Swedish defense expenditure expected to register a CAGR of 2.4% during the forecast period

Tuesday 14 August 2012, Amsterdam

Swedish defense expenditure, valuing US$6.7 bn in 2012, registered a CAGR of 1.9% during the review period (2008 – 2012). During the forecast period it is expected to grow at a CAGR of 2.4% to reach US$7.6 bn in 2017. On a cumulative basis, Sweden is expected to invest US$36.5 bn in its armed forces during the forecast period (2013-2017), a figure primarily stimulated by factors such as international peacekeeping missions, government modernization initiatives, and new security threats posed by Russia (reference see graph).

Despite the marginal increase expected for the country’s total defense budget during the forecast period, the actual defense budget is expected to increase from US$6.73 bn in 2012 to US$7.62 bn in 2017. However, the budget is not large enough to fulfil all defense requirements, which has led to the cancellation of some projects. For example, the country’s SEP (Spitterskyddad Enhets Platform) land vehicle design project, which was jointly undertaken with BAE Systems, was cancelled due to budget constraints. Low budget and the potential cancellation of projects means foreign investors are wary to enter the market.

Offsets are mandatory in Sweden for all defense procurements exceeding US$13.9 m. However, the nation has no provision for multipliers, which discourages foreign suppliers while doing business with Sweden. Countries generally use offset multipliers as a tool to attract investments into industry sectors they consider to be critical or underfunded. Foreign suppliers have shown reluctance while transferring crucial defense technology to Sweden because it is not incentivized by way of offset multipliers. As such, the presence of foreign defense firms in European countries which offer multipliers is higher than in Sweden. The absence of multipliers limits the share of foreign defense firms within the Swedish military industry to an estimated 10%.

Sweden possesses a well-developed domestic defense capability, and is able to produce advanced defense systems such as fighter aircrafts, submarines and naval vessels from domestic defense companies. However, defense products manufactured in the country are highly sophisticated, which increases training requirements, and are also expensive. As a result, the country procures military equipment from foreign defense firms through competitive bidding in order to reduce costs. As such, imports account for the remaining 10% of demand for defense equipment. During the forecast period Swedish defense imports are not anticipated to increase significantly, as a result of the country’s attempts to reduce total defense expenditure.