Snapshot France - defence industry to 2015
French involvement in anti-terrorism, modernisation and UN peacekeeping will make for a robust defence industry to 2015. With increased expenditure likely across all naval, air and land defence divisions, we use detailed ICDResearch market data to chart spending in the French armed forces to 2015.
French defence expenditure to grow in the forecast period
From 2010 to 2015 the French defence industry is set to increase its expenditure due to the threat from terrorism, planned modernisation and its continued UN peacekeeping missions. Within the defence budget, army, air force and navel expenditure are all expected to increase in line with planned modernisation.
French defence imports are predicted to decrease due to planned defence budget reductions, but exports will increase, driven by demand from South East Asian nations.
Despite planned budget reductions from 2010 to 2013, French defence expenditure is expected to grow from 2013 to 2015 at a CAGR of approximately 1.5%, and to reach a value of just more than US$60bn by 2015.
Capital expenditure within the French defence budget increased to just more than 40% in 2009 and is expected to remain stable from 2010 until 2015, 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 to 2015.
Terrorism, modernisation 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.
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 Defence is in the process of modernising its armed forces and recently released a white paper outlining its modernisation strategy from 2009 to 2014. This white paper stated that approximately US$520bn would be allocated to defence from 2009 until 2020 to aid modernisation 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 defence industry expenditure.
Army, air force and navel expenditure to grow
In the forecast period, army expenditure as a percentage of the total defence budget is expected to remain at just more than 20%, as the French Ministry of Defence 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$9.5bn.
It is predicted that air force expenditure will increase from 2010 until 2015 at a CAGR of nearly 2%, and that it will remain at a stable 12% of France's total defence budget. France is expected to invest in advanced fighter aircraft and the upgrade of its current fleet, which will bring its air force expenditure to just more than US$5bn.
In the review period, naval expenditure accounted for about 12% of France's total defence 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$5bn by 2015.
Imports to reduce and exports to increase
Of total defence procurements, France imports 30%, primarily from Germany, Italy and the Netherlands. However, due to predicted cuts in the French defence budget, imports of defence 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 defence 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 defence industry.
With planned reductions to the defense budget in France in the forecast period, the French government will spend less on equipment and therefore reduce consumption of its own country's products.
Companies within the defense industry will be forced to look to international markets and buyers to sell their defence products.
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