IHS Jane’s Defence Budgets : End Of Year Report 2013

IHS Aerospace, Defence & SecurityIHS Jane’s Defence Budgets:End of Year Report 2013Focus on: Poland, Saudi Arabia and JapanIn 2013, IHS measured defencespending in eight global regions atboth national and regional level,tracking past expenditure andforecasting future spend for over98% of global defence budgets.In this report Senior Analysts atIHS Jane’s Defence Budgetsexamine three defence budgetsthat were of particular note during2013 and which promise to be ofinternational significance over thecoming years.www.ihs.com/jdb

IHS Jane’s Defence Budgets: End of Year Report 2013Poland, Saudia Arabia & JapanIntroductionGlobal BudgetsMENA at 7.87 per cent (USD120.5billion), led by Saudi Arabia and Israel.In 2013, global defence expenditure asmeasured by 77 countries counted byIHS Jane’s Defence Budgets wasUSD1,530 billion, which is USD117billion (7.1 per cent) less than the 2009total of USD1,64 billion. Another 1.8 percent decline is expected by the end of2015, before IHS projects globaldefence spending to start to increaseannually.The decline resulted primarily from largedecreases in defence budgets in the USand Western Europe, while growth ratesof 3.4 per cent in Asia, 10.5 per cent inMiddle East and North Africa and 18 percent in Sub-Saharan Africa lessened theoverall impact of the decrease. IHSprojects that global defence spendingwill reach 2009 levels by 2019, andUSD1,804 billion by 2024.In 2013, IHS measured global defencespending in eight global regions. Thelargest was North America at 39 percent (USD597.4 billion) driven by the USdefence budget of USD577.5 billion.The second largest was Asia at 22.3 percent (USD341.6 billion), driven by Chinaat USD131.7 billion, with the combineddefence budgets of Japan, India andSouth Korea adding a significantcontribution. Western Europe was thethird largest region at 15.3 per cent(USD234.5 billion) with the UK, France,Germany and Italy leading that region.East Europe and Middle East/NorthAfrica (MENA) were fourth and fifthregionally, with East Europe at 7.93 percent (USD121.4 billion), driven by theRussian Federation and Turkey, andwww.ihs.com/jdb2

IHS Jane’s Defence Budgets: End of Year Report 2013Poland, Saudia Arabia & JapanThe last three regions are well belowUSD100 billion, with South America atUSD68.7 billion (4.5 per cent) with Brazilhaving the largest South Americandefence budget, Oceania at USD33.5billion (2.2 per cent) – primarily Australia– and Sub-Saharan Africa at USD13.3billion (0.9 per cent) of the global total.IHS projects this same ranking byregion through to 2024, although Asiawill close the gap with North Americasubstantially by that time.Many emerging economies willexperience moderate, export-led growthin 2014, although overall the globalgrowth rebound is likely to be quitemodest, at 3.3 per cent. Quarterlyannualized global growth in the secondand third quarters of 2013 is estimatedby IHS to have been 3.5 per cent and3.3 per cent, respectively. This is higherthan prior quarters and suggests thatglobal growth has already reached thepace forecast by IHS for 2014.Global EconomyAfter having slowed from 4.2 per cent in2010 to 3.0 per cent in 2011 and around2.5 per cent in 2012 (with the Eurozoneand Japan returning to recession), theglobal economic growth rate heldsteady at 2.5 per cent in 2013.World growth will accelerate gradually in2014, and is likely to emerge from anextended “soft patch” of the last twoyears due to an easing in private sectorde-leveraging and public-sectorausterity. This will be especially true forthe developed economies.www.ihs.com/jdbPolandExcept for a 4 per cent downturn inFY13 due to a sluggish economy,Poland’s defence budget has continuedto increase year over year since 2007.Poland over time has transformed itselffrom a Soviet-era industrial base in the1990s to a growing and more capabledefence industry of today.Its 2013-2022 Armed ForcesModernization Plan of December 2012defined a 10-year investmentcommitment to its armed forces to3

IHS Jane’s Defence Budgets: End of Year Report 2013Poland, Saudia Arabia & Japanprovide new indigenous, or Western,equipment to its troops. In 2013, MilitaryPersonnel accounted for 49.7 per centor USD4.43 billion of the defencebudget. O&M absorbed 21.2 per centand Other absorbed 4 per cent of thebudget, leaving about 25 per cent forinvestment. Procurement was USD2.20billion in 2013 or 24.7 per cent of thebudget but procurement is projected togain share of the budget by 2018 whenit will be 26.2 per cent, with a futuretarget of 27 per cent. RDT&E was lessthan 0.5 per cent in 2013, but by 2018 itis projected to be about 1.9 per centand over USD200 million.Poland’s Army garners almost 50 percent of defence funds. The nationalindustrial base produces trackedarmoured fighting vehicles, main battletanks, wheeled armoured vehicles,tactical trucks, self-propelled howitzersand rocket launchers. Poland hasordered more ex-German Leopard 2tanks and is planning to upgrade itsexisting inventory. There are also planswww.ihs.com/jdbto procure Krab Light Strike Vehiclesand Light Multi-Purpose Vehicles inorder to retire legacy fleets of vehicles.Poland’s Navy will retire much of itsfleet of 86 ships in order to afford newlybuilt ships, although the Navy receivesonly 7 per cent of the defence budget. AUSD3.1 billion long-term navalmodernization plan is in place with threestages ending in 2030. It will upgrade itsex-US FFG 7 frigate by 2016, and hasannounced new orders for threeKormoran II minehunter ships and apatrol vessel. Poland received its firstCoastal Defence Missile Battalion NavalStrike Missiles in 2013 with more to bereceived by 2015.4

IHS Jane’s Defence Budgets: End of Year Report 2013Poland, Saudia Arabia & JapanIts Air Force receives 15 per cent of thedefence budget. Poland had previouslyacquired 48 US Lockheed Martin F-16Fighting Falcon aircraft and hasdeveloped a credible degree ofaerospace capabilities andmanufacturing industrial base. Polandalso operates MiG-29 Fulcrum Afighters, C-130E Hercules transports,and has the largest worldwide fleet ofC-295 transport aircraft at 16 aircraft.Poland has launched a tender for a newAdvanced Jet Trainer which should beawarded in 2014.Plans are underway for a Polish missiledefence shield costing over USD3 billionwith very short-range, short-range, andmedium-range elements of the system.Target initial capability is set for 2017with eight batteries completed by 2022.Despite the large increase, relatedspending now comprises 30.7 per centof the Saudi Arabian government'sbudget - the lowest level since 1983 and comes as part of an 18.8 per centincrease in overall state expenditure.The defence and security budgetreached a high of 41.6 per cent of statespending in 1999 and has been ingradual decline as a proportion ofgovernment expenditure since then.Based on an assessment of the variouselements of the security apparatus inSaudi Arabia, IHS Jane’s DefenceBudgets estimates that around 63 percent of the Defence and Securitybudget is allocated to the defenceministry. This equates to a budget ofaround USD42.6 billion allocatedspecifically to defence in 2013.Saudi ArabiaSaudi Arabia increased its defence andsecurity budget by 18.6 per cent in2013, the largest rise in spending since2007, according to figures released bythe Saudi Arabian Monetary Agency inSeptember 2013.Total expenditure on the sector has nowreached a total of SAR251.3 billion(USD67 billion) and has more thantripled in nominal terms over the pastdecade. While the increase for 2013 ismore significant than in recent years,spending on defence and security hasincreased by an average of 13.7 percent annually over the last 10 years.Growth in the budget had slowed tobetween 7-9 per cent between 2008and 2011 but has now expanded at over15 per cent for the last two years.www.ihs.com/jdbWhile no further details on thecomposition of the defence and securitybudget have been released, theincrease is likely to in part relate tofunding for a number of largeprocurement programmes that havebeen initiated since 2010, including adeal for 84 new-build and 70 retrofit F15SA aircraft that was finalised inDecember 2011 and valued at up toUSD29.4 billion.The recent spike in procurement activityfollows a slowdown in acquisitions5

IHS Jane’s Defence Budgets: End of Year Report 2013Poland, Saudia Arabia & Japanbetween 2009 and 2011 whichdepressed spending levels. As a resultspending could contract in the shortterm as procurement spending fallsback to sustainable levels. Currently IHSJane’s Defence Budgets expects Saudispending growth to fall from the levelsof 20 per cent seen over the last twoyears to between 4-6 per cent from2014-2019.JapanJapan's total 2013 defence budget ofUSD68.1 billion (including pensions)was the third largest in the world, havingbeen surpassed by China (in officialterms) in 2008. The country faces abudgetary dilemma as pressingeconomic concerns vie with theincreased levels of spending fromneighbouring countries such as China,Russia and North Korea.Whereas previous governments havesought to restrict defence spending andfocus resources on bringing downwww.ihs.com/jdbgovernment debt and improvingeconomic performance, the new Abeadministration increased defencespending in 2013 (albeit by just 0.4 percent in nominal terms).The Ministry of Defence's FY14 budgetrequest again encompassed a growingbudget with growth of 1.4 per centoutlined. While the request has yet tobecome law, the modest level of growthis in keeping with the government'sapparent eagerness to make defenceand security issues a priority and lookslikely to be granted.The growth in the budget seen for FY13and the FY14 request was further6

IHS Jane’s Defence Budgets: End of Year Report 2013Poland, Saudia Arabia & Japanbolstered in December 2013 by theannouncement that Japan’s new MidTerm Defence Programme (MTDP) willsee annual increases of around 1.3 percent in nominal terms over the next fiveyears.regional geopolitical shifts, although acontinuation in the decline of pensionobligations will see the total budgetdecrease in real terms.In terms of the core budget (excludingpensions costs), total expenditurebetween FY14-18 is currently expectedto reach JPY24.7 trillion (USD310.3billion).While the core defence budget isexpected to continue to see increasesover the short to medium term, totaldefence spending is expected to remainlargely static from 2014-2019 as a resultof lower pension’s allocations.Beyond this mid-term projection itseems unlikely that defence budgetgrowth will accelerate significantlyunless tensions with neighbours – Chinain particular – escalate over the next fewyears.Over the longer term, IHS Jane'sDefence Budgets expects that Japanwill settle into a pattern of steady yetmodest expansion of the core defencebudget in response to developingwww.ihs.com/jdb7