Brazilian annual defense expenditure valued US$38.27 bn in 2012

Tuesday 17 July 2012, Amsterdam

Brazil had the tenth-largest defense expenditure in the world in 2012. The country’s defense expenditure, which valued US$23.81 bn in 2008, grew at a CAGR of 12.6% during the review period (2008-2012), to reach US$38.27 bn in 2012. Throughout the review period, the government spent a total of US$155 bn on its defense. The modernization initiatives in Brazil have resulted in higher spending on defense (reference graph).

Brazil has a strict offset obligation for defense deals equivalent to 100% of the contract value. This has proved a challenge for foreign OEMs whose government have a policy of limited technology transfer, including the US-based company, Boeing. Moreover, Brazil’s offset policy requires that defense contracts use domestic companies for the manufacture and assembly of defense systems.

A significant challenge faced by defense suppliers to Brazil is the time taken by the Ministry of Defense to ratify defense deals. Since defense procurements occur through competitive bidding, competing companies must undergo technical compliance checks, after which the ministry enters a lengthy negotiation process with bidders designed to secure the maximum technology transfer at the lowest price. As such, the ratification process is further delayed by the long negotiation and competing offers given by the various defense firms .