"The decline in global defence spending over the past five years or so has been heavily influenced by the decline of the US defence budget, primarily due to decreased Overseas Contingency Operations (OCO) funding allocations"
LONDON (4 February, 2014) – 2014 will be the first year that global defence budgets will grow overall since 2009, according to the IHS Jane’s Annual Defence Budgets Review from IHS Inc,. (NYSE: IHS), the leading global source of information and analytics. Total global defence spending in 2014 will be USD1.547 trillion up from USD 1.538 trillion in 2013 - 0.6% increase in real terms. The findings will be presented to clients via a webinar on Thursday 13th February.
“We have seen substantial increases in defence spending from countries like Russia, China, India, Saudi Arabia, and Oman over the past two years,” said Paul Burton, Director, IHS Jane’s Aerospace, Defence & Security. “With military budgets among many of the major NATO nations due to continue to contract over the next 12 months, the centre of gravity of defence expenditure is expected to continue to shift south and east in 2014, following the trend of global economic expansion. Russia, Asia and the Middle East will provide the impetus behind the growth in global military spending expected this year and will drive the recovery projected from 2016 onwards,” Burton continued.
Key highlights, forecasts from the IHS Jane’s Annual Defence Budgets Review:
Four of the top five fastest growing defence markets in 2013 were in the Middle East
Saudi Arabia’s budget has tripled in 10 years; 2013 marked its largest rise since 2007
Non-NATO spend is forecast to overtake NATO spend in 2021
China is projected to outspend the UK, France and Germany combined by 2015
Russia grabs third, pushing the UK to fourth and Japan to fifth
By 2015, the sum of Russia and China’s defence budgets are projected to overtake spending by the EU
Sub-Saharan Africa budgets rose 18% in 2013 and present long-term opportunities for defence companies
Rapid acceleration of Middle East defence budgets
Fenella McGerty, senior analyst, IHS Jane’s Aerospace, Defence & Security, said: “We have seen a rapid acceleration of defence spending in the Middle East since 2011. Four of the top five fastest growing defence markets in 2013 were Middle Eastern countries. If we stretch to look at the top 10 fastest growing markets, six of the 10 were in the Middle East. Oman and Saudi Arabia, in particular, have seen rapid growth of over 30% between 2011 and 2013. Since 2011, Oman’s defence budget has now increased by 115%, from USD4.7 billion to USD9.2 billion in nominal terms.”
“Saudi Arabia is not far behind,” McGerty said. “It increased its defence and security budget by about 19 percent in 2013, the largest rise in spending since 2007. Total expenditure on the sector has now reached USD67 billion and has more than tripled in nominal terms over the past decade,” she said.
APAC – the only region to steadily rise
Craig Caffrey, senior analyst, IHS Jane’s Aerospace, Defence & Security, said: “Asia Pacific is the only region where from 2009 onwards we have seen a steady rise in defence expenditure. Based on IHSJane’s Defence Budgets projections, Asia Pacific’s share of global budget spend will grow to 28 percent from its current 24 percent by the end of the decade, reaching USD474 billion.”
APAC without China passes Western Europe in 2015; focus on Australia, India, Japan and South Korea
Caffrey continued, “If we step back and look at Asia Pacific without China, we see the region overtaking Western Europe in 2015. Australia, India and South Korea are all increasing their defence budgets. Over the next three years, forecast increases for core defence spend in Australia suggest that the procurement budget will increase significantly.
“In Japan, where previous governments have sought to restrict defence spending and focus resources on bringing down government debt and improving economic performance, the Abe administration increased core defence spending in 2013 and has asked for additional funds for the FY14 budget.
“Despite suggestions to the contrary throughout late 2012 and early 2013, the Indian government announced a further significant increase in its defence budget. Total defence spending, including pensions and defence ministry expenses, increased to USD46.2 billion and we’re expecting further growth in 2014.”
China to outspend the UK, France and Germany by 2015
Fenella McGerty, senior analyst, IHS Jane’s Aerospace, Defence & Security, said “By 2015, China will spend more than the UK, France and Germany combined. In 2015, China is expected to spend USD159.6 billion, while the sum of the three largest Western European markets is expected to reach just USD149.0 billion. Defence budgets in the five largest Western European markets (UK, France, Germany, Italy and Spain) decreased by 1.3 per cent in 2013. Regional spending totalled USD242.8 billion in 2013 and this is expected to decrease to USD237 billion by 2018 in real terms.”
Furthermore, according to Caffrey, “IHS projections suggest that official Chinese defence spending for 2014 is likely to be in the region of USD130 billion, around 10 times the size of Taiwan’s budget. Taking adjustments for pensions and military R&D into account, Beijing’s military expenditure is now thought to account for around 9 percent of the global total.”
Russia grabs third place in defence spending boom
“Russian defence spending is set to increase over 44 percent in real terms over the next three years. Under the Duma’s adopted plan, Russian defence spending will rise from about USD68 billion in 2013 to just over USD98 billion in 2016. This plan propelled Russia to the third largest defence spender in the world. The rapid increase in spending means that the defence budget will increase to 15.7 percent of federal expenditure in 2013 to and to 20.6 percent by 2016. These additional funds will likely be spent on modernising equipment, and improving training and social conditions for military personnel,” Caffrey said.
Sub-Saharan Africa presents long-term opportunities
Fenella McGerty, senior analyst, IHS Jane’s Aerospace, Defence & Security, said “Sub-Saharan Africa budgets rose 18% in 2013 and present long-term opportunities for defence companies.
Of particular note in 2013 was the significant 39% growth in Angolan defence spending, the largest growth globally. Spending grew from USD4.7 billion to USD6.5 billion and is expected to continue to increase as aircraft modernisation efforts continue. While the market is growing, it still accounts for less than 2% of defence spending globally so growth will need to continue in order for more opportunities to arise in the long term.”
US defence budget influence
“The decline in global defence spending over the past five years or so has been heavily influenced by the decline of the US defence budget, primarily due to decreased Overseas Contingency Operations (OCO) funding allocations,” said Guy Eastman, senior analyst, IHS Jane’s Aerospace, Defence & Security. “Combined with decreases in Western Europe, the portion of global defence represented by the West has and will continue to decrease over the near-term,” he said.
About the IHS Jane’s Annual Defence Budgets Review
IHS Jane’s Annual Defence Budgets Review is the world’s most comprehensive, forward-looking study of government’s defence budgets. Tracking 97% of the global defence expenditure from 77 of the world’s largest defence budgets, data is compiled from IHSJane’s Defence Budgets online solution platform. It includes five-year forecasts, historical data, budget charting, trend evaluation and in-depth analysis by country. In this study, values are based on constant 2014 US dollars. For additional information, visit: www.ihs.com/jdb
The following Top Twenty Ranking is taken from the IHS Jane’s Annual Defence Budgets Review. As above, the values are based on constant 2014 US dollars.
IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs 8,000 people in 31 countries around the world.