Sunday, June 19, 2016

The Commerce of War

Global defence trade reached a record-breaking $65 billion in 2015, according to the annual Global Defence Trade Report. The entire market is covered except for munitions and small arms; however, anything under 57mm calibre has not been included in this study. The study only tracked programs with a primarily military function, removing homeland security and Intelligence programs.

“The global defence trade market has never seen an increase as large as the one we saw between 2014 and 2015,” said Ben Moores, senior analyst at IHS. “2015 was a record-breaking year.” Markets rose $6.6 billion, bringing the value of the global defence market in 2015 to $65 billion. IHS forecasts that the market will increase further to $69 billion in 2016.

1. The Middle East was the largest importing region, with $21.6 billion in deliveries of defence equipment;
2. Total defence spending accelerated in Asia-Pacific as states bordering the South China Sea boosted defence spending;
3. France has doubled its backlog of orders from $36 billion in 2014 to $55 billion, meaning that $55 billion worth of defence equipment has yet to be exported. This increase means that France will overtake Russia as the second-largest global defence equipment exporter.
4. Germany moved from fifth- to third- largest exporter and the UK dropped from fourth to fifth;
5. The largest global exporter, the United States, saw another 10 percent increase in exports over the past year, bringing the total to $23 billion (35 percent of the global total);
6. South Korea saw exports climb again to $871 million;
7. There was significant change in the top five importing countries, with Taiwan, China and Indonesia all dropping out of the top five and Australia, Egypt and South Korea replacing them.

The largest Middle Eastern importers remain among the largest globally in 2015. Saudi Arabia and the UAE imported $11.4 billion (17.5 percent of the global total) worth of defence systems in 2015, up from $8.6 billion in 2014.
“The combined value of Saudi Arabia and the UAE’s defence imports is more than all of Western Europe’s defence imports combined,” Moores said. Saudi Arabia’s imports grew from $6 billion to $9.3 billion; an increase that is three times that of the entire sub-Saharan Africa market. “The US, Canada, France and the UK are the main exporters of defence equipment to the Middle East and beneficiaries of this spending boom.”
The IHS report indicates that US trade flow to the Middle East has been driven by sales of military aircraft and associated mission systems.
Canada is the second-largest exporter of defence equipment to the Middle East with $2.7 billion in sales, moving the UK down the table to fourth place, just behind France. Germany and Russia each saw a 25 percent growth in exports to the region of $1.4 and $1.3 billion, respectively. Russia is likely to increase its trade in the region as post-sanctions Iran begins to replace its exhausted aviation assets.

In 2018, France will move from the third to the second largest global exporter of defence equipment, pushing Russia down the table for the first time in decades. “France has revived its defence industry and had spectacular back-to-back year of sales,” Moores said. “2014 and 2015 were France’s best-selling years in decades.” France sold $26 billion of defence equipment, $8 billion in 2014 and $18 billion in 2015. In 2016, France secured the record-breaking $38.7 billion Australian submarine order. This extended run has increased the French 10-year backlog for defence exports from $36.1 billion to $54 billion in 2016. These sales have included Rafale multi-role fighter aircraft, submarines and helicopters. The bulk of the sales went to India, Saudi Arabia, Australia, Qatar, Egypt and the UAE.

The value of military imports throughout Western Europe rose from $7.9 billion in 2013 to $9.6 billion in 2015. “This notable climb takes Western European imports back to 2010 levels but not their 2009 high point of $12 billion,” Moores said. Nearly all of Western Europe’s military import gains in 2015 have come from Norway, pan-European programmes and the UK. UK imports nearly doubled as imports of MARS tanker ships from South Korea and CH-47 helicopters from the United States have commenced.
Total defence spending accelerated in Asia Pacific as states bordering the South China Sea boosted their defence spending. Between 2009 and 2016, defence imports rose 71 percent in the region.

The United States continued to top the export table in 2015 having supplied $22.9 billion worth of goods and equipment compared with $20.7 billion worth 2014, $18.3 billion in 2013 and $12.9 billion in 2009. This dramatic rate of growth cannot be tied to one particular factor but, going forwards, the total may exceed $30 billion as deliveries of the F-35 begin to ramp up. This rise could be derailed by sustained low oil prices because, for the US, the Middle East is a key region for exports. The United States delivered $8.8 billion worth of equipment to the Middle East in 2015.



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