Monday, December 12, 2016

India leads global growth in defence spending

India’s drive to modernise its military has helped it to oust Russia from the world’s top five spenders on defence this year, while the country is set to push Britain from the number three spot by 2018.
Nato defence spending has also increased for the first time since 2010 in the face of strategic threats posed by Isis and Russia, according to the annual Jane’s Defence Budget report, published on Monday.
“Defence spending returned to a healthy rate of growth in 2016, kicking off what we expect to be a decade of stronger global defence spending,” said Fenella McGerty, principal analyst at IHS Jane’s. “Defence spending should recover to pre-financial crisis levels by 2018.”
Global defence spending rose by 1 per cent to $1.6tn in 2016 after adjusting for currency fluctuations, against a 0.6 per cent increase in 2015. An end to budget cuts in the US — still the world’s biggest military spender at $622bn in 2016 — and stronger growth in Europe helped to offset the first decline in Russian defence expenditure since the 1990s. Western European defence budgets showed the first increase in six years and IHS Jane’s forecasts a $10bn rise in the total over the next five years.
“Eurozone economies are only just starting to recover, and the fact that they are already increasing defence spending despite fiscal pressures is a significant indicator that security concerns have increased. Even when there was more money available, there wasn’t much of an increase,” Ms McGerty said.
As a result, total defence spending by Nato countries will continue to exceed that of non-Nato countries, including China and Russia, for longer than expected. “The year when non-Nato expenditure exceeds Nato spending has been pushed out by another three years to 2023,” Ms McGerty said.
However, Nato members will continue to invest a greater proportion of their defence budgets on research and development, at roughly 8 per cent, than non-Nato states, which invest on average less than 4 per cent. This suggests that non-Nato countries will remain dependent on imports for their newest kit and the gap is unlikely to be closed before 2030, according to Jane’s analysts.

Indian budget 

● $38.17bn Indian defence spending in 2010
● $64.07bn Indian defence spending (projected) in 2020
● $1.6tn Global defence spending in 2016
Source: Jane’s

That should be good news for western defence companies, even in Britain, which is unlikely to regain its number three spot in the global budget ranking in the foreseeable future, said Craig Caffrey, principal analyst for the Asia-Pacific region.
“There is almost a window of opportunity where defence industries in emerging markets are not able to fill the requirements that their militaries have,” said Mr Caffrey. “From the UK defence industry perspective, there are only positives. They will be able to command as much from the UK but there will be larger markets out there and the UK has quite a close relationship with India.”
India this year surpassed Russia and Saudi Arabia to become the fourth biggest defence budget, spending $50.7bn against Russia’s $48.5bn and the UK’s $53.8bn. After three years of budgetary constraints, Jane’s is forecasting that Indian spending will surpass Britain’s, rising from $38bn in 2010 to a forecast $64bn in 2020, against expectations of $55bn for the UK.

Chinese budget 

● $123bn China’s defence spending in 2010
● $233bn China’s defence spending (projected) in 2020
Source: Jane’s

Meanwhile, China’s defence spending continues to accelerate and the Jane’s analysts predict the shift from territorial protection to power projection, along with rising tensions around the South China Sea, could prompt faster budget growth in the Asia-Pacific region. Between 2011 and 2015, states surrounding the South China Sea spent $166bn on defence equipment. Between 2016 and 2020, that will rise to $250bn, the review states.
China’s defence budget will have doubled within 10 years from $123bn in 2010 to $233bn in 2020, the report predicts. In 2016, China spent $191.7bn. By 2020, China will be spending more than the whole of western Europe and by 2025, more than all states in the Asia-Pacific region combined.

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