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Future of the Georgian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018

Georgia defence market: Expenditure at around $7 billion in 2013

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2014-04-24 20:27:01 - Future of the Georgian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 - a new market research report on

Georgian defense expenditure increased at a CAGR of 6.03% during the review period and valued US$7.19 billion in 2013. The focus of the Georgian government will be on counter terrorism activities, modernization programs and threats posed by Russia.

Russia, being the main trading partner of Georgia started imposing embargoes since 2005. It started with restricting entry of agricultural produce and then targeted the main industries like mineral water and wine. In August 2008 Georgia fought a war with its separatist regions, South Ossetia and Abkhazia, which gained complete de facto control of their territories with the help of Russian forces. When the war ended, Russia proposed an arms embargo against Georgia, which is currently under review by the UN. This has



restricted the entry of other nations to cater to the requirement by the Georgian Defence industry in order to maintain cordial relationship with Russia It´s military power is also an important factor, as foreign countries want to maintain cordial relations with Russia. Israel, for example, which had been an exporter of arms to Georgia, stopped doing so when Russia began exporting advanced equipment to Iran and Syria, both of which have conflicting relations with Israel.]

Georgia´s defence budget is small and does not attract many companies. The country´s budget reached its peak in 2008, at US$945.95 million. During the review period, an average of 23% of the defence budget was allocated for capital expenditure on defence equipment. This small size of the budget does not attract many companies to supply arms to, or invest in, the country. The proposed arms embargo against Georgia further increases the challenges, as defence contractors might not find it feasible to violate the embargo to cater for a small market.

The domestic defence industry of Georgia is undeveloped and is mainly dependent on imports for its arms requirements. Foreign defence companies can directly sell defence equipment to the Georgian Defence Ministry, either through direct commercial sales (DCS) or foreign military sales (FMS). Georgia received arms from the US prior to the proposal of the arms embargo on the country. During 2002-2006 the country received arms worth US$77.5 million through DCS and US$82.2 million through FMS. Historically, FMS and DCS have been the most effective entry routes to cater to the Georgian markets.

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