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

Sri Lanka defence market: Budget of only $1.7 billion in 2012

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2014-04-22 01:27:02 - Future of the Sri Lankan Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 - a new market research report on

With a defense budget of US$1.7 billion and less than 5% marked for capital expenditure, Sri Lanka presents few opportunities for foreign defense companies. Rebuilding northern parts of the country, which were destroyed during the war and repayment of loans taken during the war, are expected to drive the country´s military expenditure, which is expected to grow at a CAGR of 6.12% over the forecast period.

The country is expected to maintain a low allocation for defense procurement over the forecast period, focusing only on procuring necessary arms as the country focuses on reducing its debt. During the forecast period the country is expected to invest US$10.7 billion in the fulfillment of its defense requirements, stimulated by factors such as post-war



rehabilitation and a tense relationship with India.

During the forecast period the country is expected to invest US$10.7 billion in its armed forces, of which US$0.44 billion is forecast to be on the acquisition of military hardware, offering foreign OEMs limited opportunities to cater to the Sri Lankan defence industry. Furthermore, during the civil war the country procured weapons by taking loans and, therefore, over the next five years a portion of military expenditure will be spent on the repayment of existing loans. The country is focusing on increasing its revenue expenditure from an average of 94% during the review period to an average of 96% during the forecast period, a factor which is also expected to cause the acquisition of defence equipment to further decline. Such factors do not make the Sri Lankan defence market an attractive investment destination for foreign OEMs.

Incidents of malpractice within Sri Lanka´s military industrial base may limit the growth of the country´s defence sector. In addition to damaging the country´s image in the global arms market, it also discourages foreign OEMs from market entry. For example, in 2010 the former Sri Lankan army chief was found guilty of favoring the defence firm of his son-in-law, and was subsequently convicted. Furthermore, the government has been accused of siphoning off a portion of the contract money for the acquisition of four MiG-27 aircraft and the overhaul of three other MiG-27 craft and a MiG-23 UB trainer contract awarded to the Ukraine in 2006. The government has also been accused of transferring the money to a proxy firm in the UK. All these factors hamper the growth of the Sri Lankan defence industry.

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