‘Peak Defence’ on Horizon as US, UK & Europe Erodes Competitive Edge IHS: Asia’s Defence Budgets Bigger than North America by 2021; Global Arms Trade Explodes, up 30 percent Since Cuts & Economic Downturn Business Wire LONDON -- June 24, 2013 Asia Pacific budgets are set to outstrip USA and Canada by 2021, fuelled by an explosion in global arms trade that threatens the competitive edge and dominance of US, UK and European defence trade according to the biggest budget and export study since the economic downturn. The study – The Balance of Trade – is presented to clients on 25 June by IHS Inc. (NYSE: IHS), the leading global source of information and analytics. Asia Pacific’s defence budgets are forecast to outstrip North America by 1. 2021, up 35 percent from 2013 levels to $501bn. Total global defence budgets are forecast to continue rising, reaching $1.65tn by 2021, an increase of 9.3 percent over 2013 levels. Israel will sell twice as many UAV (‘drone’) as the USA in 2014 and will 2. become the biggest exporter by the end of 2013. The top UAV (‘drone’) exporter is currently the USA not Israel (despite press reports). Global arms trade (exports and imports between countries) is up significantly despite the global economic downturn, increasing 30 percent between 2008 and 2012, from USD56.5bn to USD73.5bn. At this rate, defence 3. trade between countries will have more than doubled by 2020. The global defence export and services market will have reached $100bn by 2018. IHS analysis suggests that world trade is at least 30 percent higher than as stated in other prominent studies publicly available. Western Europe’s share of exports declined, Asia Pacific’s rose. Asia Pacific’s exports are up. Western Europe’s exports are down. Western Europe’s share of the global market was 34.5 percent in 2008 and fell to 4. 27.5 percent in 2012. Asia Pacific’s share (including China) rose from 3.7 percent ($2.0bn) in 2008 to 5.4 percent ($3.7bn) in 2012 – with many in Asia doubling exports. China has jumped up from 10th place in 2008 to be the world’s 8th largest exporter today. USA has imported $10.5BN in military related equipment and services since 5. 2008 – foreign imports to USA are forecast to continue rising through 2013. Rise of Asia Pacific exports threatens US dominance of global defence industry. Guy Anderson, Senior Principal Analyst (A&D), IHS Jane’s, said: “The global arms market is about to get very turbulent. We may already have reached ‘peak defence’ with the US dominance of the global defence market under threat. The big Western defence companies have no option – export or shrink – but this could be sowing the seed of their own demise; the opportunities in the East are a double edged sword, fuelling a trend which threatens US dominance of defence. Low end defence equipment dominates the global market now but the West’s edge on technology will erode this decade as Asia outspends the USA and Europe. However, money alone is not enough. India is proof of that. And size doesn’t matter. Israel is set to complete its domination of the UAV (‘drone’) market in 2013. Turkey, Singapore, South Korea and China are also racing to innovate. Give Asia and the Middle East a decade and they will be selling world class kit. The US is now buying significant amounts of foreign imports.” Paul Burton, senior manager, IHS Jane’s DS Forecast, said: “Two things are happening: budgets are shifting East and global arms trade is increasing competition. This is the biggest explosion in trade the world has ever seen. At this rate, defence trade between countries will have more than doubled by 2020. China is decreasing imports as it improves its own industrial capabilities, and while Beijing’s exports have doubled since 2008, South Korea’s are up 688 percent, putting it into the global top 20 with $753m. Chinese sales go to Indian neighbours and low end developing countries or those that have fallen out with the West. The Middle East is very open to buyers from all over the world, perhaps more than has previously been acknowledged. Iraq in particular is looking to East and West sellers. With India, Saudi Arabia and UAE importing nearly $13bn worth of defence equipment between them in 2012, it is little wonder that so many companies are focusing their attention on exporting to those markets.” Top 10 2021 Defence Budgets for Asia Pacific Top 10 2021 Defence Budgets for rest of the World 2021 2012 2021 Change 2021 2021 Change Rank Country $bn $bn on Rank Country 2012 $bn $bn on 2012 2012 1. China 126.29 207.24 64.1% 1. United 656.21 472.25 -28.0% States 2. India 44.55 68.43 53.6% 2. Russia 58.96 106.39 80.4% 3. Japan 65.67 65.71 0.1% 3. United 60.95 60.83 -0.2% Kingdom 4. Australia 30.01 37.16 23.8% 4. France 51.27 52.85 3.1% 5. South Korea 29.52 35.23 19.3% 5. Brazil 30.62 41.78 36.5% 6. Taiwan 15.43 18.93 22.7% 6. Saudi 35.89 40.26 12.2% Arabia 7. Indonesia 7.17 15.29 113.2% 7. Germany 41.22 38.22 -7.3% 8. Singapore 10.09 12.89 27.7% 8. Italy 27.19 28.92 6.4% 9. Pakistan 7.87 9.58 21.6% 9. Iran 23.96 28.32 18.2% 10. Thailand 5.41 6.52 20.5% 10. Canada 20.67 19.55 -5.4% Top 10 Total $342.03 $476.97 39.5% Top 10 $1,026.17 $907.51 -11.6% Total Top 10 Exporters Globally Top 10 Importers Globally 2012 Exporting Change 2012 Importing Change Rank Country 2008 $m 2012 $m on Rank Country 2008 $m 2012 $m on 2008 2008 1. United 20.08 28.53 42.1% 1. India 3.09 5.27 70.2% States 2. Russia 8.31 10.06 21.0% 2. Saudi 1.91 3.74 96.2% Arabia 3. France 4.04 4.56 12.9% 3. UAE 1.63 3.53 116.4% 4. United 2.72 4.06 49.1% 4. Turkey 1.21 3.30 172.5% Kingdom 5. Germany 4.54 3.03 -33.3% 5. Egypt 1.13 2.42 114.4% 6. Israel 1.38 2.41 74.2% 6. South 2.06 2.26 9.3% Korea 7. Italy 1.46 2.30 57.0% 7. Australia 1.49 2.26 51.2% 8. China 1.16 2.22 92.2% 8. Iraq 0.83 2.15 158.2% 9. Canada 0.92 1.67 82.8% 9. United 2.45 2.05 -16.3% States 10. Sweden 1.41 1.43 1.2% 10. Algeria 1.59 1.97 23.4% Global Total $53.41 $68.08 27.5% Global $51.12 $65.95 29.0% Total Top 10 Primary Supplier Exporters Globally UAV (‘Drone’) Exports 2012 Change 2012 Change Rank Company 2008 $m 2012 $m on Rank Company 2008 $m 2012 $m on 2008 2008 1. Lockheed 3,898 6,446 65.4% 1. USA Total 379.26 430.07 13.4% Martin 2. Boeing 4,170 5,614 34.6% 2. Israel 160.99 238.24 48.0% Total United Italy 3. Aircraft 2,924 4,061 38.9% 3. Total 77.29 87.14 12.7% Corp. 4. Raytheon 3,028 3,731 23.2% 4. France 81.12 57.66 -28.9% Total 5. BAE Systems 2,956 3,728 26.1% 5. OTHER 35.96 31.24 -13.1% 6. EADS 2,243 2,923 30.3% 7. United Tech 1,633 2,268 38.8% Corp 8. Finmeccanica 1,106 2,133 92.8% 9. General 1,713 1,877 9.6% Dynamics 10. Thales 1,650 1,604 -2.8% Top 10 Total $25,321 $34,385 TBC% Top Total $734.62 $844.35 32.1% USA *USA – Imports have fallen since 2008 making them the 10th largest import market globally *Exports have increased dramatically by 42.1 percent to $28.5bn and total market share has increased from 35.5 percent to 38.8 percent. Most sales come from Iraq, Afghanistan and military aircraft sales *The US government is softening its position on export controls, with industry-driven export reforms *The USA, UK, Pakistan, Canada and South Korea have all seen declines in imports since 2008 Canada *Exports have increased by 83% to $1.7 billion and their market share has risen from 1.6% to 2.5%. *Most of the sales are to the USA Russia *Exports have increased to $10bn but its market share has remained roughly the same at 14.8 percent *Russia’s export base for larger defence equipment is under threat, which is a concern to Russia *Russia continues to pursue its 2020/2025 rearmament target and to reinvigorate military exports - but massive state funding and reform efforts have failed to close capability gaps UK *UK exports rose by 49 percent since 2008 and its market share rose from 4.8 percent to 6 percent *UK export order books already indicate UK defence exports will be up by a minimum 25% by 2015 *The UK saw its share of global trade rise significantly. Only the USA’s share of trade grew more, between 2008 and 2012, in total value $USD *The increase in UK export is driven by military aviation sales to Saudi Arabia – Typhoon exports to Saudi and Tornado support contracts. France *French exports rose by 13 percent since 2008, from USD4.0bn in 2008 to USD4.6bn in 2012 *France remains a very closed market to imports *Austerity has not triggered broad co-operation, alliances are ad hoc ahead of multilateral co-ordination Germany *Exports have decreased by a third since 2008 and its market share has fallen from 8 percent to 4.5 percent *Austerity has not triggered broad co-operation, alliances are ad hoc ahead of multilateral co-ordination Israel *Israel’s exports increased 74 percent to $2.4bn and their market share has risen from 2.4 percent to 3.5 percent. Mainly with sales to India Turkey *Turkey has seen the largest proportionate increase in imports since 2008, buying 172% more in 2012 (USD3.3bn) than it did in 2008 (USD1.2bn) *Turkey, Saudi Arabia, UAE and India account for 23.3 percent of all global imports up from 13.9 percent in 2008 Italy *Exports rose 57 percent since 2008 percent to $2.3bn. Its market share rose from 2.6 percent to 3.4 percent *Italian sales have sold a range of platforms and mission systems to a very wide range of countries China *Exports have increased by 92 percent to $2.2bn and its market share rose 2.0 percent to 3.3 percent *China has jumped up from 10th place to be the world’s 8th largest exporter since the 2008 downturn *China exports to Bangladesh, Pakistan, Venezuela and others that are not politically close to the West *Imports fell as China develops its own equipment rather than importing from Russia and elsewhere *Defence industrialization is at heart of the China’s current Five Year Plan (2011-2015) driven by global acquisitions, militarization of commercial technologies and big research and development investment India *India largest global importer in 2012 (USD5.3bn from USD3.1bn in 2008) *India is widening its sources for military equipment and is not tied to Russia or other single sources *India, Turkey and the UAE have dramatically increased defence imports since the economic downturn *India, Saudi Arabia and the UAE remain the largest importers of arms. India and the UAE are building domestic defence industries but only India has seen any growth and this remains small *India, Saudi Arabia, Turkey and UAE account for 23.3 percent of all global imports up from 13.9 percent in 2008 South Korea *Exports rose 688 percent to $753m since 2008 and market share rose from 0.2 percent to 1.1 percent *Indonesia and the Philippines are the primary recipients Latin America *Brazil imports up 87% between 2008 to 2012 (from USD497mn to USD931mn) *Latin American imports up 16% between 2008 and 2012 (from USD3.42bn to USD3.96bn) *A defence industry rebirth is underway, linked to growing wealth, social and employment challenges *Internal security issues are a greater driver than external threats in most markets *Defence industry ties are emerging between South America and Sub-saharan and South Africa *Brazil’s defence imports doubled between 2008 and 2012 *Latin America’s Defence Industry in New Boom Saudi Arabia *Saudi Arabia second largest importer in 2012 (USD3.7bn from USD1.9bn in 2008) *Saudi Arabia, Turkey, UAE and India account for 23.3 percent of all global imports up from 13.9 percent in 2008 UAE *UAE third largest importer in 2012 (USD3.5bn from USD1.6bn in 2008) *UAE, Saudi Arabia, Turkey and India account for 23.3 percent of all global imports up from 13.9 percent in 2008 Methodology The Balance of Trade, a study by IHS Jane’s DS Forecast, is world’s most comprehensive study of government past and future budgets, export and import since the economic downturn of 2007/8. The study includes a total 34,000 defence acquisition programmes. It is the only study to include the full market scope, every market and geography, individual mission systems, research and development, production and services. The study is more comprehensive than any other publicly available but is not shared in full with the general public – used instead to alert industry, governments and other clients to specific issues and opportunities. Constant US dollars are used as the base for the study. Asia Pacific is defined as being India, Pakistan, South Korea, Australia, Japan, China, Singapore, Taiwan and Indonesia. About IHS (www.ihs.com) 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 6,700 people in 31 countries around the world. IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their respective owners. Copyright © 2013 IHS Inc. All rights reserved. Contact: IHS Rowland Barran, +44 (20) 8276 4727 London Rowland.Barran@ihs.com or Amanda Russo, +44 (20) 8276 4727 London Amanda.Russo@ihs.com
‘Peak Defence’ on Horizon as US, UK & Europe Erodes Competitive Edge
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