The Georgian Defense Industry Market Will Reach To US$532.8M By 2016

Tuesday 3 April 2012, Amsterdam

The Georgian defense budget was reduced to US$391.8million in 2011, as the country focused on economic development by cutting the defense spend and allocating the funds for economic stimulus projects. The country’s defense budget recorded a CAGR of -17.53% during the review period, reducing to US$391.8 million in 2011. It is expected to further reduce to US$406.5 million by 2012 before recovering to US$532.8 million by 2016. During the forecast period, the defense budget is expected to grow at a CAGR of 7.00%, stabilizing at 3.0% of the country’s GDP in 2016 from its peak of 8.3% in 2008.

Defense imports of Georgia, which fell in 2008 as the war with Russia had consumed the country’s defense budget, recovered in 2009. The majority of arms imports were from Ukraine, and armored vehicles, missiles and air defense systems constituted the majority of the country’s imports. During the forecast period, defense imports are expected to increase, owing to the increased allocation for capital expenditure in the defense budget. Georgia’s undeveloped domestic defense industry does not export arms.

The country has not yet mentioned any offset policy for defense procurement. The country has defined its foreign direct investment (FDI) policy such that all investments in the defense sector require special permission from parliament. The effective entry routes for defense companies have been foreign military sales (FMS) and direct commercial sales (DCS). Foreign defense companies can also set up a domestic subsidiary by gaining special permission from the Georgian government to gain access to Georgian markets. The key challenges faced by defense contractors in Georgia are the arms embargo proposed by Russia, which restricts arms transfers to Georgia, and the small size of the country’s defense budget, which attracts few companies into the market.