Tanks for Nothing

Since the late 1980’s Egypt has produced 530 of the tanks at its Abu Zaabal Tank Repair Company. The M1 tanks it produces are U.S. designed — and are among the most powerful armored vehicles in the world.

It recently started on additional hundred vehicles. With all of the spare parts and equipment, the contract costs Egypt over $500 million. Why, one wonders, are the Egyptians so keen on building the tanks themselves? The answer seems almost obvious. They wanted the jobs.

Egypt has an unemployment rate of 12%. Moreover, 35% of the Egyptian population is under the age of 15.

And the government must eventually figure out how to employ them as they grow up and enter the labor force. It is no wonder that Egyptian leaders would be desperate to build the tanks themselves.

But, in doing so, they are sweeping aside a basic fact of economics. Building tanks is a highly technological process. And tanks are subject to huge economies of scale — it is much, much cheaper and more efficient per tank to build lots of them.

Egypt’s generals would surely have preferred to have their tanks built at Lima, Ohio. For the same price, they would have expected to get more of them.

And Egypt’s armed forces would likely have obtained higher quality tanks, as well. Developing countries in general are known for their ability to put together simple items cheaply.

But advanced manufacturing stays in the developed countries for a reason. Workers and managers face a steep learning curve before they can turn out a very complex item like an airplane — or a tank — with an acceptably low error rate.

Hence, Israel is probably less threatened by an Egyptian army outfitted with its own homemade tanks than one equipped with U.S.-made armored vehicles.

On the other hand, that learning curve is probably what the Egyptian government finds most attractive about building the tanks. Building tanks gives Egyptians more than just the opportunity to put some people to work in a factory for a few years.

If all goes well, those workers will obtain skills that can be taught to others — and used to attract other manufacturing operations. Ultimately, the thinking goes, the tanks themselves matter less than the example that is set — and the new cadre of skilled workers.

In fact, Egypt’s desire to manufacture tanks is probably a sign of its peaceful intentions. The Egyptians made a choice — building up employment over military efficiency. Building tanks in Egypt may be a boondoggle. But it a least reflects a country that has some values straight.