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The Serbian government sees its defence industry as a strategic national asset that it wishes to sustain and grow.

Increasing defence exports helps to sustain the defence industry and also brings in foreign currency, which boosts the Serbian economy. The defence industry also presents a means of attracting Foreign Direct Investment.

Across the course of the nineteenth century, Serbia struggled to free itself from the shackles of the Ottoman Empire. This saw the emergence of the Principality of Serbia and its de facto recognition as a political entity from the end of the 1820s. The Principality of Serbia also established a small army. Achieved through the Treaty of Adrianople, which was imposed by Russia on the Ottomans in 1829, and included clauses on Serbian autonomy. By the end of the 1860s, the last Ottoman presence on Serbian territory had been removed, and under the terms of the Treaty of Berlin, in July 1878, the great powers of the time gave official recognition of Serbia as an independent country. This was followed in 1882 by the establishment of the Kingdom of Serbia.

One of the best illustrations of the level of autonomy that the Principality of Serbia had achieved and the fading of Ottoman power was the launch of production at the Kragujevac Cannon Foundry in 1853. The city of Kragujevac had become the centre of industrialisation in Serbia from the mid-1830s onwards and is now Serbia’s fourth largest city. As to the cannon foundry, it is considered to be the legacy organisation of Zastava Arms, currently one of the most important defence industrial enterprises in Serbia.

Having a defence industrial capability would prove to be important to Serbia, as from the 1880s onwards it would be embroiled in a host of conflicts in the Balkans. Although there was a short war against Bulgaria in 1885, this was just the overture to a much larger set of conflicts known as the Balkan Wars. The first Balkan war commenced in 1912 when the Balkan League comprising of Bulgaria, Greece, Montenegro and Serbia sought to take advantage of instability in the Ottoman Empire to grow their own territory and liberate those of the same ethnicity from Ottoman rule. They were successful in this and by May 1913 and the signature of the Treaty of London, the vast majority of Ottoman territory in Europe had been conquered.

Serbian Army NORA B-52 155mm self-propelled howitzer systems on display at the Victory Day parade in Nis in May 2019. The NORA system continues the tradition of export success for Serbian artillery systems, having been acquired by Bangladesh and Kenya amongst others. (Photo: Ministry of Defence Serbia)

The month after the signature of the Treaty of London, the second Balkan War broke out, with Greece, Montenegro, Romania and Serbia, supported ironically by the Ottoman Empire, taking on Bulgaria. By the time the war ended in July 1913, Bulgaria had lost most of its gains from the first Balkan War, the Ottomans had regained some territory and everybody else kept what they had and/or gained a bit more. From the Serbian perspective, they had increased their territory and their military was effective and battle tested. A little over a year later, the First World War broke out and while eventually Serbia would emerge on the victorious side, the human cost was immense. The country had been fought over and occupied and the physical damage was enormous, with infrastructure and industry, including the defence industry, needing to be rebuilt.

The territorial settlements at the end of the First World War imposed a new reality on the Balkans. Serbia absorbed the Kingdom of Montenegro and then Slovenia and Croatia, becoming Kingdom of Serbs, Croats and Slovenes in December 1918. In December 1929, country was renamed as the Kingdom of Yugoslavia. Strategically, Yugoslavia saw itself as more than just a Balkan state and had ambitions to be a maritime power in the Aegean and the Mediterranean.

The national defence industry was rebuilt post-1918 and its spectrum was gradually expanded to include the construction of small naval vessels. There was also investment into aircraft and related industries, through the establishment of companies such as Ikarus in Novi Sad, Vojvodina. Ikarus was established in 1923 to manufacture aircraft, aero engines and engines for cars, trucks and buses (the company still exists today as a bus manufacturer). It later expanded into aircraft manufacture, being responsible for the local assembly of foreign fighter and bomber aircraft. Later, it would design and build its own indigenous fighter aircraft. Yugoslavia also had other aircraft manufacturers building trainers and float planes. Rogožarski designed the advanced IK-3 fighter that was being adopted by the Royal Yugoslav Air Force on the outbreak of war in 1941.

Once again, war would devastate Yugoslavia and would also mark the end of the royalist state that was superseded in November 1945 by the Socialist Federal Republic of Yugoslavia (SFRY) under the leadership of Marshall Josip Broz Tito. The new Yugoslav Army had been established in March 1945 and this would be renamed as the Jugoslovenska narodna armija (JNA) in December 1951. The JNA was a tri-service organisation covering ground, air and naval forces.

Building the Base

It had been assumed that the SFRY would align itself politically with Stalin and the Soviet Union. Initially, this was the case but in 1948 Tito broke relations with Stalin and determined to forge an independent direction in foreign, economic and social policy. Relations between the SFRY and the USSR would be restored in 1955, but by that time Tito had determined that the best course for the SFRY was to steer a course between the two superpowers (the US and the USSR), achieving maximum concessions from the both the East and the West.

One of the first tasks for the Tito government was to rebuild a shattered country and its industrial infrastructure. One immediate bonus from breaking with the USSR was the arrival of US economic aid. This would assist the SFRY in its reconstruction, an important part of which was re-establishing the national defence industry. It was obvious that if the SFRY was to follow an independent strategic direction, it would need to meet as many of its defence requirements as possible from indigenous resources.

The importance of a domestic defence industry was made plain after the split with the USSR. At that point, most of the primary combat aircraft in service with the Yugoslav Air Force were of Soviet origin and after the break with the Soviets no spares or other support was forthcoming. This created a need for new combat aircraft and the domestic industry responded. Ikarus used the design of the Rogožarski IK-3 as the basis to design a new fighter known as the S-49A. Work commenced in 1948 on the aircraft. The first flight was in mid-1949 and deliveries commenced in 1950. The improved S-49C variant arrived in 1952 and this remained in service until 1961. Over 150 S-49 aircraft were built by Ikarus for the Yugoslav Air Force.

There was also a requirement to sustain the legacy equipment being used by the Yugoslav military. This led to the development of an industrial base to support the extremely diverse selection of equipment present in the country. Echoes of this support for legacy equipment can still be seen in the eclectic range of small arms ammunition currently offered by Prvi Partizan in Uzice, Serbia, from the pre-1914 standard rifle rounds of Austria-Hungary and France, to the 6.5mm Grendel and .338 Lapua Magnum of today. The breadth of the Prvi Partizan ammunition range allied to its quality puts the Serbian company in a unique position to meet the needs of military, law enforcement and civilian shooters. Added to which, their ammunition range is a good value proposition as well.

Post-1945, Yugoslav military found itself with equipment drawn from multiple sources, including from the pre-1941 royalist era. Then came a vast quantity of Axis equipment captured in 1945, much of which remained in service for many years. To which was added equipment gained as reparations post-1945 and machine tooling and technical data also gained as reparations. This allowed for the support of this legacy equipment, but also led to Yugoslavia developing its own equipment solutions based on these legacy designs.

The Advanced Light Attack System (ALAS) is a missile system originally developed for the Serbian military in two variants: ALAS-A with a 25 km range and ALAS-B with a 60 km range. The third variant, ALAS-C, was developed as part of the military cooperation arrangement with the UAE to be used for coastal defence applications. (Photo: Ministry of Defence, Serbia)

During the partisan era, Tito’s forces were supplied with both UK and US equipment and much of this remained in service post-1945. The break in relations with the USSR saw Yugoslavia turn to the UK and US for military assistance, and, due to Yugoslavia’s strategic position, this assistance was forthcoming. British aid included surplus combat aircraft, helicopters and naval units. However, it was US military assistance that would be critical in re-shaping the JNA in the 1950s. Military equipment supplied included armour, artillery, combat aircraft, transport aircraft, plus radars and gun systems for a destroyer built in Yugoslavia. It is important to note that the US equipment supplied to Yugoslavia in the 1950s was essentially the same as that supplied to allied states in NATO, illustrating the importance of Yugoslavia at that time.

Although relations with the USSR improved from the mid-1950s onwards, it was only from the early 1960s that equipment was acquired from this source. Another important development was the foundation of the Non-Aligned Movement (NAM). This was established in September 1961 at a conference In Belgrade, with Yugoslavia as a prime mover, along with India. Its leading role in NAM allowed Yugoslavia to continue to navigate between the two superpowers, seeking the most advantageous terms from either side.

The locally designed and produced LAZAR III wheeled armoured vehicle on parade at Nis. The Serbian Gendarmery operates the vehicle, while the Serbian Army is in the process of procuring a large number of LAZAR III systems. The vehicle will be fitted with different RCWS options depending on the mission requirement. (Photo: Ministry of Defence, Serbia)

Export Direction

NAM also helped to provide Yugoslavia with an export marketplace for its defence industry and a means of selling surplus equipment to Cambodia, Cyprus, Egypt, Ethiopia and Honduras amongst others from the late 1950s to the end of the 1970s. In terms of Yugoslavian-produced equipment, it should be noted that systems for ground, air and naval applications were successfully exported. Clients for naval equipment included Bangladesh, Ethiopia, Indonesia, Iraq, Libya, Myanmar and Sudan. In terms of air systems, the SOKO GALEB jet trainer was exported to Libya, Myanmar and Zambia, while the SOKO JASTREB light attack aircraft was exported to Libya and Zambia.

Ground systems were a particularly strong area for the Yugoslavian industry, with the sale of the M-84 tank to Kuwait at the end of the 1980s being the most notable contract. The M-84 tank was a licensed produced version of the Soviet T-72 with significant improvements to firepower, protection and mobility characteristics to meet JNA requirements. The Kuwaiti contract, signed in 1989, covered the supply of 170 M-84AB tanks, 15 M-84ABK command tanks and 15 M84AI ARVs (a licensed produced version of the Polish WZT-3 ARV). A few tanks had been supplied prior to the Iraqi invasion of Kuwait, but the majority were supplied to exiled Kuwaiti military forces in Saudi Arabia prior to the liberation of Kuwait in 1991.

Artillery and mortar systems were successfully exported. These included the M56/M56A1 105mm howitzer that was exported to Bangladesh, Cyprus, El Salvador, Guatemala, Indonesia, Nigeria and Peru amongst others. El Salvador and Myanmar received 120mm mortar systems, while Azerbaijan, Cyprus and Georgia are reported to have received 128mm OGANJ and PLAMEN multiple rocket systems.

New Beginning

In June 2006, an independent Serbia emerged, but this new state was in a highly vulnerable economic and strategic position. This is hardly surprising when one considers that the 1990s had seen the collapse of Yugoslavia, the end of the JNA and a brutal conflict amongst the former components of the SFRY. Then, in 1999, came the NATO bombing of Serbia, striking military as well as infrastructure and industrial targets. It was vital for Serbia to recover and rebuild.

As a part of this recovery process, Serbia sought to develop a military structure that the new country could sustain and determined that an effective defence industrial base was a key asset for national defence. The defence industry of the former Yugoslavia had been located all over the country, but with the collapse of the Yugoslav state, the integrated defence industry that had served it and the JNA disappeared. The end result was that Serbia would build its new defence industrial base upon the former Yugoslav capabilities that were within Serbian territory and would add to these capabilities as time and resources allowed.

Having a competent defence industrial base was more significant than just meeting Serbia’s defence equipment needs. It also had important economic consequences. In the Yugoslav era, the defence industry was the key national export industry with only tourism coming close as a source of foreign currency. Serbia’s aim was to have its defence industry make an equally positive contribution to its national economy. Another important factor is that a credible defence industry provides international visibility and this translates into the ability to obtain influence internationally, plus the ability to obtain more tangible economic benefits such as Foreign Direct Investment (FDI).

It would be fair to assume that Serbia’s defence industrial capabilities were a key factor leading the extensive investment into the Serbian economy by the United Arab Emirates (UAE). From 2013 onwards, the UAE has invested heavily in Serbia in such areas as agriculture, aviation, defence, as well as in renewable energy, semi-conductors and telecommunications. This FDI came at a time when the Serbian economy was under intense pressure and made an important contribution to economic stabilisation. This was further assisted by a US$1Bn low-interest loan granted to Serbia by the Abu Dhabi Investment Authority in 2014.

Apart from assisting the broader national economy, these economic links with the UAE would have positive implications for the Serbian defence industry. In 2014, Serbiasigned a military co-operation agreement with the UAE that would cover exchanges of information and defence technology between both countries. Additionally, the UAE military personnel would train in Serbia. For Serbian industry, the most important facet of the agreement was that the UAE would fund weapon developments in Serbia. An example of this is the Advanced Light Attack System (ALAS), a missile programme that was under development for the Serbian military. Here, the UAE funded the development and fielding of the ALAS-C variant of the missile system to meet its needs for a coastal defence missile system. The UAE remains an important market for the Serbian industry.

Industrial Growth

In April 2019, the Serbian government announced that Serbian defence exports for 2018 amounted to US$897M; this was a major boost on the defence sales figure for 2017, which came to US$570M. One factor given for this sales growth was an increase in demand for firearms and ammunition. The government reported that the largest number of export sales permits were granted for sales to Saudi Arabia, the UAE and the United States. Other important export destination destinations were Belgium, Bulgaria, Cyprus, Germany and Romania according to government reports. Serbian Defence Minister Aleksandar Vulin noted in May 2018 that Serbian defence exports had quadrupled between 2012 and 2017. The 2018 figures confirmed the continuing upward trend in defence exports.

The PEGAZ 011 UAV system was displayed at the Victory Day parade in Nis. This is a medium-range tactical UAV for day and night missions, with an armed variant developed more recently. Although Serbia has purchased Israeli UAVs and intends to buy UAV systems from China, locally UAV development will be sustained. (Photo: Ministry of Defence, Serbia)

While demand for Serbian small arms and ammunition, plus grenade launchers and 60/80/82mm mortars has been highly lucrative for the industry, the sale of higher value and more complex equipment should not be ignored either. Artillery systems such as the NORA-B52 155mm self-propelled gun system, the OGANJ multiple rocket system, 120mm mortars, armoured vehicles, training aircraft and missiles have all been exported. Customers in recent years include Bangladesh, Cameroon, Democratic Republic of the Congo, Iraq, Kenya and Nigeria. Surplus Serbian equipment such as artillery and tanks has also been sold to Cambodia and Ethiopia.

It is important to note how competitive the Serbian industry is. This is illustrated by the case of Bangladesh. Bangladesh is one of the largest defence exports markets for China, whose immense defence industry ought to be able to supply any conceivable Bangladeshi defence requirement. Furthermore, the financial packages to support equipment acquisition that China can offer a key customer such as Bangladesh are virtually unbeatable. And yet, Serbia was able to sell advanced artillery systems to Bangladesh beating off Chinese competition.

There is no reason why Serbian defence exports cannot continue their upward trajectory. A decline in demand for small arms, ammunition and related systems would appear to be unlikely in their core export markets. What would be useful is FDI and joint ventures with the defence industry to allow investment in terms of R&D and products. The Serbian government has indicated that it would allow FDI and joint ventures, but that Serbia would retain a 51% shareholding in these joint ventures.

As to the future of the Serbian defence industry, much will depend on the political course chosen by the government. Will they look to follow their regional neighbours into the embrace of the EU, or will they look towards Moscow as their strategic partner? The choice of future strategic direction will inevitably have an impact on defence industry developments. In the meantime, the defence industry will continue to be a prized economic asset for Serbia.

David Saw is a specialist defence writer based in Paris, France. He has a long and comprehensive record of writing and managing defence magazines at the highest level, from the USA through Europe to Asia, and is now a regular contributor to ESD.