Monday 8 April 2013, Amsterdam
In 2013, the French government allocated US$56.4 billion for the total defense budget recording a CAGR of -1.82% during the review period. French defense expenditure is inclusive of the expenditure on the Army, Navy, Air Force, Common services and the other expenses and is mainly driven by the participation in international peacekeeping operations, modernization of these armed forces and rising terrorist threats. However, the French MoD has announced that the country is expected to witness a marginal increase in the overall defense expenditure during the forecast period, in an effort to modernize the army and reduce budget deficit. The French defense expenditure is expected to grow at a CAGR of 0.60%, to reach US$58.7 billion by 2018.
The economic crisis across Europe has led to reductions in the defense budgets of many countries. Although, French defense industry is expected to witness some recovery during the forecast period, the fiscal deficit of the country poses the challenge for domestic companies. This marginal improvement in the defense budget will lead to reduced procurements, and are expected to have a direct negative impact on domestic defense companies.
The French MoD protects domestic defense companies by giving preference to domestic or European companies. As a member of the EU, the French government has a policy to give priority to European-manufactured defense goods, which makes it more difficult for non-European defense companies to supply to the French defense market. The government procures 70% of its defense equipment from the domestic defense industry, 20% of its equipment from European defense companies, and the remaining 10% from non-European defense companies. Moreover, the participation of the domestic defense industry in international development programs helps the domestic defense industry to acquire advanced technologies, which further narrows the opportunities for foreign firms to enter the market through technology transfer and other collaborative programs.
In 2012, the country’s defense imports increased substantially due to the acquisition of advanced technology sensors and engines imported by the French MoD. However, the overall defense imports of France are expected to increase marginally over the forecast period due to government’s procurement plans for the same period.
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