IHS Analysis - Sub-Saharan Africa Defence Budget Trends - December 2012


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The endurance of the global financial crisis has meant the economies of the Europe and North America have continued to struggle with slow export growth and significant fiscal challenges. As traditional Western defence markets fail to recover, new opportunities are being sought in territories previously viewed as unviable. Senior Analysts from IHS Jane’s Defence Budgets examine one of these potential markets – Sub-Saharan Africa – to determine the significance of the market.

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IHS Analysis - Sub-Saharan Africa Defence Budget Trends - December 2012

  1. 1. IHS Jane’sAnalysis: Defence Budget Trendsin Sub-Saharan AfricaCraig Caffrey & Fenella McGerty, Senior Budget AnalystsDecember 2012 ihs.com/jdbIntroduction Furthermore, such growth should be taken in the context on an overall GDP of USD930bn in 2012, accounting forThe endurance of the global financial crisis has meant the just 1.72% of world GDP.economies of the Europe and North America havecontinued to struggle with slow export growth and South Africa aside, from a defence perspective the regionsignificant fiscal challenges. As traditional Western remains relatively under-developed. Armed forces in thedefence markets fail to recover, new opportunities are region are generally equipped with aging inventories ofbeing sought in territories previously viewed as unviable. outdated equipment, largely as a result of the lack ofSenior analysts from IHS Jane’s Defence Budgets have funding available for procurement activities with defenceexamined one of these potential markets – Sub-Saharan spending generally dominated by personnel expenditure.Africa – to determine its significance. As of 2012 only two sub-Saharan states – Angola and South Africa – are among the top 50 defence spenders.From an economic standpoint, interest in the region is However, as the continent’s economies grow and mature,understandable; IHS finds that 13 of the world’s 30 the defence sector is expected to experience corollaryfastest-growing economies in 2012 are situated in the development.region. Over the next decade, real GDP growth isexpected to average 4.9% compared to the world average This report identifies defence budget trends for threeof 3.6%. While growth is higher than some prospective countries in sub-Saharan Africa – Angola, Botswana andmarkets (Eastern Europe, South America), it still lags Cameroon – on a state-by-state basis and providessignificantly behind South Asian growth of 7.4%. analysis on likely future direction and level of spending.© 2012 IHS 1 ihs.com/jdb
  2. 2. IHS Analysis: Sub-Saharan Africa Defence Budget TrendsData has been taken from official government sources Angola is Sub-Saharan Africa’s second biggest oilwherever possible, and covers formal allocations for producer (after Nigeria) and one of the world’s fastestdefence as part of annual state budgets. expanding oil producers. The country produced 1.6 – 1.7 million barrels per day in March 2011, according to theAngola Angolan Ministry of Oil. Planned expansion of deepwater oil production through the first decade of the 21st centuryEconomic Outlook is expected to increase production to over two millionAngola’s national economy was wrecked by the 27-year barrels per day by 2014. Huge investments are also beingcivil war that began in 1975. However, the presence of a made in liquefied natural gas and oil refinery complexes atthriving offshore oil sector beyond the zone of conflict Soyo and Lobito respectively. Diamond mining is anotheralways ensured that the government had an uninterrupted dynamic sector.supply of revenue. As such, the economy has appeared tobe more prosperous than the African average, althoughthis disguises a high level of income inequality. Oil anddiamond mining were the only sectors that reallyfunctioned in the aftermath of the war, althoughagricultural production is slowly being revived. Fisheries,the coffee industry and other cash crops virtuallycollapsed during the war, and their rehabilitation has beenhindered by issues such as transport and infrastructurechallenges.Economic growth in Angola is still determined largely bythe performance of the offshore oil sector. With the end ofthe civil war in 2002 and the pre-Iraq rise in global oil Security Outlookprices, GDP growth in 2002 boomed to over 15%. Real Angola’s primary peacetime challenge has been toGDP growth remained buoyant in the years to follow, but organize the disarmament, demobilization andregistered moderations in 2008 and a further fall in 2009 reintegration of 100,000 designated União Nacional para aand 2010 due to the spill-over effect of the global Independência Total de Angola (UNITA) combatants andslowdown. over half a million of their dependants; a task performed largely without foreign involvement. One of the remaining© 2012 IHS 2 ihs.com/jdb
  3. 3. IHS Analysis: Sub-Saharan Africa Defence Budget Trendslegacies of war is the extensive presence of landmines. GDP. Rapid growth in recent years has meant theThere is also the need for huge investment in the Angola’s budget is comparable with Egypt’s and onlyreconstruction of physical infrastructure shattered by the slightly lower than South Africa’s.civil war (a rehabilitation program is underway). Angola spent 17% of its annual GDP in 1999 in a boost toAngola will have to grapple with issues of job creation and win the final phase of its war with UNITA. As the Civil Warwealth distribution at a time when civil society and a ended, the focus for government spending switched tonumber of youth movements are indicating discontent with public investment projects and social economicthe pace of economic reform. There were pre-poll protests development and consequently, defence spending fell toin favor of reforms from early 2011, with potential for an average of 4.5% of GDP between 2002 and 2006. Afurther sporadic demonstrations during the course of the strong economic performance since then has meant thatnext term of the ruling Movimento Popular de Libertação large defence budget increases have been possiblede Angola (MPLA). Recurring protests could lead to fresh without increasing the defence budget as a percentage ofconfrontations with the security forces, who have GDP.previously been accused by Human Rights Watch of usingunnecessary or excessive force against demonstrators. Despite the end of the civil war and the now negligible strength of the insurgency in the Angolan exclave ofAngola enjoys defence co-operation with a number of Cabinda, the defence budget is likely to continue to rise. Aregional states and international partners and benefits number of new priorities stipulated by government andmainly from practical aid of training and equipment military officials aim at instituting greater professionalismdonations rather than financial assistance. Under an within the military, and include elevating combatagreement in December 2000, training is provided by readiness, increasing literacy rates among the ranks, andRussia both domestically and in Russia itself. Portugal improving living standards of troops by reconstructingand Angola have signed a technical-military co-operation army barracks throughout the country.program for 2011 to 2014 which will also cover funding formilitary healthcare programs. Furthermore, over the next five years Angola is expected to initiate a major modernization program for its combatDefence Budget Trends aircraft fleet in order to replace a number of aging Soviet era aircraft types and to consolidate around a smallerAngola releases a top level defence budget annually; in number of aircraft types. The program is expected to be2012 this was AOA395bn (USD4.22bn), which accounted pursued as a phased multi-contract effort taking placefor 8.79% of total government spending and 4.74% of over a number of years. Chinese and Russian platforms© 2012 IHS 3 ihs.com/jdb
  4. 4. IHS Analysis: Sub-Saharan Africa Defence Budget Trendsare expected to be favored for the requirement, with at ‘Hind’ attack helicopters following from Russia andleast 12 aircraft expected to be acquired. Ukraine. From 1998, Tucano and Czech L-39 trainer/counter-insurgency aircraft were acquired from secondary stocks from Brazil and the Czech Republic respectively. Since 2009, the Navy has seen an influx of new patrol vessels from Spain and China, previously relying on Soviet Zhuk patrol vessels. With over 90% of total personnel, the Angolan Army is forecast to continue receiving the majority of annual defence funding; accounting for approximately 75% of the 2012 defence budget. The Air Force budget should increase proportionally from 22% of the total budget to 24% by 2017 due to the major modernization program of their combat aircraft fleet. The Navy, with only 700-800Defence Budget by Service personnel, is estimated to only receive 3% of the entireThe Angolan Armed Forces (Forcas Armada Angolanas: defence budget.FAA) were created from the communist-backed MPLAforces in the long-running civil war and were originallyknown as the Forças Armadas Populares de Libertaçãode Angola (FAPLA). The current force is dominated by thearmy, whose 30 regiments and over 100,000 membersmake it one of the largest standing forces in central orsouthern Africa. The air force is also one of the largest insub-Saharan Africa, and has benefited from theintroduction of some relatively modern equipment sincethe late 1990s.Large numbers of MiG-23 fighter-bombers and additionalSu-22 attack aircraft were procured from Slovakian andBelarusian surplus stocks in 1999-2001, with about 12© 2012 IHS 4 ihs.com/jdb
  5. 5. IHS Analysis: Sub-Saharan Africa Defence Budget TrendsDefence Budget by Function RDT&E is negligible as Angola has no military production facilities and does not undertake any military research andWith such a substantial Army, the majority of funding is development programs. However, some R&D funding isexpected to fall into the military personnel budget which expected to be spent on the acquisition of a Mobile RadioJDB estimate to account for almost 70% of the total Communication Network using TETRA standards calleddefence budget. DigiM@x. The network will be a complete system from the radio base stations to the network systems. Four AngolanProcurement is estimated to account for approximately agencies will share the network which will be managed by10% of the defence budget in 2012. However, as the Armed Forces.modernization efforts in the air force begin, theprocurement proportion should increase to 14% by 2017.As part of this modernization effort, the Angolangovernment also signed arms deals worth USD1 billionwith Israel in February 2012, with commitments topurchase combat helicopters, unmanned aerial vehicles,and other hi-tech equipment.O&M costs are not expected to be high given that theAngolan Army continues to carry out duties and functionstraditionally reserved for police rather than contributing tomore expensive international and regional peacekeepingoperations. These duties include roadblocks, escortduties, providing physical security and assisting inelectoral processes. BotswanaThe Angolan Air Force appears to receive relatively little Economic Outlooktraining and mounts few exercises. The ability of its pilots Since independence in 1966, Botswana has enjoyedin combat is difficult to assess as their main role has been social and political stability, as well as solid economicto support the army. progress. The small population enjoys relative homogeneity, a stable democracy has endured, the military has performed professionally and is subordinate to© 2012 IHS 5 ihs.com/jdb
  6. 6. IHS Analysis: Sub-Saharan Africa Defence Budget Trendscivilian control, and there has been no major incidence ofcivil strife or domestic insurgency. As a result theeconomy, which is underpinned by its diamond trade, hasseen four decades of economic growth and currentlystands as the 12th largest of Sub-Saharan Africa’s 47economies.Botswana’s economy remains heavily dependent on itsdiamond exports, prompting a need for further economicdiversification to help reduce unemployment. Since 2010,the Government has sought to rein in spending whileprioritizing programs with ‘high rates of return’ such as Security Outlookmaintenance and expansion of national infrastructure.Under current official projections, 2012-2013 is expected Over the past two decades Botswana has sought toto see the culmination of the deficit reduction work of the improve its military capabilities to guard the country’s largepast three years and produce a budget surplus equivalent mineral reserves and population centers against internalto 0.9% of GDP. unrest. As longstanding tensions with Namibia have eased over recent years, the country’s security apparatus hasIn terms of economic growth rates, Botswana has been become increasingly focused on the Zimbabwe borderone of the fastest developing countries in recent years, and the ongoing crisis within its neighbor.having recorded seven% average real annual GDP growthbetween 1966 and 2005. Growth in recent years was Relations between Botswana and Zimbabwe becameimpacted by the global financial crisis and is again increasingly strained during 2008, as Botswana became aexpected to slow to around four% in 2012 due to more vocal critic of the ongoing Zimbabwe political crisis.continuing weakness in the global economy. The situation has improved following the inauguration ofNevertheless, growth is expected to return to a rate of 4.5- the government of national unity in Zimbabwe in February5.0% annually between 2013 and 2016. 2009; however, ongoing instability and an influx of Zimbabweans into Botswana remain a source of concern. Since 1994, neighboring South Africa has been Botswana’s most obvious security partner with the© 2012 IHS 6 ihs.com/jdb
  7. 7. IHS Analysis: Sub-Saharan Africa Defence Budget TrendsBotswana Defence Force (BDF) seeking greater co- and 17.3% in 2007 and 2008, the defence budget grew byoperation with the South African National Defence Force just 6.2% over the following four years combined.(SANDF). Despite the fluctuations in the defence budget over recentOn an international, strategic level, Botswana’s national years, development expenditure has been maintained at asecurity must be considered within the context of its level of between 19.5 and 22.9% since 2007. Thisstrengthening friendship with the US. Both the US and UK suggests that capital investment in the BDF is likely to besee Botswana as a bastion of political and economic maintained at a relatively consistent rate in the future.stability within the wider region and have made assistanceavailable. With specific regards to security, the USprovides funding through both its International MilitaryEducation and Training (IMET) and Foreign MilitaryFinancing (FMF) programs amounting to USD0.9 million in2012.Defence Budget TrendsMilitary expenditure increased significantly during the1990s in response to a number of specific securityconcerns. The BDF was expanded to provide parity withNamibia’s experienced military, while significant fundingwas provided for new equipment – such as fixed wing With the government projecting a surplus in 2012-13, itcombat aircraft – and training to develop a qualitative appears distinctly possible that defence expenditure willadvantage over the large but decaying Zimbabwe Defence accelerate in 2013. However, even with an estimated 7%Force. nominal increase, the budget is expected to fall by around 1.5% in real terms largely as a result of inflation of 8.5%.As these external security concerns have dissipated, and Real growth is expected to return to the budget in 2014the global financial crisis has switched the government’s and remain for the duration of the forecast period, asfocus towards economic and social development, growth defence expenditure settles into a pattern of steady andin defence spending has become relatively constrained. sustainable year-on-year real increases as part of aFollowing pre-crisis nominal annual increases of 16.3% balanced national budget. Defence expenditure is expected to reach a level of around USD378 million a year© 2012 IHS 7 ihs.com/jdb
  8. 8. IHS Analysis: Sub-Saharan Africa Defence Budget Trendsby 2016, someway short of the USD441 million investment in smaller fields due to weak global growth. Onappropriated in 2009 when adjusted for inflation. the upside, the Cameroonian government is initiating new licensing rounds in the Rio del Rey basins, and positiveCameroon results are expected on the Douala/Kribi-Campo and Longone-Birni basins. New discoveries on theseEconomic Outlook concessions will probably allow Cameroon to containCameroon has one of the more diverse economies in the declines in oil production.region, with a relatively developed manufacturing sector,and is a more active trading nation than many of itsneighbors. It has never relied on oil income to the extentof Gabon and Congo-Brazzaville, for example, but a fall inoil production will affect export revenues. High oil pricesfrom 2004 enabled the government to maximize revenuesfrom production, while Cameroon hopes to discover newoilfields in the Bakassi peninsula, over which it officiallygained sovereignty from Nigeria in 2008.Yaoundé has made further economic diversification one ofits priorities but continued economic stability, as well asimproved terms of investment, is key if the country is to Security Outlookmake the most of its strategic location on the Gulf ofGuinea. GDP Growth has dropped from the levels of 4.2 In spite of ethnic, religious and linguistic diversity,to 5.3% recorded between 1999 and 2003, with growth of Cameroon has been one of Africa’s more stable politiesjust over three% in 2006 and 2007. With the impact of the since independence from France in 1960. Although largeglobal financial crisis, GDP growth slowed further to 2.0% sections of the Anglophone minority have campaigned forin 2009, with decreased demand for export commodities a greater linguistic and cultural rights, these protests havekey factor. remained overwhelmingly peaceful.Near-term real economic activity in Cameroon will remain While the country has neither been ruled by the militarysubdued. The underlying reasons are a combination of nor suffered a significant insurgency since the 1960s, itdeclining oil production from mature fields and delayed has also only had two presidents, with current leader Paul Biya first coming to power in 1982.© 2012 IHS 8 ihs.com/jdb
  9. 9. IHS Analysis: Sub-Saharan Africa Defence Budget TrendsDespite a formal multiparty transition in 1991-1992, Detailed figures for 2011 were not available, but presspolitical stability in Cameroon is again characterized by reports indicated that the defence budget had droppedauthoritarian rule which holds potential for increased and the overall focus of the state budget was to increasedomestic protest and unrest. The most recent presidential infrastructure and social projects. The 2012 budget waselection took place on 9 October 2011 and set the stage XZF180 billion, which is a substantial increase from thefor another seven-year term for the 78-year-old president estimated 2011 budget, but still just 1.4% of GDP.and likely heralding an eventual spike in civil unrest and Moderate growth is forecast in the defence budget,opposition agitation. Moreover, without a clear successor, although as a percentage of GDP the defence budget willshould Biya suddenly depart from the political stage, continue to decline.Cameroon’s stability could be tested.Defence Budget Trends This analysis is abridged; the full report, covering ten Sub-According to government budget figures, defence Saharan countries, is available in IHS Jane’s Defenceexpenditure fell sharply in FY2000-01, from 1.5 to 1.0% of Budgets.GDP. Whilst reliable figures following this were not madeavailable, details from the World Bank indicate thatdefence expenditure averaged 1.39% between 2001 and2008.The Cameroon government published its consolidatedbudget appropriations for 2009, which included XAF162billion (USD357 million) for the Ministry of Defense,representing just over 7% of the total budget and 1.5% ofGDP. However, as the government does not release ayear-end report, comparisons cannot be made betweenwhat was budgeted and actual expenditure. Despite a riseof 11.6% in the total state budget for 2010, the defenceallocation dropped slightly to 6.7%. However, with a rise indefence spending from XAF162 billion to XAF171 billion,the amount per member of the armed forces rose byUSD2,249 to USD27,300.© 2012 IHS 9 ihs.com/jdb
  10. 10. IHS Analysis: Sub-Saharan Africa Defence Budget TrendsAbout IHS About IHS Defence & SecurityIHS (NYSE: IHS) is a leading source of information and With over 100 years of history as Jane’s, IHS is the mostinsight in pivotal areas that shape today’s business trusted and respected public source of defence andlandscape: energy, economics, geopolitical risk, security information in the world.sustainability and supply chain management. With a reputation built on products such as IHS FightingBusinesses and governments around the globe rely on the Ships and IHS All the World’s Aircraft, IHS deliverscomprehensive content, expert independent analysis and comprehensive, credible and reliable news, insight andflexible delivery methods of IHS to make high-impact analysis across all key defence and security subjectdecisions and develop strategies with speed and areas, and in support of critical military and securityconfidence. processes.IHS has been in business since 1959 and became a IHS defence and security products represent anpublicly traded company on the New York Stock invaluable open-source news, information and intelligenceExchange in 2005. Headquartered in Englewood, asset for businesses, defence organisations and armedColorado, USA, IHS employs more than 6,000 people in forces.more than 30 countries around the world.ihs.com© 2012 IHS 10 ihs.com/jdb