END OF THE AFGHAN WAR AND SIGNIFICANCE OF EMERGING MARKETS
06 Jan 14. One of the most important changes to affect the defence industry in 2014 is the end of the ISAF deployment in Afghanistan.
In 2012 the NATO announced that it would withdraw most of their
100,000 troops from Afghanistan and turn the war over to the Afghan government by late 2014. All armed forces of the coalition countries have started preparations for complete withdrawal. Plans are still unclear regarding what the continuing “support mission” would involve and how many (if at all), troops would be retained in Afghanistan. Nonetheless, the majority of troops from all countries would return home in 2014 leading to a reduction in procurement budgets as well as potential force structure changes in many countries.
In the US, a plan to reduce the Army’s active end strength is being accelerated, with plans to drop from 532,530 to 490,000 moved up to 2015 instead of 2017. In addition, it is reducing active brigade combat teams from 45 to 33. Similarly, Australia is currently restructuring its Army to create three multi-role combat brigades and supporting elements. As budgets are diminishing in most westerns nations and the coalition troops withdraw from Afghanistan, defence producers are looking to increase their sales in emerging markets in Asia, South America and the Middle East. The upcoming Singapore Airshow, in February 2014, is a case in point because it will see “the largest US presence yet,” according to the organizer Experia events. More than 150 US companies, 70 of them in the U.S. pavilion, along with a large slate of U.S. government and private-sector visitors and VIP guests, are scheduled to appear at the show. In 2014, Leading defence primes will find themselves engaging in many tech transfer agreements, coproduction or other similar types of industrial ties with international companies. Most developing countries look for technology transfers and license production agreements in order to strengthen their domestic industry. In addition, many small and medium enterprises must be considered for the supply of spares, maintenance and other parts for major defence deals.
As many Western companies look for sales in the international market, they face a growing competition from suppliers from other parts of the world. The year 2013 had some examples of this trend with perhaps the most significant being Turkey’s decision to choose a Chinese weapon system for the much touted Air Defence system procurement programme. Although Turkey is a NATO member it announced in September that it had chosen a long-range air defence system, the FD-2000, from China – ruling out Raytheon’s Patriot system and offerings from Europe’s MBDA and Russia’s arms export agency Rosoboronexport. Until a few years ago, competition from China was considered only a minor threat to Western companies other than in a few niche markets like Pakistan. Defence Industrial capabilities of nations like Israel, South Korea and Brazil are increasingly becoming a threat to western defence companies in the international defence market. Many emerging defence markets which traditionally sourced weapons from the US or the west are now diversifying their sources. For example Philippines – which has for long been a destination for US weapons – is looking to finalise a contract with South Korea for procuring T-50 light attack aircraft from the Korean Aerospace Industries (KAI). Many countries have expressed increased ambition to export defence products ranging from ammunition, electronic systems to large weapon platforms. Following a decision to ease a long-standing ban on military hardware in 2011, Japan made many joint development agreements and export offers during the course of 2013. In November 2013, MPI reported that India and Japan were close to finalising an agreement for the procurement of 12 US-2i amphibious aircraft from Japan. In addition, Japan has alre