Forecast International: Middle East Remains Oasis of Opportunity for Defense Suppliers

Newton, Connecticut, UNITED STATES


NEWTOWN, Conn., Feb. 11, 2013 (GLOBE NEWSWIRE) -- While political storms of protest and change continue to rage throughout the Middle East, one aspect of the region remains steady amidst the choppy waters: military spending. Against the backdrop of a flattening global market, the Middle East stands out as an area of opportunity for global defense suppliers. For weapons-exporting nations, the market is a crucial buttress protecting their domestic defense industries from diminishing home orders, according to Forecast International.

A look at the region's defense spending over the past two five-year periods serves as a testament to the Middle East's persistent growth. According to Forecast International figures, from 2004 through 2008, combined military expenditures for the region grew by 37 percent, from $61 billion to $98 billion. From 2008 through 2012, the same expenditures rose by 24 percent up to $129 billion.

In its latest analysis of the Middle East military market, FI projects a rise of nearly 14 percent across the coming five years, largely spearheaded by four countries: Saudi Arabia, Israel, Iraq and the United Arab Emirates. These four nations will combine to make up over two-thirds of all regional spending by 2017, according to FI's Middle East Military Market analyst, Dan Darling.

"In large part, the Middle East military market can be broken down by strategic alignment. Those countries aligned with U.S. and European interests are generally atop the defense acquisition food-chain," Darling says. "Those shut off from U.S. or European suppliers, such as Iran and Syria, face a much more restrictive menu from which to choose."

"Another layer of the market pertains to countries that suffer from internal fissures or civil conflict, as in the cases of Lebanon and Yemen," says Darling. "Because of the intrinsic combustibility of these countries, weapons sales to these nations remain limited, with most hardware transfers coming in the form of donated redundant material."

Naturally, much depends on the scale and ambitions of the prospective buyer nation. Financial resources and U.S. military financing assistance often prove to be decisive factors. For instance, the U.S. provides Israel with $3.1 billion in annual financing – all gratis – in order to help fund major Israeli defense acquisitions. Iraq, too, has been the beneficiary of U.S. largesse, receiving some $21 billion in appropriations since 2005, earmarked for the rebuilding and modernization of the Iraqi Security Forces.

In regard to the Saudi and UAE markets, the common denominator is access to a broad array of military platforms underpinned by large reserves of petro-dollars. Both Saudi Arabia and the UAE seek to build advanced, integrated air-defense networks capable of protecting strategic infrastructure from potential missile attacks by Iran, while also ensuring air superiority and maritime protection in the event of an outbreak of hostilities. Internal security concerns will propel future purchases of unmanned surveillance and reconnaissance drones and other electronics intelligence-gathering systems.

Neither Saudi Arabia nor the UAE is restricted in terms of suppliers, meaning they may opt to purchase items from a variety of source countries. The result is an armed force outfitted with eclectic mixes of hardware provided primarily by the U.S. and U.K., but also a variety of other suppliers. This willingness to select from a broad range of options heightens the opportunistic environment both represent to aspiring major exporters such as Turkey, Singapore and South Korea.

Iraq remains the country with the region's largest upside and growth potential as the government continues to hike its annual security investments. For 2012, the aggregated Iraqi defense and security figure approached $15 billion – a 17 percent rise from the previous year. The most ambitious project in the Defense Ministry portfolio involves the acquisition of F-16C/D Block 52 combat aircraft, for which 18 have been contracted and with a request for another batch of 18 outstanding. The country stands out as a potentially lucrative market for aviation companies, as the Iraqi Air Force hopes to have 500 fixed- and rotary-wing platforms under its fold by around 2020. Iraq also remains interested in purchases of armored vehicles, short- and long-range air-defense systems, and unmanned intelligence, surveillance, and reconnaissance (ISR) platforms.

The wild card in the region is Egypt.

Adherence to the 1979 peace accord with Israel and closer ties with Washington have made Egypt the beneficiary of $1.3 billion in annual U.S. military assistance. The country is designated a Major Non-NATO Ally, and military-to-military relations between the U.S. and Egypt have traditionally been solid, with the Egyptian armed forces annually gifted millions of dollars' worth of Excess Defense Articles (EDA) from U.S. military stocks and thousands of Egyptian officers receiving training in the U.S. under the International Military Education and Training (IMET) program.
 
"For all intents and purposes, Egypt remains a critical U.S. partner in the region," Darling says. "Recent events and the political drift of the country notwithstanding, this is unlikely to change unless the government abrogates the peace treaty with Israel or officially adopts hostile policies vis-à-vis the U.S. While there have been many worrying signs coming out of Egypt, Washington seems inclined to maintain a wary – but understanding – stance with the country, partly because the military still controls much of the power behind the curtain but also, and more importantly, due to its strategic importance in the Arab world."

Should a decisive split occur in U.S.-Egypt relations, Cairo would likely turn back to Nasser-era partner Russia as its preferred source of military hardware, with Turkey also looking to step into the void.

"With defense spending increasingly falling victim to a sluggish global economy, the competition for market share in the Middle East should further intensify," Darling notes. "Though the U.S., U.K., France and Russia remain the region's major suppliers, others are eager to garner their own slice of the market. Defense expenditures in the six Gulf Cooperation Council countries plus Jordan should account for nearly $80 billion next year alone. That presents an awfully tantalizing market opportunity for weapons producers whose home markets are drying up."
 
Forecast International, Inc. (www.forecastinternational.com) is a leading provider of Market Intelligence and Analysis in the areas of aerospace, defense, power systems and military electronics.  Based in Newtown, Conn., USA, Forecast International specializes in long-range industry forecasts and market assessments used by strategic planners, marketing professionals, military organizations, and governments worldwide.  To arrange an interview with Forecast International's editors, please contact Ray Peterson, Vice President, Research & Editorial Services (203) 426-0800, ray.peterson@forecast1.com. Questions regarding sales may be directed to sales@forecast1.com.

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