Monday, 6 February 2012

The Indonesian Defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2016

London, February 06, 2012 – During the review period, Indonesia has allocated insufficient funds to defense. In 2005, defense expenditure was allocated 0.82% of the Indonesian GDP. In 2010, this figure declined to 0.79%, as a consequence of financial constraint and governmental focus on welfare areas, such as education. However, over the forecast period, the government has committed to significantly increasing the defense budget, which could rise to 1.01% of GDP allocated for defense in 2016. Defense expenditure is expected to experience an overall annual growth of 13.15%, due to the Indonesian economy recording a CAGR of 8.3% over the forecast period (reference figure 13 below).

The Indonesian defense market is expected to grow at a CAGR of 13.15% during the forecast period, making it one of the fastest-growing defense markets in the world. The primary stimulator of defense expenditure is the government military modernization program, which was undertaken to compensate for the severe military underfunding during the review period. It is currently estimated that the defense budget is capable of satisfying only 52% of the country’s required military defense expenditure.

Indonesia is frequently affected by natural disasters, in which the army is usually deployed to assist search and rescue operations. In preparation for future natural disasters, government expenditure is expected to increase to purchase transport vehicles and systems which can function in both humanitarian missions and military operations.

In 2011, capital expenditure was allocated 35% of the overall defense budget, while revenue expenditure was allocated 65%. However, due to the government plans to modernize the military through the acquisition of the latest weaponry, capital expenditure is expected to increase and average 40% of the total defense budget, with the remainder allocated for revenue expenditure.

During the review period, the country’s arms exports have registered a decline and the only category to register notable export activity is that of aircraft parts. Indonesia prefers to procure arms from domestic companies, however it relies on imports for technologically advanced weapons which domestic companies are unable to supply. The amount of defense imports has increased during the review period.

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