A small defense-manufacturing industry based on coproduction, offset, and licensing agreements with Western arms suppliers was still emerging in 1992. Saudi policy was to reduce its exposure to the political uncertainties of importing arms and to achieve a degree of self-sufficiency as a source of prestige in the Middle East. The chronic shortage of trained technicians and lack of skilled manpower, however, forced the industry to rely on expatriate managers, technical assistance, and imported labor. Such joint ventures were entitled to industrial development loans, tax holidays, and other subsidies.

During the 1970s, Saudi Arabia had been involved with Egypt, Qatar, and the United Arab Emirates in establishing the Arab Organization for Industrialization (AOI). Its goal was to combine capital of the gulf oil states with Egyptian production capabilities to create an arms industry located mainly on Egyptian territory. Although Egypt carried out a number of coproduction schemes under the AOI designation, the plan foundered because of Arab anger over Egypt's 1979 peace treaty with Israel.

Saudi Arabia later established its own small arms industry at Al Kharj, producing United States and Federal Republic of Germany (West Germany) rifles, machine guns, and ammunition under license. In 1985 a royal decree by King Fahd led to the creation of the General Establishment of Military Industries to oversee and coordinate the kingdom's existing and proposed domestic defense projects. In the same year, a contract was concluded with a Boeing-led consortium committing the consortium to US$350 million worth of investments in Saudi Arabia as an offset to the cost of the Peace Shield air defense system. Under this arrangement, the Boeing group agreed to enter into a US$130 million joint project for an airframe maintenance facility and a US$117 million advanced jet maintenance and repair facility. A ten-year agreement was also concluded to develop a computer center and an aircraft hydraulics maintenance center, all to be built at King Khalid International Airport at Riyadh. The Boeing consortium also held a 50-percent interest in a local company to produce military tactical radios.

The Al Yamamah I arms agreement with Britain committed BAe to offset US$7.5 billion in Saudi arms purchases with US$1.5 billion of investments in Saudi Arabia. Three such projects were underway in 1991. They included a British-American joint venture to produce missiles for Tornado fighter aircraft, the local assembly of heavy-duty trucks, and a BAe investment in an aluminum smelter at Yanbu. A West German company had built a plant to produce mortar shells and as of 1990 was negotiating a contract to produce tank and howitzer ammunition.

Data as of December 1992