Tuesday, November 15, 2011

Brazil to be among Top Ten Defense Spending Nations

Neelam Mathews

Nov 15, 2011

Brazil has the eleventh-largest defense expenditure in the world in 2010 and, due to its strong economic growth during the forecast period, it is expected to become one of the top ten defense spending nations by 2016, says an ASD Report.

Brazil’s defense expenditure has grown faster than the majority of the world’s largest defense budgets, at a CAGR of 20.59%, and is expected to register another fast growth rate in the forecast period, at a CAGR of 16.69%.

Interestingly, Brazil has not come under military attack in over 50 years, and traditionally favors negotiation over military force to resolve disputes with other countries.

As Brazil’s long-term focus is the reduction of its reliance on foreign arms suppliers, it is working towards enhancing its indigenous defense capabilities through technology transfer agreements. Brazil’s defense expenditure is expected to grow during the forecast period (2011–2016) due to Brazil’s aim to become the leading arms exporter in Latin America. Brazil is also expected to spend more on defense over the forecast period due to its current modernization of outdated defense systems, and the country’s desire to protect its natural resources.

The Brazilian Ministry of Defense aims to decrease its dependence on foreign OEMs (original equipment manufacturers) and enhancing its domestic defense capabilities. As such, it prefers to procure defense technology from foreign OEMs, which is then constructed by domestic defense companies. This provides domestic defense firms with technology and equipment which they can integrate into their existing systems. Brazil aims to become a net exporter of defense equipment, and it benefits from low labor costs and large availability of raw materials, says the report.

Brazil’s homeland security expenditure and product procurement is expected to increase during the forecast period to improve security for Brazil’s hosting of major international sporting events. Millions of spectators expected to attend the 2014 Football World Cup and 2016 Olympic Games, which will take place in Brazil, and will require additional security. The country has begun discussions with Israeli security companies in order to receive security services and technology in airports and transport systems.

Brazil adopts a competitive bidding approach for both domestic and international acquisitions. In addition to compliance with the defense requirements, a bidder must offer the lowest price with the maximum technology transfer to win a defense contract from the country. 

Any defense deal worth more than $5 million has an offset obligation equivalent to 100% of the contract value. The main entry strategy for foreign OEMs is through the direct offset route, which entails the transfer of technology to local companies and the manufacture and assembly of systems in Brazil. However, a number of foreign OEMs have established manufacturing bases in Brazil, in order to capitalize on its low labor costs and availability of raw materials. As such, Brazil is considered to be an export hub for Latin America.

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