Strategic Defence Intelligence

Argentina Defence Spending Forecast to Grow by 15.87% to 2015

Argentina Defence Spending Forecast to Grow by 15.87% to 2015

Strategic Defence Intelligence

Argentina, similar to other Latin American countries, is increasing its defence budget at a robust pace according to a new report form Strategic Defence Intelligence.

The defence budget, which stood at $2.6bn in 2010, recorded a compound annual growth rate (CAGR) of 17.36% during the review period (2006-2010). The large growth in the defence budget was due to increased personnel salaries. The Argentine defence budget is expected to register a CAGR of 15.87% during the forecast period (2011-2015) to reach $5.5bn by 2015.

Defence expenditure is primarily driven by modernisation plans, participation in peacekeeping missions and a dispute with the UK regarding the sovereignty of the Falkland Islands. The Argentine government has announced plans to increase defence expenditure, which stood at 0.7% of GDP in 2010, to 1.5% of GDP over an unspecified period. It is estimated that by 2015 the defence budget will stand at 1.3% of GDP. Capital expenditure accounted for an average of 3.6% of the defence budget during the review period. However, modernisation plans will increase capital expenditure to an average of 6.2% of the defence budget during the forecast period.

The Argentine army receives the highest allocation of the total defence budget, an average of 40.5% over the review period, which is expected to increase to an average of 41.1% during the forecast period. The budget allocated to the air force is expected to marginally decline from an average of 25.3% of the total defence budget during the review period to an average of 24.1% during the forecast period. Allocation for naval forces is expected to increase from an average of 25.3% of the total defence budget during the review period to an average of 25.5% during the forecast period. The remaining budget is allocated to the Ministry of Defence and joint forces responsible for defence administration, planning, execution and development of the domestic defence industry.

The Argentine homeland security expenditure, which stood at $2.3bn in 2010, recorded a CAGR of 21.74% over the review period. The 2011 homeland security budget is estimated at $3.3bn, an annual increase of 45%, and is expected to grow at a CAGR of 2.78% during the forecast period to reach $3.7bn by 2015. The homeland security budget of Argentina is mainly driven by social unrest fuelled by rising poverty, illegal immigration and rising organised crime.

Argentina is expected to procure patrol vessels, nuclear submarines, transport ships, multi-purpose vehicles, helicopters, communication systems and fighter aircraft during the forecast period.

Argentine defence imports peaked in 2007 but declined in subsequent years due to economic constraints forcing the government to postpone defence modernisation plans. During the forecast period the imports are expected to increase with the resumption of modernisation plans. The US accounts for the majority of imports, with other countries such as Spain, Brazil and Austria exporting equipment to the Argentine armed forces. During the forecast period, the US is expected to continue to dominate the Argentine defence market. Russia is expected to enter the market through the supply of transport helicopters. Aircraft and sensors were the largest import categories during 2006-2009. During the forecast period, aircraft are expected to constitute the majority of imports, including the import of transport helicopters from Russia, the planned purchase of training helicopters from BELL, transport aircraft and fighter aircraft. The domestic defence industry possesses limited capabilities resulting in negligible exports.

Argentina mandates 100% offsets for its defence procurements. The country is in the process of reviving its domestic defence industry and encourages technology transfers, partnerships and R&D as offsets. Foreign defence companies are free to invest in the Argentine defence sector, do not need to attain any prior approval from the government for investments and don't face restrictions on profit repatriation, resulting in an atmosphere conducive to foreign investment.

Defence companies can cater to the Argentine defence industry through Foreign Military Sales (FMS), which involves direct government-to-government transactions. Foreign companies can also establish partnerships and use technology transfers to gain access the Argentine defence market. The country's foreign investment policy encourages the establishment of subsidiaries, providing further entry opportunities. The domestic defence industry is totally dependent on its government for sales and defence budget fluctuations lead to uncertainty among domestic defence suppliers.