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Future of the Venezuelan Defense Industry

Market Attractiveness, Competitive Landscape and Forecasts to 2018

Published: Aug 2013  -   Pages: 115  -   Publisher: Strategic Defense Intelligence  -   Report code: ASDR-73730
 
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Future of the Venezuelan Defense IndustryProduct Synopsis
This report is the result of extensive market and company research covering the Venezuelan defense industry, and 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 Future of the Venezuelan Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain a market share in the Venezuelan defense industry.

What is the current market landscape and what is changing?
Venezuelan defense expenditure recorded a CAGR of 7.82% during the review period and is expected to value US$5.7 billion in 2013. Modernization activities and border disputes drove expenditure during the review period, and both factors are expected to continue to be drivers throughout the forecast period. Defense expenditure in Venezuela is expected to register a CAGR of 11.37% and reach a value ofUS$8.0 billion by 2018. As a percentage of gross domestic product (GDP) the Venezuelan defense budget stood at 1.64% in 2013, and is expected to increase to 2.08% of GDP by 2018, largely due to the expected increase in defense expenditure. The capital expenditure allocation of the Venezuelan defense budget, which stood at 41.6% during the review period, is expected to increase to 68.9% during the forecast period, as a result of increased budget allocation for equipment purchases. Consequently, revenue expenditure is likely to decrease from 58.4% in the review period to 31.1% in the forecast period. Key opportunities for equipment suppliers are expected in the areas of fighter and multi-role aircrafts, transport and utility aircraft, and attack aircraft. Other areas expected to provide opportunities for equipment suppliers are the purchase of main battle tanks, diesel electric submarines, as well as surface-to-air and surface-to-surface missiles.

What are the key drivers behind recent market changes?
Modernization, border disputes and development of domestic defense industry to drive defense expenditure in the forecast period.

What makes this report unique and essential to read?
The Future of the Venezuelan Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, 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
The report provides detailed analysis of the current industry size and growth expectations from 2014 to 2018, including highlights of key growth stimulators, and 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 Venezuelan 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.

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.

The report helps the reader to understand the competitive landscape of the defense industry in Venezuela. 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
In 2013, Venezuela recorded a defense budget of US$5.7 billion, which was low compared to some other Latin American countries. Furthermore, during the review period, capital expenditure accounted for 41.6% of Venezuela’s total defense budget, expected to increase to 68.9% over the forecast period. This increase in capital expenditure translates into a higher budget allocation for the purchase of equipment, and hi-tech arms and ammunition. Nevertheless, a relatively smaller defense budget has become a barrier to entry for foreign companies, despite the country maintaining an open economy. The Venezuelan defense industry comprises only of state-owned companies with little specialization in weapon categories, this results in a lack of advanced defense technology and means that foreign weapon suppliers, who intend to conduct business in Venezuela, face infrastructure challenges. Although foreign suppliers can bring advanced technology into the country, this can result in technology imports without offset incentives. At the same time, as the country plans to develop its domestic defense industry, it might encourage domestic suppliers to produce more defense equipment, ending a reliance on foreign companies.

Corruption has become a major obstacle for foreign companies aiming to enter the Venezuelan defense market, as it can result in unfair contract awards. According to Transparency International’s corruption perceptions index, Venezuela is a highly corrupt country with a score of 19, and the country ranks 165th out of 174 countries. Government tenders are often unreliable in Venezuela because the process frequently lacks transparency; in May 2010, the former Venezuelan defense minister was sentenced to nearly eight years in prison for misappropriating state funds while in office. As part of the anti-corruption drive initiated by the Venezuelan government, in June 2013, a senior tax official was arrested on charges of corruption. The authorities had previously apprehended senior officials from government ministries, state companies and other organizations on charges of corruption.

Key Highlights
Although Venezuela allows 100% FDI in its defense industry, its underdeveloped defense market, lack of advanced technology, and small defense budget mean many foreign OEMs prefer to enter the industry through direct selling. High corruption levels, increasing government intervention, and economic and political instability also make the Venezuelan defense industry unattractive to foreign investment. A large proportion of military procurement is undertaken through government-to-government, or government-to-supplier deals.

In May 2006, the US judged that Venezuela had not been fully co-operating in counter terrorism efforts and announced an arms embargo against the country, banning the export and re-export of US originated defense equipment to Venezuela. Consequently, the country started to import defense equipment from Russia and Spain, who were prepared to export to Venezuela. During 2007-2011, Venezuela imported around US$2.0 billion of arms from Russia, including 24 Sukhoi fighter jets, over 100 T72 tanks, dozens of combat helicopters, and air defense systems. China is also an important import partner for the country, and during the review period Venezuela purchased long-rage surveillance radar systems and fighter jets from China. Other import partners include the Netherlands, Switzerland, Ukraine, Germany, and Italy. Venezuela purchased naval patrol boats from Spain, and radar systems from the Netherlands. Over the review period, Venezuela imported weapons worth US$11.0 billion from Russia.

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