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 Unsurprisingly, the United States remains far and
in 2017 after a leveling-off period the previous away the world’s largest spender on defense, as its
two years. Worldwide defense spending grew by investment represented 42 percent of the global
3.3 percent year-on-year from 2016 as economic total for 2017. China followed at 10 percent of all
turnarounds, regional tensions and geographic world expenditure, a growing figure indicative of the
flashpoints sparked renewed prioritization in nation’s economic might and national ambitions.
military funding. This followed a year in which
such investment dropped marginally by less than Well behind the two largest defense investor nations
1  percent after previously dropping by nearly are Saudi Arabia, Russia, Japan, the United Kingdom
5.5 percent in 2015. and India. Each of these nations is undergoing its
own capitalization effort involving major defense
The reversal underway is attributable to a variety projects ranging from advanced combat aircraft to
of factors, including a buoyant global economy, aircraft carriers, submarines and naval destroyers.
NATO reaction to Russian activity along Europe’s
periphery, ongoing pacification operations and Saudi Arabia’s continuing intervention against
low-intensity conflicts in Afghanistan and Africa, Ansar Allah (Houthi) rebels in neighboring Yemen
lingering territorial disputes and instability across serves as a mere backdrop for what has been a
the globe, and China’s military modernization.

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decades-long weapons buying spree financed by and North Atlantic rim have amplified concerns
petro-dollars. Its proxy war with Iran serves to fuel across European capitals, triggering revisitation
anxieties across the Middle East, where four of the of long-delayed modernization efforts in Central
world’s 20 biggest defense spenders – including and Eastern European nations formerly held under
the UAE and Israel in addition to Saudi Arabia and Moscow’s orbit during the communist era of the
Iran – propel the regional level of military-related Cold War. The largest year-on-year budgetary
investment to 9 percent of the global total. increases in Europe stem from nations such as the
Czech Republic, Latvia, Lithuania, Hungary and
Another area of significant defense investment Romania prioritizing defense investment following
outside North America is Asia, where China’s years of neglect compounded by the global
maritime assertiveness and quest to break out of its economic downturn of 2009.
geographic constraints have propelled the regional
level of expenditure to just under a quarter of all Yet despite the fears of NATO European nations
worldwide spending. Border tensions with India perched along or near Russian territory or areas
along the Doklam Plateau near Bhutan garnered involving Russian military drills and deployments,
the most international attention in 2017, but the Moscow’s level of investment in its own military
continued fortification of outposts in the strategic modernization is expected to hold steady rather
South China Sea has – along with the North Korean than expand over the coming years.
nuclear crisis – served as the major source of
anxiety for officials in Washington and the countries Turning the page toward 2018 and beyond, Forecast
of the region. International expects the current defense spending
growth trends to continue over the next five
Persistent tensions between Russia and NATO years, with a compound annual growth average of
member states along the Alliance’s Eastern Europe 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- to 2017. Both of these countries increased their
on-year increase in spending of about 4.3 percent, respective defense budgets by around a quarter. In
outpacing the global average. Of these 20 countries, the case of Brazil, this large growth in allocations
only 11 experienced growth in the dollar value of came despite efforts to reduce overall national
their budgets in 2017, while eight saw decreases expenditures. India, Australia, Germany, and South
and one experienced roughly no change. Among Korea all saw sizable growth in spending. The dollar
the 11 that saw spending increases, the average value of Russia’s defense budget increased in 2017
increase was nearly 10 percent, though this figure from the previous year – a result stemming not
is skewed by two countries – Brazil and Iran – which from additional budget allocations but rather from
experienced growth of over 20 percent. Excluding an improving exchange rate; in rubles, the Russian
those two countries, the average increase among budget decreased from 2016 to 2017.
growth markets is about 6.2 percent. In regard to
the eight countries with spending decreases from Saudi Arabia saw the largest decrease in defense
2016 to 2017, the average rate of decline was spending from 2016 to 2017, with its budget falling
4.2 percent. by over 10 percent. Alongside Saudi Arabia, the
United Kingdom experienced a contraction in its
As indicated above, Brazil and Iran saw the largest defense budget in 2017, of about 7 percent.
percent increases in defense spending from 2016

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Regional Breakout

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Africa
The African military market will continue to be As other African nations confront the reality that
dominated by a few key states over the coming their existing military forces are inadequate to
years, the majority of which are large energy defend against emerging threats, the trend of
exporters. Though the collapse in energy prices recapitalizing military programs will grow, thus
has hurt the purchasing power of many African increasing the size of the region’s military market
countries, local states are finding ways to adapt value. However, just as the region’s political,
to the economic environment without sacrificing economic, and security dynamics differ by country,
too much in terms of procurement. Notably, as so too will the arms procurement focus. Particularly
foreign products have become more expensive due with the growing focus on armed non-state actors,
to depreciation in local currencies, emphasis on states are beginning to invest more heavily in
local defense industry solutions has grown. While counterinsurgency platforms that will allow them
African military industries are, on the whole, still to react more quickly and effectively to attacks by
developing, countries are finding ways to leverage militant groups. The desired counterinsurgency
their industries to suit their specific needs. platforms can vary widely, even within a given
country. In the case of Nigeria, the country faces
As the economic, political, and security dynamic distinctly different militant threats in the northeast
of Africa continues to evolve, so too will the (where Boko Haram has a presence) and in the Niger
region’s military requirements. Algeria, Morocco, Delta (where various militant organizations have
and South Africa – nations with economic means sprung up to target the nation’s oil infrastructure),
and relative political stability – are meeting their thus necessitating different equipment and
emerging military requirements through major strategies.
recapitalization programs focused on procuring
aircraft, ships, missiles, and vehicles.

Asia/Pacific Rim
For the foreseeable future, the Asia-Pacific region and trade ties with Beijing. However, China’s
will remain the major hub in the global defense burgeoning maritime claims are now brushing up
chain. While the U.S. is the dominant global military against others’ exclusive economic zones (EEZs)
power and defense investor, its primary focus under Beijing’s so-called Nine Dash Line historical
continues to tilt toward East Asia, thus signaling the claim to most of the South China Sea, creating
strategic value of the theater. nervousness and tension in nations wary of the
militarization of one of the world’s most crucial
China’s ongoing military buildup and advancements shipping chokepoints.
coupled with its aggressive stance toward its
territorial claims leaves the rest of the region either As a result, countries as strategically de-linked as
fearful of Beijing’s ire or cozying up as a means of Japan and Vietnam are focusing on increasing and
extracting economic and security support. Most improving their air-sea military capabilities in the
nations in the region wish to avoid confrontation of face of what they perceive to be a Chinese threat to
any kind and prefer to maintain healthy diplomatic their own respective EEZ and territorial claims.

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With potential flashpoints in the Asia-Pacific ranging missile tests by North Korea and China’s ongoing
from India’s Line of Actual Control with China to island-building and militarization of the South China
its dispute with Pakistan over Kashmir, to Japan’s Sea.
ongoing island disputes with China and South Korea,
and finally to the unpredictable behavior of North In light of the plethora of potential hotspots across
Korea’s Kim Jong-un, the region may well appear to the region, many governments continue to focus on
an outsider to be a tinderbox awaiting a match. Yet the modernization of their respective militaries.
the status quo continues to hold despite continuing

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 Moscow’s actions as a near and direct threat, others
between 2014 and 2015 as the euro slid in value view them as a nuisance or a distant and likely
against the U.S. dollar and local governments took asymmetrical conflict that does not require near-
initial baby steps to address military deficiencies term conventional military buildup.
created by decades of budgetary cuts and force
reductions. Now, following over 20 years of a steady Despite revisiting the practice of conscription in
decline in military investment and the pruning of Sweden and plans in Poland to create a 53,000
armies of manpower and capabilities, there is some strong Territorial Defense Force and in Germany
firm movement in the opposite direction – at least to add more personnel, large standing armies
where the nations of Central and Eastern Europe reminiscent of the Cold War era are unlikely
are concerned. to reappear. But Europe nonetheless requires
greater capacity in multiple areas ranging from
The larger issue, however, is that the major tooth-to-tail personnel (warfighters to supply and
defense nations in Europe (other than Germany communications support units) to ground-based
and Poland) have experienced relatively flat real- air defense, main battle tanks, and strategic and
term growth, while the smaller, poorer countries to tactical airlift and surveillance, as well as improved
the east are starting from very low funding bases. electronic warfare and precision strike capabilities.
Thus, taken together the European market – while
improving – remains sluggish. Most countries Most importantly for Europe and the seriousness
are only now beginning to return to their topline underlying its renewed focus on defense is whether
nominal budgetary levels of 2008-09. This stands defense budgets continue to rise or if they shrink
in contrast to some of the alarmism over Russia the next time an economic tremor disrupts the
in certain quarters of NATO and the European landscape.
Union, indicating that while some may view

Latin America
From a global perspective, Latin America does not for their militaries. Latin American economies rely
spend a lot of money on defense. North America, heavily on commodity exports, meaning that swings
Europe, Asia, and the Middle East all outspend in commodity prices greatly affect economies in the
the region. Economic problems brought about by region, and therefore government revenue. With
declining commodity prices caused defense budgets China’s economy slowing down, Latin American
to slip even further between 2014 and 2016. Within countries have been dealing with low prices since
Latin America, Brazil has the largest defense budget, 2014, which has hurt their defense spending.
typically accounting for about half of all defense
spending in the region. Other major spenders Another factor reducing the demand for military
include Colombia, Mexico, Argentina, Cuba, Chile, equipment is the low level of military and diplomatic
and Peru. threats in the region. Latin American countries are
largely at peace with each other. There are a few
The primary obstacle to defense spending in most border disputes that surface from time to time, but
Latin American countries continues to be a cycle of not since a 1995 border war between Ecuador and
economic advances and declines, making it hard for Peru have these disputes created armed conflict.
governments to provide a steady flow of funding

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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
The greatest threat to most Latin American equipment.
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 solution to the civil war remains difficult for all
and the immense volume of trade flows, the Middle parties to achieve. The conflict in Yemen remains
East will remain one of the pre-eminent military a stalemate but a political solution has not been
markets in the world moving forward. Most of the forthcoming. The fundamental divide between the
region’s countries are engaged in armed conflict, two primary camps, pro-government forces and
either within their territory against non-state actors rebel forces, and the relative dysfunction of much
or in another state’s territory. Terrorist groups of Yemen’s institutions ensure that the country will
threaten security forces and civilian populations. In remain unstable. Iraqi troops have retaken most of
the southern portion of the Red Sea, coastal anti- the country, but the potential for a residual Islamic
shipping missiles in the hands of Ansar Allah have State insurgency exists.
raised concerns about the safe transit of commercial
vessels through this area (though to date, only The complicated security environment will prompt
military vessels have been targeted by the missiles), militaries to continually improve their inventories
which is an important shipping lane. through the acquisition of new systems and the
modernization of current systems. Most of the top
Crucially, many of the conflicts in the region are spenders in the region – especially in the Gulf – will
not expected to be resolved quickly. Though the seek joint ventures or technology transfers but will
Syrian conflict has been de-escalated, a durable not be able to fulfill all of their requirements locally,

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meaning that arms imports will remain an important that include air defense, military transportation, sea
feature of the Middle East military market. Despite lane protection, the confrontation of asymmetric
an interest in developing local industries, the region adversaries, and conventional warfare against a
as a whole has insufficient industry to meet all of heavily armed peer.
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 As it transitions away from the protracted ground
defense market consists of only two countries: the wars in Iraq and Afghanistan, the U.S. has set its
United States and Canada. The U.S. is the single sights back on preparing for potential conflicts with
largest defense market in the world, accounting for advanced militaries. China’s military expansion
around 42 percent of global defense spending in and an emboldened Russia have heightened
2017. The Department of Defense budget peaked concerns about the threats faced in non-permissive
at $691 billion in 2010, thanks largely to spending environments, ranging from advanced air defenses
on military operations in Iraq and Afghanistan. to long-range anti-ship missiles and new advanced
Topline spending subsequently declined as the pace ground combat vehicles, as well as overarching
of military operations slowed and the Pentagon’s cyber threats. Ballistic missile tests in North
base budget remained flat. 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: [email protected]

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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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