Chile - Defense and Security: Modernization and upgrades drive expenditure (Strategy, Performance and Risk Analysis)
The aircraft category remains one of the key growth drivers of the Chilean defense and security industry, accounting for 72.0% of capital expenditure in 2016; followed by the C4ISR category with 5.0%. Overall, capital expenditure declined at a CAGR of -9.4%, falling from US$677.5 million in 2012 to US$457 million in 2016. It will post a forecast-period CAGR of -0.8% to reach US$680.2 million in 2021 due to a shift in focus from cross border defense capabilities to internal security. Modernization initiatives to replace obsolete military equipment will partially offset the decline in expenditure.
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Homeland Security expenditure to increase:
Chile’s homeland security expenditure will post a forecast-period CAGR of 7.0% CAGR to reach US$6.3 billion in 2021, driven by efforts to build an effective internal security system. It is expected that the defense ministry will strengthen security through the installation of surveillance, biometric, fiberscope, and communication systems as well as x-ray machines at international borders. An increase in drug trafficking and crime has prompted the move.
Aircraft and UAV MRO to drive the country’s defense expenditure:
Chile’s capital expenditure on aircraft stood at US$2.9 billion in 2016 but will post a forecast-period CAGR of -2.4% to reach US$2.7 billion in 2021owing to budget cuts. However, the country does plan to acquire new aircraft to replace its aging F-5 airframes and is inducting Vulcanair P68 observers into its air force. To this end, the country is building dedicated infrastructure for the in-house maintenance, repair and overhaul of aircraft.
Defense budget cuts led to a decline in revenue expenditure:
Revenue expenditure fell at a CAGR of -10.6%, from US$1.8 billion in 2012 to US$1.2 billion in 2016, but will grow to US$1.7 billion in 2021. Revenue expenditure accounted for 72.1% of total defense allocations during the review period and will fall to 71.5% in 2021. This will lead to a decline in expenditure for recruitment, training and development programs, and construction and maintenance activities.