Pressures grow on global defense spending: report

June 10, 2013 at 6:04 PM
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WASHINGTON, June 10 (UPI) -- Defense industries in the Western Hemisphere and Europe already know this, but defense spending cuts across the industrial world pose one of the biggest challenges to financial health of the sector.

The Iran nuclear crisis provided some timely relief to U.S. and European defense industries as Arab military purchases in the Persian Gulf picked up in response to the continuing stand-off over Tehran's nuclear development program. Elsewhere, such temporary relief has been hard in coming.

Squeezed by the effects of the 2008-09 financial downturn and further economic and political fallout from that crisis, governments across the world are either volunteering to cut defense spending or being forced to downsize from $1.72 trillion global spending in 2011.

In the United States and member countries of coalitions in Afghanistan and Iraq, the drawdown of allied forces has meant less spending overall on defense. Countries such as Canada that are continuing with military training programs are also not spending as much as they would have if carrying on with combat readiness or peacekeeping duties.

These reductions in military activity pose "fresh challenges for defense policymakers," a Defense Industry Outlook study by global consulting firm Deloitte said.

Deloitte is the common name for Touche Tohmatsu Ltd., the world's second largest professional services company by revenue with 193,000 employees worldwide. The group earned $31.3 billion last year, reported to be a record.

Deloitte rivals Ernst & Young, KPMG and PricewaterhouseCoopers, and has 193,000 employees in more than 150 countries providing audit, tax, consulting, enterprise risk and financial advice.

Not surprisingly what happens to the global defense industries -- many among Deloitte clients -- is relevant to the emerging battles between arms spending and everything else on which governments spend public money.

Deloitte says it surveyed 50 nations whose defense budgets compose 97 percent of global defense spending. Faced with the new challenges, governments in those states are approaching the potential threat to their well-being with sharply different strategies.

From 2006 to 2011, for example, those 50 boosted defense spending by more than 20 percent as United States-led coalitions waged war in Iraq and Afghanistan and many countries modernized their armed forces.

But the wars in those countries are practically over, at least for the U.S.-led coalitions, and local governments have different approaches to allocating money to defense and security.

But the end of these conflicts, along with the variation in patterns of economic growth, produced diverging defense strategies among the Top 50, Deloitte said.

The big spenders are led by the United States, 41 percent of the total; China, France, Japan, Russia and the United Kingdom, 23 percent; Australia, Brazil, Canada, Germany, India, Israel, Italy, Saudi Arabia, South Korea, Turkey, 19 percent, followed by the rest of the 50 countries spending 3 percent to 8 percent.

Higher-income countries are slowing defense spending as regional conflicts end and as domestic demands for austerity and social investment erode previous commitment to high levels of defense spending.

In contrast, lower-income countries, braced by continued economic growth and lower levels of debt, are confronting instability and regional security challenges with higher levels of defense spending.

Analysts said the Deloitte report's conclusions could still be revised by the next moves in Syria, where European governments are arguing on whether to arm the rebels seeking to unseat President Bashar Assad.

The 2013 Global Defense Outlook examines current policies, practices and trends affecting the defense ministries of the 50 nations surveyed.

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