LONDON: Saudi Arabia’s defence-specific spending to increase to around $60 billion a year by 2020 from its present $49 billion, making it the fifth-largest spender in the world by that time, according to IHS Aerospace, Defence & Security forecasts.
The outlook for defence spending in Saudi Arabia, Qatar and the United Arab Emirates, unlike that of their neighbors, remains positive, according to a new analysis released by IHS Inc. (NYSE: IHS), the leading global source of critical information and insight.
“Despite Saudi Arabia’s heavy exposure to oil price fluctuations, there have been very few signs of any severe reactionary adjustments to government spending trends,” Craig Caffrey principal defence budget analyst at IHS Jane’s Aerospace, Defence & Security, said. “The Kingdom has only cut defence and security expenditure once over the last 15 years.”
The country’s defence budget has been expanding at a rate around 14 percent a year over the last decade and accelerated to a rate of 19 percent a year since 2011. “We certainly expect a significant slowdown in the short term but longer term prospects remain strong,” Caffrey, said.
Although the energy sector accounts for about 55 percent of gross domestic product (GDP) in the UAE, the country’s ability to withstand a period of low oil prices has been bolstered by its relative economic diversity.
A significant difference between the UAE and a number of other Gulf Cooperation Council (GCC) states is that its period of rapid defence spending growth came between 2007 and 2011.Also, the military’s budget has essentially been consolidated over recent years.
While a more cautious approach may be adopted with regards to major procurement projects, the $5 billion of contracts announced at the International Defence Exhibition (IDEX) in February 2015 suggests that funding is still available.
“Moderate defence budget growth is expected in the UAE over the short term before accelerating from 2017 as the process of fiscal consolidation eases,” Caffrey said.
Qatar’s reliance on the energy sector is relatively low for the Gulf region, accounting for approximately 60 percent of total revenues. National bank figures suggest that the government has begun to utilize Qatar’s foreign reserves to support continued investment expenditure as revenue generation slows.
“Traditionally the military has not been seen as a priority by Qatar’s government. However, the announcement of $23 billion worth of potential defence procurement projects in 2014 marked an unprecedented increase in investment in the military,” Caffrey, said.
Defence expenditure is therefore expected to remain at the elevated levels seen in 2014 in the short term. In the longer term, the main obstacle will be whether the government continues to invest in defence once the current procurement cycle ends or whether focus will shift elsewhere.