Frost & Sullivan outlines more rapidly evolving defence markets

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Even though Angola, Azerbaijan, Peru, Qatar and South Korea have very different perspectives and agendas, they are all expected to sharply increase their defence spending over the next 10 years, according to Frost & Sullivan.

In its new analysis, Rapidly Evolving Defence Markets, Part 2, Frost & Sullivan forecasts the combined defence spending of these five nations to increase from $53.68 billion in 2015 to $70.57 billion in 2025 at a compound annual growth rate of 2.8 percent. The analysis notes that due to the arms race and an increasing threat perception, the effects of the 2008 financial slowdown on these transitioning markets are gradually reducing.
“Unlike leading transitioning economies like India, Turkey and Brazil, the countries selected for this study are still attempting to develop an industrial base to bolster their local footprint and diminish reliance on foreign equipment,” said Frost & Sullivan Aerospace & Defence Industry Analyst Alix Leboulanger. “Upon a closer look at these countries’ dynamics, it is found that for most of them, their political intent is stronger than their financial and infrastructure capabilities.”

Other factors that can prove dampeners include the highly competitive nature of the global defence marketplace. It has left little room for emerging local players unless they can distinguish themselves appropriately; for instance, on pricing in Peru and on technology in South Korea. Moreover, weak market prospects beyond local demand, coupled with the absence of small- and medium-sized enterprises, restrict partnership opportunities and transfer-of-technology ventures with foreign companies.
“Most of the countries under study rely on foreign technology but have plans to create and/or enhance the domestic industrial base, provide employment to locals, and most importantly, reduce the local economy’s dependence on energy revenues,” noted Leboulanger. “For success with these strategies, efficient and easily-applicable regulations are required to create an attractive and stable environment for foreign investments and industrial partnerships. The lack of skilled personnel and infrastructure, which has impeded ambitious indigenisation plans and delayed modernisation programmes, also needs to be addressed.”



While rising regional threats positively impact defence equipment spending and upgrades, military capabilities and fleet size do not necessarily increase. Financial constraints mean that governments will try to reduce armed forces and invest in combat-proven platforms, surplus material, and second-hand equipment. Thus, Angola, Azerbaijan, Peru, Qatar and South Korea are expected to spend no more than 30 percent of their total budget, circa $18.95 billion per year, on new equipment.