2017 GLOBAL DEFENSE SPENDING SNAPSHOT

January 2018
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Contents
Global Defense Spending......................................................................................................................3

Top 20 Defense Spending Nations.........................................................................................................5

Regional Breakout..................................................................................................................................7

Africa......................................................................................................................................................8

Asia/Pacific Rim.....................................................................................................................................8

Eurasia...................................................................................................................................................9

Europe..................................................................................................................................................10

Latin America.......................................................................................................................................10

Middle East.......................................................................................................................................... 11

North America......................................................................................................................................12

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Global Defense Spending
Global defense investment underwent a rebound
in 2017 after a leveling-off period the previous
two years. Worldwide defense spending grew by
3.3 percent year-on-year from 2016 as economic
turnarounds, regional tensions and geographic
flashpoints sparked renewed prioritization in
military funding. This followed a year in which
such investment dropped marginally by less than
1  percent after previously dropping by nearly
5.5 percent in 2015.
The reversal underway is attributable to a variety
of factors, including a buoyant global economy,
NATO reaction to Russian activity along Europe’s
periphery, ongoing pacification operations and
low-intensity conflicts in Afghanistan and Africa,
lingering territorial disputes and instability across
the globe, and China’s military modernization.
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Unsurprisingly, the United States remains far and
away the world’s largest spender on defense, as its
investment represented 42 percent of the global
total for 2017. China followed at 10 percent of all
world expenditure, a growing figure indicative of the
nation’s economic might and national ambitions.
Well behind the two largest defense investor nations
are Saudi Arabia, Russia, Japan, the United Kingdom
and India. Each of these nations is undergoing its
own capitalization effort involving major defense
projects ranging from advanced combat aircraft to
aircraft carriers, submarines and naval destroyers.
Saudi Arabia’s continuing intervention against
Ansar Allah (Houthi) rebels in neighboring Yemen
serves as a mere backdrop for what has been a

decades-long weapons buying spree financed by
petro-dollars. Its proxy war with Iran serves to fuel
anxieties across the Middle East, where four of the
world’s 20 biggest defense spenders – including
the UAE and Israel in addition to Saudi Arabia and
Iran – propel the regional level of military-related
investment to 9 percent of the global total.
Another area of significant defense investment
outside North America is Asia, where China’s
maritime assertiveness and quest to break out of its
geographic constraints have propelled the regional
level of expenditure to just under a quarter of all
worldwide spending. Border tensions with India
along the Doklam Plateau near Bhutan garnered
the most international attention in 2017, but the
continued fortification of outposts in the strategic
South China Sea has – along with the North Korean
nuclear crisis – served as the major source of
anxiety for officials in Washington and the countries
of the region.
Persistent tensions between Russia and NATO
member states along the Alliance’s Eastern Europe
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and North Atlantic rim have amplified concerns
across European capitals, triggering revisitation
of long-delayed modernization efforts in Central
and Eastern European nations formerly held under
Moscow’s orbit during the communist era of the
Cold War. The largest year-on-year budgetary
increases in Europe stem from nations such as the
Czech Republic, Latvia, Lithuania, Hungary and
Romania prioritizing defense investment following
years of neglect compounded by the global
economic downturn of 2009.
Yet despite the fears of NATO European nations
perched along or near Russian territory or areas
involving Russian military drills and deployments,
Moscow’s level of investment in its own military
modernization is expected to hold steady rather
than expand over the coming years.
Turning the page toward 2018 and beyond, Forecast
International expects the current defense spending
growth trends to continue over the next five
years, with a compound annual growth average of
3.43 percent through 2022.
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Top 20 Defense Spending Nations

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From 2016 to 2017, the top 20 spenders saw a year-
on-year increase in spending of about 4.3 percent,
outpacing the global average. Of these 20 countries,
only 11 experienced growth in the dollar value of
their budgets in 2017, while eight saw decreases
and one experienced roughly no change. Among
the 11 that saw spending increases, the average
increase was nearly 10 percent, though this figure
is skewed by two countries – Brazil and Iran – which
experienced growth of over 20 percent. Excluding
those two countries, the average increase among
growth markets is about 6.2 percent. In regard to
the eight countries with spending decreases from
2016 to 2017, the average rate of decline was
4.2 percent.
As indicated above, Brazil and Iran saw the largest
percent increases in defense spending from 2016
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INTERNATIONAL MILITARY MARKETS
to 2017. Both of these countries increased their
respective defense budgets by around a quarter. In
the case of Brazil, this large growth in allocations
came despite efforts to reduce overall national
expenditures. India, Australia, Germany, and South
Korea all saw sizable growth in spending. The dollar
value of Russia’s defense budget increased in 2017
from the previous year – a result stemming not
from additional budget allocations but rather from
an improving exchange rate; in rubles, the Russian
budget decreased from 2016 to 2017.
Saudi Arabia saw the largest decrease in defense
spending from 2016 to 2017, with its budget falling
by over 10 percent. Alongside Saudi Arabia, the
United Kingdom experienced a contraction in its
defense budget in 2017, of about 7 percent.
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Regional Breakout

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Africa
The African military market will continue to be
dominated by a few key states over the coming
years, the majority of which are large energy
exporters. Though the collapse in energy prices
has hurt the purchasing power of many African
countries, local states are finding ways to adapt
to the economic environment without sacrificing
too much in terms of procurement. Notably, as
foreign products have become more expensive due
to depreciation in local currencies, emphasis on
local defense industry solutions has grown. While
African military industries are, on the whole, still
developing, countries are finding ways to leverage
their industries to suit their specific needs.
As the economic, political, and security dynamic
of Africa continues to evolve, so too will the
region’s military requirements. Algeria, Morocco,
and South Africa – nations with economic means
and relative political stability – are meeting their
emerging military requirements through major
recapitalization programs focused on procuring
aircraft, ships, missiles, and vehicles.
Asia/Pacific Rim
For the foreseeable future, the Asia-Pacific region
will remain the major hub in the global defense
chain. While the U.S. is the dominant global military
power and defense investor, its primary focus
continues to tilt toward East Asia, thus signaling the
strategic value of the theater.
China’s ongoing military buildup and advancements
coupled with its aggressive stance toward its
territorial claims leaves the rest of the region either
fearful of Beijing’s ire or cozying up as a means of
extracting economic and security support. Most
nations in the region wish to avoid confrontation of
any kind and prefer to maintain healthy diplomatic
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INTERNATIONAL MILITARY MARKETS
As other African nations confront the reality that
their existing military forces are inadequate to
defend against emerging threats, the trend of
recapitalizing military programs will grow, thus
increasing the size of the region’s military market
value. However, just as the region’s political,
economic, and security dynamics differ by country,
so too will the arms procurement focus. Particularly
with the growing focus on armed non-state actors,
states are beginning to invest more heavily in
counterinsurgency platforms that will allow them
to react more quickly and effectively to attacks by
militant groups. The desired counterinsurgency
platforms can vary widely, even within a given
country. In the case of Nigeria, the country faces
distinctly different militant threats in the northeast
(where Boko Haram has a presence) and in the Niger
Delta (where various militant organizations have
sprung up to target the nation’s oil infrastructure),
thus necessitating different equipment and
strategies.
and trade ties with Beijing. However, China’s
burgeoning maritime claims are now brushing up
against others’ exclusive economic zones (EEZs)
under Beijing’s so-called Nine Dash Line historical
claim to most of the South China Sea, creating
nervousness and tension in nations wary of the
militarization of one of the world’s most crucial
shipping chokepoints.
As a result, countries as strategically de-linked as
Japan and Vietnam are focusing on increasing and
improving their air-sea military capabilities in the
face of what they perceive to be a Chinese threat to
their own respective EEZ and territorial claims.
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With potential flashpoints in the Asia-Pacific ranging
from India’s Line of Actual Control with China to
its dispute with Pakistan over Kashmir, to Japan’s
ongoing island disputes with China and South Korea,
and finally to the unpredictable behavior of North
Korea’s Kim Jong-un, the region may well appear to
an outsider to be a tinderbox awaiting a match. Yet
the status quo continues to hold despite continuing
missile tests by North Korea and China’s ongoing
island-building and militarization of the South China
Sea.
In light of the plethora of potential hotspots across
the region, many governments continue to focus on
the modernization of their respective militaries.

Eurasia
Eurasia is emerging as a primary
region of geostrategic competition.
Likewise, with such a diverse group
of stakeholders – ranging from major
powers to separatist and religious
groups – having a vested interest in the
region, it is somewhat inevitable for the
region to experience continued conflict.
Whether these conflicts are “frozen”
or active, between states or with non-
state actors, conducted over energy or
stability, occurring in national capitals or
arid deserts, they will undoubtedly play
a decisive role in shaping the Eurasian
security environment for years to come.
As the Eurasian security environment
serves as the basis for defense spending
in the region, these same conflicts will The region has numerous security threats, but its
influence market conditions in terms of access and military spending is dominated by one country,
overall value. Russia, which accounts for over two-thirds of
expenditures and the overwhelming majority of its
For suppliers, the Eurasian military market remains military procurement. Major force recapitalization
somewhat elusive, however. A general lack of projects are rare except for the case of Russia, which
transparency in the region’s various defense sectors itself will present fewer opportunities for foreign
means that most procurement details are not made firms as the country seeks to reduce its military’s
public. Government procurement strategies are reliance on imported systems and components.
thus opaque and military needs may not always
be directly referenced. True spending on defense
is also never entirely clear, as some countries will
report only part of their budgets, if they provide any
figures at all.

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Europe
The European defense market bottomed out
between 2014 and 2015 as the euro slid in value
against the U.S. dollar and local governments took
initial baby steps to address military deficiencies
created by decades of budgetary cuts and force
reductions. Now, following over 20 years of a steady
decline in military investment and the pruning of
armies of manpower and capabilities, there is some
firm movement in the opposite direction – at least
where the nations of Central and Eastern Europe
are concerned.
The larger issue, however, is that the major
defense nations in Europe (other than Germany
and Poland) have experienced relatively flat real-
term growth, while the smaller, poorer countries to
the east are starting from very low funding bases.
Thus, taken together the European market – while
improving – remains sluggish. Most countries
are only now beginning to return to their topline
nominal budgetary levels of 2008-09. This stands
in contrast to some of the alarmism over Russia
in certain quarters of NATO and the European
Union, indicating that while some may view
Latin America
From a global perspective, Latin America does not
spend a lot of money on defense. North America,
Europe, Asia, and the Middle East all outspend
the region. Economic problems brought about by
declining commodity prices caused defense budgets
to slip even further between 2014 and 2016. Within
Latin America, Brazil has the largest defense budget,
typically accounting for about half of all defense
spending in the region. Other major spenders
include Colombia, Mexico, Argentina, Cuba, Chile,
and Peru.
The primary obstacle to defense spending in most
Latin American countries continues to be a cycle of
economic advances and declines, making it hard for
governments to provide a steady flow of funding
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INTERNATIONAL MILITARY MARKETS
Moscow’s actions as a near and direct threat, others
view them as a nuisance or a distant and likely
asymmetrical conflict that does not require near-
term conventional military buildup.
Despite revisiting the practice of conscription in
Sweden and plans in Poland to create a 53,000
strong Territorial Defense Force and in Germany
to add more personnel, large standing armies
reminiscent of the Cold War era are unlikely
to reappear. But Europe nonetheless requires
greater capacity in multiple areas ranging from
tooth-to-tail personnel (warfighters to supply and
communications support units) to ground-based
air defense, main battle tanks, and strategic and
tactical airlift and surveillance, as well as improved
electronic warfare and precision strike capabilities.
Most importantly for Europe and the seriousness
underlying its renewed focus on defense is whether
defense budgets continue to rise or if they shrink
the next time an economic tremor disrupts the
landscape.
for their militaries. Latin American economies rely
heavily on commodity exports, meaning that swings
in commodity prices greatly affect economies in the
region, and therefore government revenue. With
China’s economy slowing down, Latin American
countries have been dealing with low prices since
2014, which has hurt their defense spending.
Another factor reducing the demand for military
equipment is the low level of military and diplomatic
threats in the region. Latin American countries are
largely at peace with each other. There are a few
border disputes that surface from time to time, but
not since a 1995 border war between Ecuador and
Peru have these disputes created armed conflict.

The greatest threat to most Latin American
governments comes from transnational criminal
groups. Even though economies decline and
military disputes are infrequent, threats from drug
traffickers, violent gangs, and insurgents are driving
Middle East
Given the range of security threats facing the region
and the immense volume of trade flows, the Middle
East will remain one of the pre-eminent military
markets in the world moving forward. Most of the
region’s countries are engaged in armed conflict,
either within their territory against non-state actors
or in another state’s territory. Terrorist groups
threaten security forces and civilian populations. In
the southern portion of the Red Sea, coastal anti-
shipping missiles in the hands of Ansar Allah have
raised concerns about the safe transit of commercial
vessels through this area (though to date, only
military vessels have been targeted by the missiles),
which is an important shipping lane.
Crucially, many of the conflicts in the region are
not expected to be resolved quickly. Though the
Syrian conflict has been de-escalated, a durable
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defense spending in the region. Countries such
as Colombia, Mexico, and Peru are spending
money to battle internal conflicts. These threats
are expected to continue for the next few years,
driving up defense spending.
Without major military conflicts, heavy expensive
weapons such as supersonic jet fighters, tanks,
and destroyers are not needed by Latin American
militaries. On the other hand, equipment that
excels in counterinsurgency and rapid reaction
environments will be purchased. Such equipment
includes small arms, helicopters, patrol boats,
armored vehicles, trucks, and communications
equipment.
solution to the civil war remains difficult for all
parties to achieve. The conflict in Yemen remains
a stalemate but a political solution has not been
forthcoming. The fundamental divide between the
two primary camps, pro-government forces and
rebel forces, and the relative dysfunction of much
of Yemen’s institutions ensure that the country will
remain unstable. Iraqi troops have retaken most of
the country, but the potential for a residual Islamic
State insurgency exists.
The complicated security environment will prompt
militaries to continually improve their inventories
through the acquisition of new systems and the
modernization of current systems. Most of the top
spenders in the region – especially in the Gulf – will
seek joint ventures or technology transfers but will
not be able to fulfill all of their requirements locally,

meaning that arms imports will remain an important
feature of the Middle East military market. Despite
an interest in developing local industries, the region
as a whole has insufficient industry to meet all of
its defense needs, particularly given the range of
systems that regional militaries need. The region’s
governments must plan for potential operations
North America
In the context of this report, the North American
defense market consists of only two countries: the
United States and Canada. The U.S. is the single
largest defense market in the world, accounting for
around 42 percent of global defense spending in
2017. The Department of Defense budget peaked
at $691 billion in 2010, thanks largely to spending
on military operations in Iraq and Afghanistan.
Topline spending subsequently declined as the pace
of military operations slowed and the Pentagon’s
base budget remained flat.
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that include air defense, military transportation, sea
lane protection, the confrontation of asymmetric
adversaries, and conventional warfare against a
heavily armed peer.
As it transitions away from the protracted ground
wars in Iraq and Afghanistan, the U.S. has set its
sights back on preparing for potential conflicts with
advanced militaries. China’s military expansion
and an emboldened Russia have heightened
concerns about the threats faced in non-permissive
environments, ranging from advanced air defenses
to long-range anti-ship missiles and new advanced
ground combat vehicles, as well as overarching
cyber threats. Ballistic missile tests in North
Korea have also put additional focus on homeland
defense.
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The new administration in Washington brought increase spending over the coming decade, but
with it a renewed desire to bolster defense it remains to be seen if that growth will come to
spending, and to fund the military’s lofty fruition. The additional funding would actually do
acquisition goals. However, U.S. defense spending little to increase the scope of Canadian military
is currently governed by the
Budget Control Act of 2011,
a piece of deficit reduction
legislation that placed limits
on discretionary government
spending through 2021. The
previous administration was
forced to scale back defense
budgets due to a divide in
Congress over how to address
the spending caps, and the
current White House now faces
the same challenge.

Canada’s defense budget,

meanwhile, has faced its own
struggles. For years, Canada’s
long-term plans for defense
spending growth have failed capabilities. Rather, the money largely addresses
to fully materialize due to a variety of factors, the fact that Canada’s existing acquisition plans will
most notably government deficits and prolonged be far more costly than the government previously
problems within the acquisition system. A 2017 disclosed.
defense policy review outlined a plan to significantly

This report was authored by the International Military Markets group:

Dan Darling: Asia, Australia & Pacific Rim; Europe

Derek Bisaccio: Middle East & Africa; Eurasia

Bill Ostrove: Latin America & Caribbean

Shaun McDougall: North America

For inquiries regarding this report, please contact Dan Darling: Daniel.Darling@forecast1.com

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Images
Page 9 – Russia’s Baltic Fleet conducts combat missile firing during ‘Zapad 2017’ military exercise. Source:
Russian Ministry of Defense

Page 11 – Recently Upgraded Ecuadorian AS332B Super Puma. Source: Flickr/Ecuadorian Ministry of Defense

Page 12 – Israeli F-35 arrives to Nevatim Air Base in December 2016. Source: Flickr/U.S. Department of Defense

Page 13 – A C-17 lands during a contested environment training exercise. Source: U.S. Air Force

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