This report is the result of SDI’s extensive market and company research covering the Azerbaijani 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 Azerbaijani 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 Azerbaijani defense industry.
What is the current market landscape and what is changing?
The Azerbaijani defense market, which has grown over the last decade, is expected to demonstrate the potential to grow at a faster pace than its neighbors, over the forecast period. Its defense and security budget registered a growth rate of 15.24% in the last five years and is estimated to grow at a CAGR of 8.74%, to value more than US$5 billion by 2018. Strained relations with its neighbor and the aim of increasing its importance in regional politics through military build-up, mean the country is expected to continue to procure substantial arms and technology. In addition, Azerbaijan is putting efforts into reviving its arms manufacturing sector through collaboration with foreign companies in an effort to enhance its ability to export weapons to other countries. This will provide growth opportunities for foreign companies to enter the market, either through direct deals or through collaborations with local manufacturers, to tap the fastest growing military market in the Eurasia region.
What are the key drivers behind recent market changes?
Strained relations with neighbors and military modernization are expected to be key factors driving defense expenditure
What makes this report unique and essential to read?
The Future of the Azerbaijani 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 Azerbaijani 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 Azerbaijan. 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
Bribery and corruption have been prevalent in Azerbaijani defense procurement for many years, largely due to unaccountable, secretive and internally feuding armed forces. The country does not have sufficient safeguards against corruption in the defense sector, as there is little democratic control of the army by the Parliament, thereby complicating its defense business environment. Amidst the calls for reforms in defense sector, the President reshuffled the Ministry of Defense in October 2013, by appointing a new defense minister in the place of the long standing previous minister. Currently, Azerbaijan is implementing NATO recommended reforms to enhance transparency in defense deals and democratic civilian control over its armed forces.
A major obstacle to investment in the Azerbaijani defense industry is the arms embargo imposed by OSCE (Organization for Security and Co-operation in Europe) group following the war with Armenia in early 1990s. During the review period, the country had to rely on its traditional supplier Russia for the majority of supplies. In addition to Russia, Azerbaijan imported mainly from Israel and South Africa, who supply cheaper varieties of weapons produced by the US and European companies. With the majority of defense conglomerates originating from Europe, the country will have to rely on smaller companies from countries such as Israel, Turkey, South Africa, and South Korea for investment in its domestic defense industry.Key Highlights
Strained relations with neighbors: Azerbaijan has a troubled relationship with its neighbor Armenia over the Nagorno-Karabakh region, with its territory populated primarily by ethnic Armenians, who declared independence from Azerbaijan in 1991. Azerbaijan’s efforts to take back control resulted in a long war during the early 1990s. The ceasefire agreement between the two countries in 1994 has unfortunately not resulted in a peaceful solution to the conflict; both the countries have engaged in military buildups after the cessation of negotiations in 2011. Azerbaijan, ably supported by its oil exports, is in the middle of defense capability building, aimed primarily at establishing its military superiority in the region.
Critical energy infrastructure protection: Azerbaijan produces 1.3% the world’s oil reserves and is an important producer and exporter of petroleum products. The country’s oil volumes are transported via Georgia to the coast of Turkey and onwards to international markets. In addition, Azerbaijan has been undertaking one of the largest gas development projects in the Caspian Sea, which are expected to add 16 billion standard cubic meters per year of gas production. In view of growing threats from various militant groups targeting energy infrastructure, Azerbaijan is expected to continue to invest in the protection of its oil infrastructure, which will create market opportunities for naval vessels, submarines, and technologies catering to the identification and access control, surveillance, perimeter protection, information technology security, and command, control, communications and intelligence (C3I) markets.
The country’s military factories have been dormant following its independence from the USSR in 1991, barely supplying arms for its military. This has forced the government to import from other countries, primarily from Russia and its allies. Azerbaijan’s arms imports increased exponentially in 2011 but dropped to 2009-2010 levels in 2012. The increase in 2011 is primarily due to the rise in import of aircraft, missiles, and missile defense systems from Russia.