British lion claws a king-sized stake in the world's arms bazaar

Defence exporters bounce back to their destructive best as Russia suffers a post-Cold War sales slump

Britain's defence exporters achieved a record last year, capturing a quarter of the pounds 20bn world market for arms, defence equipment and services, including training and support. The pounds 5.1bn Britain earns from defence is almost as much as it derives from financial services.

As the global market for defence equipment and services decreases, Britain is netting an increasing share.

The pounds 5.1bn of business achieved by British companies represents 25 per cent of the world market, compared with 19 per cent in 1995, 16 per cent in 1994 and 20 per cent in 1993, and putting Britain back as the world's second-largest defence exporter after the United States.

Defence exports are therefore of enormous importance to Britain. The Ministry of Defence said they contribute to the maintenance of 360,000 jobs in the industry.

In addition to the jobs, the relationships connected with military supplies enable British to punch above its weight in diplomacy and maintain special relationships in certain areas, particularly the Middle East, in the view of the Government. Next month Britain will be heavily represented at an arms fair in Abu Dhabi, to be attended by James Arbuthnot, the Minister for Defence Procurement.

Last year two deals alone were worth pounds 1bn. In November, British Aerospace did a pounds 500m deal to sell 40 Hawk combat trainer aircraft, plus simulators and a 25-year support contract. In the same month, in another pounds 500m deal, Qatar agreed to buy GKN Piranha armoured troop carriers, Short Starburst surface-to-air missiles, small warships from Vosper Thornycroft, and about a dozen Hawk aircraft. The Hawk has been outstandingly successful, and has been sold to 13 countries.

Arms exports are the responsibility of the Defence Export Services Organisation, headed by Charles Masefield. It was established in 1966 following a report by Sir Donald, later Lord, Stokes, to co-ordinate the activities of British defence companies. Lord Stokes recommended that a closely-knit organisation be established to handle British arms sales and help British firms to secure overseas sales. He also recommended that future overseas market considerations be taken into account when buying new British defence equipment, something which has become even more important since the end of the Cold War. The world defence export market has halved in size since the end of the Cold war, but is still huge.

At pounds 20bn a year, it is equivalent to the total amount of coin and notes in circulation in Britain.

It is difficult to separate the market for military equipment from services, as the two usually go together in packages consisting not only of jets, corvettes or tanks, but of support, training and simulators. However, figures from the Stockholm International Peace Research Institute and the US Arms Control and Disarmament Agency indicate that arms make up about two-thirds of the total - $23bn (pounds 14.3bn) in 1995. Of the pounds 5.1bn exported by British companies last year, two-thirds was related to aircraft and the rest to land and sea systems.

However, the growing importance of simulators and computer systems mean there are increasing opportunities for sales in that area, too, not directly connected with specific weapons systems.

Developed nations account for more than 90 per cent of world arms exports. The Soviet Union was the second-largest exporter until its break-up in 1991, when Britain moved into second place. Briefly surpassed by Russia, it returned to this position last year.

The biggest arms-importing region is the Middle East, with Saudi Arabia the largest importer since the Gulf war, followed by Egypt and Turkey. East and South East Asia and the Pacific Rim is the third- largest arms market, and is of increasing interest to European and North American defence firms. Military spending is expected to increase in proportion to the expanding economies of the region, and many analysts fear that an arms race there could get out of control, with simmering tension in the Korean peninsula, between China and Taiwan, over the Kurile, Paracels and Natuna islands. Many potential disputes are over resources or driven by environmental considerations, like the dispute in Papua New Guinea.