10 percent decline in Gulf defence spending expected in 2021, says Janes
A challenging economic picture during 2020 and changing dynamics in procurement processes, timelines and requirements may alter the longer-term growth of defence budgets in the region.
ABU DHABI – The latest analysis from Janes highlights that defence spending in Gulf Co-operation Council (GCC) countries is to decline by 9.4% in 2021, as countries in the region face pressure due to the impact of Covid-19 and low oil prices. However, the trusted global agency for open-source defence intelligence expects a swift rebound in coming years.
Janes data shows that defence expenditure for the GCC states rose by 5.4% in 2020, from USD94.9 billion in 2019 to USD100 billion in 2020. However, in 2021 this figure is expected to drop to USD90.6 billion before falling to USD89.4 billion in 2022. A return to growth should mean that spending will return to pre-pandemic levels by 2024. Janes also expects procurement expenditure to decline slightly to USD13.25 billion in 2021, following a 4.5% surge in 2020.
“The significant drop in oil prices during 2020, coupled with a corresponding decline in demand from the manufacturing and transportation sectors, resulted in increased pressure on government budgets. Revenues from oil and gas declined, while non-oil revenues from industries such as travel, finance, and tourism were also impacted as lockdowns kicked in globally,” said Charles Forrester, Lead Analyst at Janes. “Previous collapses of oil prices in 2014 and 2016 were met with stronger financial reserves and ongoing security threats in Iraq, Syria, the Gulf and Yemen meaning that governments were able to ring-fence defence expenditure from any significant cuts at the time.”
Janes analysis highlights that defence may not be as protected as before, particularly as some countries in the GCC region were already facing fiscal deficits at the start of 2020.
“Overall, defence spending is expected to rebound in the near-term as government revenues also increase due to improvements in regional economies. According to Janes analysis, defence budgets will return to pre-pandemic levels by 2024, with procurement expenditure expected to reach 2019 levels by 2022,” Forrester said.
“The long-term procurement budget forecast will be shaped by the cyclical nature of some countries’ defence procurements coming to an end. Qatar, for example, has undertaken a significant build-up of new capabilities ahead of the 2022 FIFA World Cup, with deliveries being completed around this time. Other countries have capability requirements that have been long-delayed, and it may only be once the economic recovery is underway that these are signed off.”
Changing regional dynamics
Janes anticipates that localisation in key markets such as Saudi Arabia and the UAE will result in near-term changes to the region’s defence equipment procurements.
“Saudi Arabia and the UAE have both clearly identified localisation of defence equipment production and development in their offset and procurement regulations. Building capacity in-country helps to reduce the costs for through-life support of more complex systems, and also reduces the downtime for more advanced maintenance operations if there is a support infrastructure in place,” said Forrester. “Both countries are also working to leverage new technologies in the defence sector– in order to build out their own conventional deterrence capabilities and to reduce the reliance on foreign suppliers. Such technologies include unmanned systems ranging from unmanned aerial vehicles (UAVs) to unmanned surface vessels (USVs) that can patrol maritime domains and improve situational awareness and security.”
Abraham Accords to help drive new capability development
The Abraham Accords are also expected to open the possibilities of sales of new and advanced equipment to its signatories, helping to increase competition in the Gulf equipment marketplace with technology that is compatible with previously acquired Western systems.
“Israeli capabilities in a variety of key advanced technological areas, such as UAVs, air defence, and cybersecurity, are all key areas of interest for the Gulf’s militaries. Financial and technical collaboration in areas such as AI, big data analytics, and cybersecurity will help to both enable and enhance capabilities, but also address mutual threats through complementary development.” Forrester said.
The acquisition of the Lockheed Martin F-35A Lightning II Joint Strike Fighter by the UAE following the signing of the Abraham Accords will also help to link the US, Israeli, and Emirati defence industries together.
“Bringing a new user into the F-35 family will allow for the wider technological development base to create new solutions that build on a new member’s doctrine, experience, and capabilities. Operating in a complex environment such as the Gulf brings its own challenges with civil-military air and electro-magnetic spectrum deconfliction that will support new capability development and deployment,” according to Forrester.
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