Thursday, 7 July 2011

French Defense Industry Forecasts to 2015

During the review period, French defense expenditure grew at a CAGR of nearly 3.3% and stood at nearly US$70 billion. This growth was driven by the threat of terrorism, membership in UN peacekeeping missions and military modernization. Despite planned budget reductions from 2010–13, French defense expenditure is expected to grow from 2013–15 at a CAGR of approximately 1.5%, and reach a value of just over US$60 billion by 2015.

London – 07 July 2011 - From 2010–15, the French defense industry is set to increase its expenditure due to the threat from terrorism, planned modernization and its continued UN peacekeeping missions. Within the defense budget, army, air force and navel expenditure are all expected to increase in line with planned modernization. French defense imports are predicted to decrease due to planned defense budget reductions but exports will increase, driven by demand from South East Asian nations.

French defense expenditure to grow in the forecast period
Capital expenditure within the French defense budget increased to just over 40% in 2009 and is expected to remain stable from 2010–15, driven by healthcare expenditure and infrastructure facilities. In addition to this, French homeland security expenditure is also expected to increase in the forecast period as a result of the increased threat from terrorism and the resulting expenditure on security systems and surveillance. As a result, homeland security expenditure is expected to increase at a CAGR of just over 3% from 2010–15.

Terrorism, modernization and peacekeeping initiatives to aid growth
As an ally of the US, France perceives that its risk of attack by Islamic terrorists is high, particularly as there have been attacks on US embassies in France in the past. In 2005, al-Qaeda declared France an enemy to Islam, and in 2010 France’s decision to ban the Islamic veil in public further agitated the threat from Islamic terrorists. This has led to France increasing its defense expenditure on anti-terrorism measures.

The French Ministry of Defense is in the process of modernizing its armed forces and recently released a white paper outlining its modernization strategy from 2009–14. This white paper stated that approximately US$520 billion would be allocated to defense from 2009–20 to aid modernization through technology upgrades and better equipment.

In addition to these factors, France is also an active participant in UN peacekeeping missions. In 2010 France was the 17th largest contributor to the UN international peacekeeping fund, and among permanent Security Council members, France was the second largest contributor in terms of personnel. As France is expected to continue its peacekeeping efforts in the forecast period, this will aid further defense industry expenditure.

Army, air force and navel expenditure to grow
In the forecast period, army expenditure as a percentage of the total defense budget is expected to remain at just over 20%, as the French Ministry of Defense continues to invest in arms, artillery and land combat systems. In the forecast period, army expenditure is expected to increase at a CAGR of approximately 2.5% and reach a value of nearly US$9.5 billion.

It is predicted that air force expenditure will increase from 2010–15 at a CAGR of nearly 2%, and that it will remain at a stable 12% of France’s total defense budget. France is expected to invest in advanced fighter aircraft and the upgrade of its current fleet and this will bring its air force expenditure to just over US$5 billion.

In the review period, naval expenditure accounted for about 12% of France’s total defense budget, and this is expected to decline marginally in the forecast period. Despite this slight decline, French expenditure on naval equipment, such as frigates, amphibious ships, and submarines, is expected to increase at a CAGR of approximately 2.3% and reach nearly US$5 billion by 2015.

Imports to reduce and exports to increase
Of total defense procurements, France imports 30%, primarily from Germany, Italy and the Netherlands. However, due to predicted cuts in the French defense budget, imports of defense equipment and systems are expected to decrease in the forecast period.
France is the fourth largest exporter of arms in the world due to its advanced technical capabilities. As nations such as South Korea and Singapore continue to experience strong economic growth and demand defense equipment, France’s arms exports will remain strong, with ships, aircrafts and missiles the most exported defense equipment.

Domestic defense industry is protected from foreign companies
France follows a restrictive policy on FDI which requires government approval before a foreign company can invest in the French defense industry. This measure, coupled with the government’s preference for domestically produced defense equipment, provides protection for domestic defense companies.

However, the government’s preference for domestically produced defense equipment may be problematic for the French defense industry. With planned reductions to the defense budget in France in the forecast period, the French government will spend less on defense equipment and will therefore reduce consumption of its own country’s products. Companies within the defense industry will therefore be forced to look to international markets and buyers to sell their defense products.

To purchase the full version of the "French Defense Industry Forecasts to 2015" report, please click here.

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