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

Malaysia defence market: Expenditure to reach $5.7 billion by 2018

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2014-02-04 03:37:04 - Future of the Malaysian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 - a new market research report on

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.

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.

The Malaysian government fulfills most of its defense needs by importing military equipment from the foreign countries such as Russia, Germany, France, and Spain. The overall exports of the country during the period 2008-2012 were negligible, resulting in poor inflow of foreign investment. During the forecast period, the defense exports of the country are expected to remain low as a result of less joint development and collaboration programs, which is expected to remain the key challenge for the Malaysian defense industry during the forecast period.

The Malaysian defense budget, which is estimated at US$4.9 billion for 2013, is lower than the majority of Malaysia´s neighbors, with the Philippines being one of the few countries with a lower defense budget, and this relatively small defense budget frequently deters investors from venturing into the country. Moreover, the Malaysian government has made offsets mandatory for all defense procurements exceeding US$13 million, and in an attempt to encourage domestic defense development, the Malaysian government awards additional significance to direct offsets; however, due to the lack of sufficient investment and a shortage of skilled Malaysian labor, foreign OEMs are unable to transfer sophisticated technology to domestic defense companies. The combination of the factors outlined above reduces the attractiveness of the Malaysian defense industry for foreign OEMs.

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