Israel is expected to increase defence expenditure by 5% over the next five years due to security threats in the region and military aid from the United States.
Over the next five years Israeli defence expenditure is expected to grow at a compound annual growth rate (CAGR) of 5.90%, according to ASDReports. The growth can be partially attributed to the US$20.1 billion of military aid from the US scheduled between 2011 and 2016. Israel’s military budget currently stands at around US$16 billion a year.
Moreover, the continued security threats from Iran, Syria and other neighbouring Arab countries is also forecast to increase the country’s spending on defence to 2016. The refusal of many countries in the Middle East to accept Israel as an independent state and the subsequent threat posed to the security of the nation is expected to result in Israel increasing its spending on the procurement of missiles. The country is also scheduled to receive defence systems, fighter aircraft, submarines and armoured vehicles between 2011 and 2016.
The Israeli homeland security market is expected to grow at a CAGR of 5.67% between 2011 and 2016. This is a result of the threat of terrorist attacks from Palestinian terrorist organizations and growing crime rates in the country. Consequently, the demand for surveillance equipment, radars and sensors is anticipated to increase during the forecast period.
Israel has built a self-reliant defence industry in which 70% of the nation’s defence needs are met by domestic procurement. Despite this, the Israeli government imported US$4.3 billion of defence goods in 2010, the majority of which was aircraft. During the same year, the US accounted for over 90% of the Israeli defence imports, whilst Asia emerged as the greatest consumer of Israeli defence goods in 2010.
The Israeli defence industry accumulated US $7.2 billion in exports in 2010, up on the US$6.9 billion reached in 2009. That put the Jewish state among the world’s top four arms exporters but declining military budgets around the world are likely to reduce sales over the coming years.
Government figures indicate Israeli defence companies sold military hardware worth US$9.6 billion last year, US$2.4 billion of it to Israel’s military.
The development of the Israeli defence industry has been dependent on the military aid the nation has received from the US. For instance, the US Congress authorised US$205 million to support the Iron Dome anti-rocket/missile programme early this year.
However, according to the agreement signed in 2007, Israel is mandated to use 75% of the military aid to purchase weapons from the US. Consequently, the majority of US-based defence equipment manufacturers enter the Israeli defence market through government-to-government foreign military sales agreements. Conversely, many foreign companies enter the Israeli defence market through alliances established with domestic defence firms.
Bound by an agreement to utilize 75% of its military aid from the US on US-made defence equipment, the Israeli defence market remains less accessible for foreign suppliers from other parts of the world. Furthermore, the large number of companies operating within the Israeli defence industry intensifies the competition between domestic defence firms, the report says.