shareholding is largely public, but our subcontractors don't always have a stable shareholding and they can be affected by these criteria. On the other hand, listed companies such as BAE in the UK have experienced difficulties in this area.
- Considering a fictitious scenario where France has no deterrent, what level of defence spending would be required to guarantee the same level of security for our nation?
Yves Moreau : We cannot answer this question. It's not an industrial question, but a strategic question that's out of our hands.
Paul Hérault : As several strategists and military leaders have pointed out, nuclear deterrence exploits a relationship with uncertainty that would be very different in the case of a hypothetical conventional deterrent. A permanent and credible nuclear deterrent exposes a potential aggressor to uncertainty as to the trigger threshold but to the certainty of unacceptable damage. Conventional weaponry, on the other hand, would transfer uncertainty to the aggressor, who can never be completely certain of being sufficiently armed and credible to deter an adversary. The potential attacker would be permanently exposed to a miscalculation on the part of his attacker as to the capabilities of his response and its scale.
- In a world of almost full employment for the defence industry, how can we attract young people other than those who are already committed to the cause?
Yves Moreau : We communicate about our activities, show the links between deterrence and civil launchers and explain how we contribute to strategic autonomy. Today, we're managing to feed the industry, even if over the last year or two we've had some pressure on human resources, but that's the case throughout the defence sector. Moreover, as in all other areas of technological activity, men are over-represented. We are taking steps to change this situation.
Paul Hérault : We have initiatives aimed at diversifying profiles, employing women and targeting young people (more than 400 work-study students per year at Naval Group), as well as retraining. More broadly, the Ministry of the Armed Forces is taking action (Fabrique défense) and building bridges to attract people into the industry.
- Where does France stand technically and technologically in relation to other nuclear powers when it comes to deterrence?
Paul Hérault : Data on other powers is scarce, and it remains difficult to compare performance accurately using open sources. On the other hand, it can be said that our oceanic deterrent has been working for over 50 years, with operational patrols guaranteeing the permanence of the posture autonomously and at the highest level.
Yves Moreau : We regularly demonstrate our capability during training (with missiles without nuclear warheads) and the successes show the performance levels of our systems. What's more, other nations can see that our system works. The best performance is the credibility of our deterrent system.
- Do you think that the stockholding obligation imposed on manufacturers by the new LPM will have a significant impact on your business, particularly on exports?
Paul Hérault : Naval programmes last for several years, with long cycles and long lead times for anticipated supplies. As far as our exports are concerned, this has no impact and we manage to meet both demands very well.
- Budgetary data on defence, and even more so on deterrence, is hard to find and, when it is available, there is no analytical accounting to measure the cost of deterrence over time. Why not make these data available to as many people as possible, as is the case in the United States?
Paul Hérault : It's true that the American data is extremely precise, with details for each submarine. On the other hand, the British provide much less information than the French. In France, we are therefore somewhere between these two models, and a great deal of information is already available, particularly in the finance bills presented to Parliament.
- Is there an ideal capital structure between the sovereignty market and the civilian market? In the first case, would an arsenal model be more appropriate, while in the second a listed company model would be more appropriate?
Yves Moreau : As manufacturers of deterrent systems, we are heirs to Arsenal-type structures, of which we should not be ashamed, insofar as our industrial capacity is deployed in the service of national sovereignty, and relies on the extraordinary involvement (in the truest sense) of our teams. At the same time, we are faced with stimulating factors (civil and export markets) that require us to combine this sovereignty issue with economic and industrial efficiency. It's a good balance that forces us to change and improve, without losing our values.
Paul Hérault : There is no sovereignty associated with the Arsenal on the one hand and civil or export activity associated with private shareholding on the other. Sovereignty can be guaranteed outside an Arsenal model, by controlling decision-making centres, intellectual property, the nationality of shareholders or the location of research and production. To maintain our sovereignty in deterrence, we also need openness and exchanges with technological and industrial partners, both public and private.
