Malaysian Defense Budget to Reach US$5.68bn in 2018

Thursday 25 April 2013, Amsterdam

Malaysia has a small defense industry, so it strives for major foreign investment in the country, which is why the country has adopted technology transfer as a key strategy to invite foreign players in the country. Key technology transfer programs signed by the Malaysian government include a short-range missile technology program with China, a space program with Russia, and a MRCA program for which Boeing, Dassault, Saab, and Eurofighter are competing. The country also focuses on the development of partnerships with foreign companies; it encourages local companies to participate in global partnership and joint development programs in order to enhance the domestic defense industry.

Excessive corruption within the government‘s procurement process hampers the entry of foreign investors into the country‘s defense market as some foreign investors have resorted to paying bribes in order to win a contract, which has discouraged foreign OEMs from entering the market. Furthermore, the lack of a transparent procurement process has made the evaluation of contracts and deals difficult, with a number of factors like hiding the information and price of equipment restricting the scrutiny of defense acquisition programs.
                                                                                             
Figure 1: Malaysian Defense Expenditure ($US billion), 2009-2013

The Malaysian annual defense budget stands at US$4.96 billion in 2013, which is expected to grow at an estimated CAGR of 3.27% over the forecast period (2013-2018), to reach US$5.68 billion in 2018. This significant increase in defense expenditure can be attributed to the modernization of its armed forces and the procurement programs that are to be executed over the forecast period; in addition, participation in a number of UN peacekeeping operations and rising territorial disputes are also expected to fuel the Malaysian defense expenditure. As a percentage of GDP, the country‘s defense expenditure stands at 1.46% in 2013 and is expected to decrease to 1.14% in 2018; the primary reason for this decrease in GDP percentage is the deficit reduction efforts of the Malaysian Government.