Germany sixth-largest defense expenditure in the world

Thursday 12 January 2012, Amsterdam

As Germany has few external threats, its defense policy is focused towards the prevention and containment of crises and conflicts. Despite this, Germany has the sixth-largest defense expenditure in the world as well as an established domestic defense industry, due to its promotion of 100% FDI. Consequently, the German defense industry is able to satisfy both its domestic and export requirements. The growth of Germany’s defense budget has drastically reduced in the last two years due to a reduction in the country’s gross domestic product (GDP), and consequently, its defense allocation as a percentage of GDP is one of the lowest among NATO countries. Nevertheless, German is currently involved in several joint defense developments with other countries, which, combined with its peacekeeping initiatives, are set to drive growth in defense expenditure over the forecast period.

Apart from exporting to South Korea and some countries in the EU, Germany exports a limited amount of defense goods to the largest global defense importing countries. As a leading submarine and battle tanks manufacturer, Germany will seek to improve the marketing of its defense systems in these countries in order to increase its exports over the forecast period.

The Federal Office of Defense Technology and Procurement is responsible for all German defense procurements. The army, navy and air force proposes the required systems to the BWB, which then allocates funds and decides on a German supplier. As a federal agency, BWB is the sole buyer of defense systems in Germany and consequently commands a high bargaining power.

Germany is one of the few countries in the world that allows 100% foreign direct investment (FDI) in its defense industry. Consequently, the country does not impose any offset criteria on defense transactions and does not scrutinize investments by foreign companies, coupled with this Germany’s highly skilled labor force only adds to the attractiveness of its defense industry.

In 2009, Germany allocated funding for the production of Interactive Defense and Attack System for Submarines (IDAS) submerged-launch precision weapons. The system is under joint development by the ARGE IDAS consortium, which comprises ThyssenKrupp Marine Systems' Howaldtswerke-Deutsche Werft (HDW) division, Diehl BGT Defense and Kongsberg Defense & Aerospace (KDA).

Germany is a leading global exporter of technically advanced and sought after armored vehicles, ships, submarines and engines. The country has an established a domestic defense industry, with many systems under joint development with the US and other EU nations. The country maintains high levels of transparency in terms of arms exports, and strictly complies with all the policies governing the sale of arms, including arms embargos imposed by the UN and the EU, which had led Germany to develop good trade relationships with many economically powerful countries.

Comment related to graph: During the review period the average German defense expenditure as a percentage of GDP was 1.2%, one of the lowest among NATO countries. Furthermore, as a result of the European debt crisis, Germany is expected to register a reduction in GDP growth over the forecast period, which is expected to result in a defense allocation of just 1.1% of the nation’s GDP by 2016.