Rapidly Evolving Defence Market - 10 Country Budget Assessment Executive Summary

Rapidly Evolving Defence Markets:

10-country Budget Assessment

From ‘Know-how’ to ‘Know Why’

June 2014 J 202001401

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Research Team

Special Thanks

Richard Hilton

Program Manager Yasha Izadpanah

Data Analyst

Aman Pannu

Senior Consultant—Europe, Aerospace, Defence & Security

[email protected]

Alix Leboulanger

Research Analyst, Aerospace, Defence & Security

[email protected]

Lead Analyst Contributing Analyst

Research Director

Steven Webb

Vice President, Aerospace, Defence & Security

[email protected]

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Contents

Section Slide Number

Executive Summary 5

Market Overview 11

Total Market 20

Country Analysis —

• Algeria 30

• Brazil 50

• Chile 74

• India 97

• Indonesia 122

• Japan 143

• Oman 164

• Poland 181

• Russian Federation 205

• United Arab Emirates 234

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Contents (continued)

Section Slide Number

Conclusion 257

Appendix 262

The Frost & Sullivan Story 278

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Executive Summary

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Key Findings

• Rapidly evolving markets will continually increase their military spending, but at a low pace

and volume due to challenging implementation of ambitious modernisation and

indigenisation programmes. The 10 selected countries—Algeria, Brazil, Chile, India,

Indonesia, Japan, Oman, Poland, the Russian Federation, and United Arab Emirates

(UAE)—are expected to spend more than $3.41 trillion in total on defence between 2013

and 2022. Forecast military expenditures are expected to grow at a compound annual

growth rate (CAGR) of 3.7%.

• The Russian Federation will remain the biggest spender, accounting for 32.5% of total

spending. Its defence budget is expected to reach at least $131.62 billion in 2022.

• Growing regional instability is also driving Japanese defence expenditures, and Japan is

reforming its military warfare doctrine. Japan is forecast to represent 20.00% of total

spending.

• Brazil and Poland will increase their defence expenditures at a slower pace, at CAGRs of

1.30% and 1.08%, respectively, because of financial concerns. Moreover, Brazil, which

represents nearly 12.00% of the total spending in 2013, will represent only 9.66% in 2022.

Poland is forecast to experience a similar decline, accounting for 3.37% of the total

expenditures in 2013 and only 2.68% in 2022.

Source: Frost & Sullivan

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Key Findings (continued)

Source: Frost & Sullivan

• Conversely, defence spending is witnessing the highest growth rate in the UAE and Algeria,

with respective CAGRs of 4.99% and 9.89% for 2013 to 2022. While Algeria represented

almost 4.30% of the total spending in 2013, it is expected that the country will account for

7.21% of it by 2022.

• Spending will remain the most stable for Oman and Chile, with a slight increase, but they will

still be the smallest military spenders of the market size considered in this study.

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Executive Summary

Source: Frost & Sullivan

• Despite the relatively limited impact of the financial slowdown on the selected countries’

defence budgets, creeping inflation, social reforms, and upcoming elections are still affecting defence spending in the short term, and most significant programmes are being put on hold and/or delayed, as illustrated by Poland, India, and Brazil.

• Fleet renewal and modernisation programmes will be among the biggest drivers stimulating defence expenditures among the countries considered.

• Another very significant trend affecting the selected countries relates to the strong incentives being developed to boost domestic nascent or developing industry.

• In this regard, high-end technology procurement is the most critical success factor, not only as a translation of ongoing modernisation programmes but also as a means of deterrence of any potential foreign aggression and as a perceived long-term investment for the developing domestic industrial base.

• However, domestic supply chains remain quite dominated by foreign original equipment manufacturers (OEMs), except for the Russian Federation and Japan. The localisation of procurements is expected to become much more significant in the long term for Brazil, Poland, the UAE, and, to a lesser extent, Chile.

• There is still a strong demand for partnerships with foreign OEMs in order to gain further expertise on the “know why” of the “know-how,” but this implies adoption of new structures

to encourage such targeted objectives and reduce risks for foreign OEMs.

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Executive Summary—Market Engineering Measurements

Market Stage

Growth

Compound

Annual Growth

Rate

3.7%

(CAGR)

Market

Revenues

$291,496.7

M

(2013)

Market Size at

End of Forecast

Period

$403,302.7

M

(2022)

Defence Budget: 10 Selected Countries, 2013

For a tabular version, click here. Stable Increasing Decreasing

Note: All figures are rounded. The base year is 2013. Source: Frost & Sullivan

Market Overview

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Executive Summary—CEO’s Perspective

2

The current lack of infrastructures and regulation loopholes make self-reliance too ambitious, resulting in severe delays in implementation.

3 Lack of skilled personnel and industrial base are the biggest restraints before the plague of corruption.

4

Rationalising the procurement process, aligned to Western models, is expected to reduce monetary waste and corruption and promote understanding of military operational requirements.

5 Unmet needs include naval C4ISR, UUVs, BMD defence systems, andmilitary communications satellites.

1 Most of the selected countries are aiming to become self-reliant by the end of the forecast period.

Source: Frost & Sullivan