The Ukrainian Defense Industry: Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017
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This report is the result of ICD Research / Strategic Defence Intelligence’s extensive market and company research covering the Ukrainian defense industry. It provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.
Introduction and Landscape
Why was the report written?
The Ukrainian Defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017 offers the reader insights into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain market share in the Ukrainian defense industry.
What is the current market landscape and what is changing?
Ukraine, Europe’s second-largest country, is anticipated to invest US$12.78 billion to strengthen its armed forces during the forecast period. The country’s total defense expenditure, which recorded a CAGR of 1.5% during the review period, is expected to record a CAGR of 6.4% over the forecast period. However, as a percentage of GDP, Ukraine’s defense expenditure is expected to decrease from 1.13% in 2012 to 1.06% by 2017, in accordance with the country’s aim to reduce its overall budget deficit as a percentage of GDP. Nevertheless, the country’s homeland security expenditure is projected to record a CAGR of 8.06% over the forecast period, a consequence of an increase in organized crime and maritime security threats.
What are the key drivers behind recent market changes?
During the forecast period, Ukraine is expected to spend US$12.8 billion on defense. Border security and critical infrastructure protection equipment, drive towards Armed Forces modernization, and procurement and maritime defense equipment purchase are expected to drive demand in the forecast period. Faced with the threat of losing military capability, armed forces technical modernization becomes a necessity for the country to follow. Taking a cue from the current alarming situation of the armed forces, the Ukrainian government has proposed to increase defense spending by 20% over 2011, in the financial plans for 2012.
What makes this report unique and essential to read?
The Ukrainian defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017 provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
Key Features and Benefits
Market opportunity and attractiveness
The report provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
The report includes trend analysis of imports and exports, together with their implications and impact on the Ukrainian defense industry.
The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.
Market entry strategy
The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.
Competitive landscape and strategic insights
The report helps the reader to understand the competitive landscape of the defense industry in Ukraine. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.
Key Market Issues
Small defense budget offers equipment manufacturers limited investment potential
Although the Ukraine is expected to invest a total of US$12.78 billion in its armed forces over the forecast period, on average, only 14.6% of this total is expected to be invested in the modernization of the country’s defense equipment, limiting the opportunities available for both foreign OEMs and domestic defense companies. Additionally, despite Ukraine offering skilled labor at a lower cost than the majority of European countries, foreign OEMs are unable to make significant investments in the country’s defense industry due to the prohibition of FDI in defense.
Lack of necessary infrastructure impedes growth of domestic defense industry
Despite possessing both a strong technological base and skilled labor, the Ukrainian defense industry has so far been unable to produce modern technological hardware such as advanced fighter planes, submarines and warships. Instead, the growth of the country’s domestic defense industry has stalled as the majority of reforms to modernize the country’s defense industry have been postponed, while only 20% of state-run programs for the development of the country’s defense complex were implemented in 2010. As a result of these factors, Ukraine’s domestic defense industry is unable to improve its infrastructure and enhance its capabilities.
Corruption and a lack of transparency discourages investors from entering the market
The growth of Ukraine’s domestic defense industry is also limited by excessive corruption and a lack of transparency in the country’s military procurement process. Corruption in the country frequently involves bribery of high level officials with discretionary authority over government policy and the sale of government assets or large government contracts, while lower level officials responsible for enforcing regulations are also often bribed. In addition, the country’s licensing and registration processes are so complex and time consuming that the costs of entering into the Ukrainian defense industry are significantly increased.
Ukrainian defense expenditure expected to record a CAGR of 6.4% during the forecast period
During the review period, Ukrainian defense expenditure recorded a CAGR of 1.5%, and valued US$2.08 billion in 2012. During the forecast period, the country’s defense expenditure is expected to record a CAGR of 6.4%, to reach US$2.86 billion by 2017. This expected increase is primarily the result of growing tensions between Ukraine and Russia, the acquisition of new defense systems and the country’s participation in international peacekeeping missions.
Capital expenditure allocation of overall defense budget expected to witness an increase during the forecast period
Historically, revenue expenditure accounted for the majority of Ukrainian defense expenditure. During the review period, the country spent an average of 86.2% of its total defense budget on revenue expenditure, while an average of 13.8% was allocated to capital expenditure. In 2009, despite a reduction in the overall defense budget, the capital expenditure allocation increased to 27.9% of the total defense budget, with the capital expenditure allocation falling to an estimated 11.3% in 2012. Over the forecast period, this allocation is expected to witness an increase to an average of 14.6% as a result of an expected 20% reduction in troop size by 2015 in order to reduce revenue expenditure.
Ukraine expected to invest US$4.0 billion in its air force over the forecast period
In 2012 the Ukrainian air force budget stood at an estimated US$749 million, accounting for the largest share of the country’s total defense budget. During the review period, Ukraine’s air force defense expenditure recorded a CAGR of 1.5%; and during the forecast period, the country’s air force expenditure is expected to record a CAGR of 7.8%, to reach a total of US$1099 million by 2017. Despite a relatively small troop size, the budget for the Ukrainian air force is driven by the demand for air defense and anti-missile defense systems within the country.
Homeland security expenditure expected to record a CAGR of 8.06% during the forecast period
During the review period, Ukrainian homeland security expenditure registered a CAGR of 3.05% to value US$2.02 billion in 2012, which is expected to register a CAGR of 8.06% during the review period to value US$2.96 billion in 2017. Despite financial constraints, Ukraine’s homeland security budget is expected to increase due to an increase in criminal activity, with notable growth in the illegal drugs trade and human trafficking. Furthermore, the country’s southern border with the Black Sea increases maritime security critical infrastructure threats.
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