The Romanian Defense Industry Market Opportunities to 2017

Wednesday 7 November 2012, Amsterdam

During the review period 2008-2012, the Romanian defense budget recorded a CAGR of -16.08%, as a consequence of the global financial crisis and fiscal pressures in Romania. The defense budget, which stands at 0.8% of GDP in 2012, is expected to decrease to 0.7% by 2017, as the country’s GDP growth rate is expected to outpace its defense expenditure growth rate. However, the defense budget is expected to increase during the forecast period due to economic recovery, relatively higher budget allocation for defense, and a lack of significant security threats to national security. During the review period, the country’s capital expenditure allocation stood at 14.7% of the total defense budget and is expected to increase to 18.5% over the forecast period, due to lower equipment purchase allocations. Consequently, the share of revenue expenditure of the total defense budget is expected to decline from an average of 85.3% during the review period to an average of 82.6% during the forecast period.

Participation in peacekeeping missions, joint operations and border control measures will support defense expenditure.The defense expenditure of Romania is primarily driven by the country’s participation in various international peacekeeping missions, joint operations with the police force for the internal security of the country, and modernization of the armed forces, primarily by acquiring second-hand equipment. Romania actively participates in various peacekeeping missions around the world.

Following the global financial crisis, the Romanian economy went in to a deep recession in 2008 jeopardizing the growth it had witnessed in earlier years. The crisis led the government to take various unpopular austerity measures including public sector restructuring, spending cuts for the interior and defense ministries, and expenditure cuts, including a 25% cut in public wages and 15% drop in pension and social benefits in the 2010 budget. This resulted in a lower allocation for defense equipment acquisition, making market entry unviable for foreign defense companies. However, the economy posted growth in GDP in 2011 and is expected to emerge from recession by the end of 2012