Military Expenditures and Arms

June 8th, 2005 - by admin

Elisabeth Sköns, Wuyi Omitoogun, Catalina Perdomo and Petter Stålenheim / SIPRI – 2005-06-08 09:42:44

Military Expenditures (Chapter 8)
Elisabeth Sköns, Wuyi Omitoogun, Catalina Perdomo and Petter Stålenheim / SIPRI

World military expenditure in 2004 is estimated to have been $975 billion at constant (2003) prices and exchange rates or $1035 billion in current dollars. This is just 6 per cent lower in real terms than at the 1987–88 peak of cold war world military spending. As a global average, 2004 world military expenditure corresponds to $162 per capita and 2.6 per cent of world GDP. However, there is a wide variation between regions and countries in the scale and economic burden of military spending.

The average annual rate of increase in world military expenditure over the 10-year period 1995–2004 was 2.4 per cent in real terms. This average encompasses two distinct trends: first, the post-cold war reduction in military spending which culminated around 1998; second, an increasing trend since 1998, accelerating to an annual average increase of around 6 per cent in real terms over the three-year period 2002–2004.

The major determinant of the world trend in military expenditure is the change in the USA, which makes up 47 per cent of the world total. US military expenditure has increased rapidly during the period 2002–2004 as a result of massive budgetary allocations for the ‘global war on terrorism’, primarily for military operations in Afghanistan and Iraq. These have been funded through supplementary appropriations on top of the regular budget.

The supplementary appropriations for this purpose allocated to the Department of Defense for financial years 2003–2005 amounted to approximately $238 billion and exceeded the combined military spending of Africa, Latin America, Asia (except Japan but including China) and the Middle East in 2004 ($193 billion in current dollars), that is, of the entire developing world.

Thus, while regular military spending has also increased in the USA as well as in several other countries and regions, the main explanation for the current level of and trend in world military spending is the spending on military operations abroad by the USA, and to a lesser extent by its coalition partners.

In 2004 there was a growing debate related to the sustainability of the current military efforts of the USA. Questions were raised about the contribution of military expenditure to the growing fiscal deficit and its future impact on economic growth. A related concern is whether military expenditure will crowd out non-military government expenditure. The debate has been exacerbated by uncertainties over future trends in expenditure for military operations in Iraq.

There is a recognition that security is a prerequisite for sustainable development, which has led to a debate concerning the different ways in which donors should support security sector reform.

Some countries fear that extending the definition of official development assistance to cover security-related issues may diminish overall support for social and economic aid, and could even result in cold war-style assistance with the strategic interests of donors dictating the direction of their aid policy.

Two ongoing support programmes for security activities in crisis-prone developing countries—US assistance to Colombia and British support for the security sector in Sierra Leone—are examples of emerging patterns of security assistance provided in the context of development assistance but which indirectly enhance security at home.

Arms Production (Chapter 9)
Elisabeth Sköns and Eamon Surry / SIPRI

New data from SIPRI shows that the value of the combined arms sales of the top 100 companies in the world (excluding China) in 2003 was $236 billion. The top 100 companies increased their combined arms sales in 2003 by 25 per cent in current dollars. Of these 100 companies, 38 are based in the USA and one in Canada. Together, these accounted for 63.2 per cent of arms sales by the top 100, while 42 European companies (including 6 based in Russia) accounted for another 30.5 per cent of sales.

The process of adaptation to the new security environment continues. In the USA the industry is adjusting to the new demands created by the ongoing transformation of the armed forces, the privatization of military services and the increasing importance of the homeland security sector. In Europe the emphasis is on intra-European consolidation and access to the expanding US ‘market’, that is, the US Government’s arms procurement budget.

The process of concentration in the arms industry has been slowing down since the late 1990s. While still significant, mega-mergers no longer dominate the pattern of acquisition. In 2003 six acquisitions took place with deal values exceeding $1 billion. In 2004 there was only one deal of this size: the buyout by Italian firm Finmeccanica of the British firm GKN’s 50 per cent stake in their joint venture—the helicopter company AgustaWestland—and related assets for €1.59 billion ($1.98 billion).

In the past decade the top arms-producing companies have grown enormously in size, primarily through acquisitions. They are now comparable in economic importance to many other multinational corporations and, like them, the largest arms-producing companies have sales of a magnitude that make them major economic entities, not only in their domestic environment but also globally.

The value of their arms sales exceeds the GDP of most low-income countries and their total sales compare to the GDPs of medium-sized developed or industrializing countries. A comparison for the entire group of top 100 companies shows that the value of their total sales in 2003 is roughly equal to the combined national output of all 61 low-income countries in 2003.

With the increasing outsourcing of services from defence ministries and armed forces to the private sector, a growing number of the top 100 companies specialize in services. This trend is most pronounced in the USA, but exists also in West European industry.

Consolidation of the European military shipbuilding industry continued in 2004. These efforts were focused on two initiatives: to create a naval counterpart to what EADS represents in aerospace, and to consolidate and develop an industrial strategy for the British shipbuilding industry. However, little progress was made and the future structure of the European shipbuilding industry remains uncertain.

The war in Iraq has increased the share of the arms industry held by companies providing services and has reinforced the focus on new military technologies. There is only limited transparency in the contracting process for work in Iraq. What transparency there is depends on NGOs compiling information about the size and content of contracts and about the companies that are awarded them.

Company reporting on the military share of their sales is rare and incomplete, and reporting on the military share of their exports and research and development is almost nonexistent. Of the 150 companies included in a table on arms industry data transparency, only 41 can be described as having fully and completely disclosed the extent of their arms sales in a company document.

Only limited information is available on commercial arms sales worldwide. This lack of data makes it difficult to establish a firm foundation for political and public discussion of issues relating to arms production and arms sales. Pressures on companies to report their arms sales are weak and current reporting relies entirely on voluntary disclosure of information by the companies themselves. Comprehensive, regular and standardized reporting can be achieved only through internationally harmonized legal requirements for companies to report.