Norwegian homeland security expenditure is expected to record a CAGR of 8.0%

Thursday 16 February 2012, Amsterdam

The defense expenditure of Norway registered a CAGR of 7.22% during the review period (2007–2011) and is expected to record a CAGR of 2.51% over the forecast period (2012–2016). The primary reasons for this expectation of increased spending include Norway’s involvement in international peacekeeping missions, border disputes with Russia and the expected expansion of home guard training activities.  Furthermore, as a percentage of GDP, Norwegian defense expenditure stood at an average of 1.4% during the review period, a figure expected to increase to an average of 1.5% during the forecast period as a result of stronger economic growth.

Norwegian homeland security expenditure is expected to record a CAGR of 8.0% during the forecast period, driven by the increased perceived threat from radical and foreign terrorist organizations such as al-Qaeda. The country is also expected to invest in the modernization and strengthening of its home guard over the forecast period.

In Norway, offsets are mandatory for all defense procurements equal to or exceeding US$82.2 million, with foreign investors required to invest 100% of the contract value back into the Norwegian economy. The offset project must also cater to defense related, security related or dual use products. If an investor is unable to fulfill their offset obligation within 10 years of the agreement, they are liable to pay a penalty of at least 10% of the outstanding value. Furthermore, the country’s offset program has offset multipliers, which vary from 1 to 5, depending upon the sector the offset agreement caters to.

Foreign OEMs predominantly enter the Norwegian defense industry through the formation of joint ventures or strategic alliances with domestic defense firms. During the last 25 years, firms such as Thales Australia, BAE Systems and Raytheon have entered the market through these routes, with such methods favored as they allow both companies to capitalize on each other’s capabilities. Additionally, the government also encourages investors to enter the market by collaborating on research and development programs, as this involves the extensive transfer of technology and therefore enhances the capabilities of the domestic defense industry.

Although Norway allows foreign investors to enter its defense industry, and foreign and domestic investments are treated equally by law, regulations, standards, and practices often favor Norwegian, Scandinavian and European Economic Area (EEA) investors. This makes the entry of non-European investors more challenging. Furthermore, as the country completed the modernization of its armed forces during the review period, market opportunities are now limited for future investors.

As one of the founding members of NATO, Norway is an active contributor to the UN-led international operations in Afghanistan and Iraq, with the country’s main international commitment during the review period having been its involvement in the International Security Assistance Force (ISAF), a NATO-led security mission in Afghanistan established by the United Nations Security Council. Although Norway is also involved in other UN-led missions in Lebanon (UNIFIL), Darfur (UNAMID), Sudan (UNMIS), the Middle East (UNTSO), Ethiopia and Eritrea (UNMEE), and Kosovo (UNMIK), Afghanistan remains Norway’s main international commitment and the country contributed US$10 million to the Afghan Nation Army (ANA) Trust Fund in 2011.