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Future of the Peruvian Defense Industry

Market Attractiveness, Competitive Landscape and Forecasts to 2018

Published: Sep 2013 - Pages: 111 - Report code: ASDR-74544
 

Future of the Peruvian Defense Industry

Product Synopsis
This report is the result of an extensive market and company research covering the Peruvian 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 Peruvian 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 market share in the Peruvian defense industry.

What is the current market landscape and what is changing?
During the review period, the Peruvian defense budget recorded a CAGR of 13.87%. Expenditure was supported by a modernization program, participation in peacekeeping missions, and measures to counter narco-terrorism and border disputes, and the initiation of defense reforms by the government. In 2013, the Peruvian defense budget stood at 1.3% of GDP and is expected to increase to 1.6% of GDP by 2018. During the review period, Peru’s capital expenditure allocation stood at 17.1% of the total defense budget, and this is expected to increase to 21.7% over the forecast period due to the government’s weapons procurement plans. Consequently, the share of revenue expenditure in the total defense budget is expected to decrease from 82.9% in the review period to 78.3% in the forecast period.

What are the key drivers behind recent market changes?
Threat of narco-terrorism, defense reforms and modernization, border disputes, peacekeeping operations, an arms race with neighboring countries, and an enhanced role of the military in internal policing to drive defense expenditure in the forecast period

What makes this report unique and essential to read?
The Future of the Peruvian 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 Peruvian 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 Peru. 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
With a 2013 defense budget of US$2.9 billion, Peru invests a relatively small portion of its GDP towards defense compared to European countries such as the UK and France. Even though the country’s defense budget is expected to increase at a CAGR of 13.38% over the forecast period, to stand at US$5.5 billion in 2018, it is still relatively low compared to the global leading spenders. Even within Latin America, Peru is not among the top five defense spending nations of the region. Capital expenditure currently accounts for an average of only 17.1% of the country’s total defense budget, which translates to a relatively small allocation for the purchase of equipment and high-technology arms and ammunition. Consequently, the country’s relatively small defense budget has become a barrier to entry for foreign companies. Despite the country maintaining an open economy and providing a number of investment incentives, a small defense budget acts as a key challenge for foreign companies interested in entering the Peruvian defense industry.

The arms procurement process in Peru is not transparent, with purchases often deemed to be classified and not shared outside the concerned department. The law on contracts and acquisitions requires all state institutions, without exception, to consult the Office of the Comptroller General before making a purchase, but this rule has been violated by the MoD on many occasions. This further creates doubt among international suppliers as the defense contract bidders don’t have a clear understanding of the parameters required to be fulfilled in order to secure a contract. The defense reforms announced by the Peruvian government include a proposal for the creation of a centralized purchasing agency for defense acquisitions. However, the Army, Navy, and Air Force are opposed to the idea, contending that a centralized agency would further complicate the acquisition process.

Key Highlights
Although Peru does not suffer from immediate threats of external aggression, there are several factors that require the country’s defense forces to be adequately prepared, including threats from the Shining Path separatist group, the country’s international peacekeeping missions, and volatile relationships with its neighbors, especially Chile. Narco-terrorism: Peru faces increasingly violent threats from ’narco-terrorists’ which include various criminal and militant groups such as the ’Shining Path’ that are involved in drug-trafficking to finance their militant operations. The Peruvian armed forces have been involved in conflicts with the Shining Path for a long time which has been a strong determinant of the focus of the Peruvian military. The Shining Path was earlier quashed but Peru is again struggling with resurgence from the group, and there has been a recent increase in violence by the break-away faction of the Shining Path. The area most affected by violence is the region around the ApurĂ­mac, Ene, and Mantaro rivers, commonly called the VRAEM region.

Cocaine trafficking: In 2011, Peru surpassed Colombia to become the largest producer of cocaine in the world, and is not just the largest producer but also the largest exporter of cocaine in the world. The cocaine trade has been growing in Peru and profits from illegal drug trafficking have fuelled the resurgence of the Shining Path Maoist guerrilla group. The group is more active in the VRAEM region, an area most conducive to coca production in the country; the coca plant is essential for the production of cocaine. Despite decades of foreign-funded efforts to eradicate the cocaine trade, the industry is flourishing in Peru. Every year, an estimated 325 tons of cocaine produced in Peru is exported, fetching nearly US$1 billion per annum for the drug-trafficking groups. Industry experts suggest that the while the local Peruvians produce and transport cocaine, it’s the Colombian, Mexican, and Russian intermediaries that manage exports. Cocaine is mainly exported to Colombia, Ecuador, Bolivia, and Brazil. With the aim of combating cocaine trafficking, Peru has signed more than 60 conventions with countries such as Brazil, France, Russia, Spain, and the UK seeking cooperation in the areas of intelligence, defense, police, and judiciary. Additionally, the government recently spent nearly US$400 million on attack helicopters to aid its internal security efforts. The Peruvian government approved a five-year national plan in March 2012 to decrease the production of illegal coca by 30% in 2016, which is expected to drive homeland security expenditure in the forecast period.

During the review period, defense equipment imports declined as the country called for a curb on military expenditure and a diversion of resourcesin areas such as healthcare, education, and food. In 2008 the country observed almost negligible imports, which increased in 2009-2011 before declining again in 2012. However, defense reforms towards the end of the review period proposed the allocation of funds for purchasing new weaponry and revamping existing ones, mainly to fight narco-terrorism. With the upgrade of the air defense and naval systems in the forecast period, the country is expected to make procurements in these two areas. Expenditure is expected to increase marginally in the forecast period with the MoD expected to procure Spanish Eurofighters to replace aging fighter jets. Alternatively, Peru is expected to procure France’s Rafale, Boeing’s F/A-18E/F Super Hornet, SAAB’s Gripen NG and Russian MiG-35 and Sukhoi Su-30/35. The country is also expected to undertake naval modernization of the frigates BAP Aguirre (FM-55) and BAP Bolognesi (FM-57) Class Lupo and also procure 2 Offshore Procure Vessels (OPVs). The threat from the Shining Path group and Chile’s military procurement strategy is expected to drive Peru’s arms imports during the forecast period.

 

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