The Sri Lankan Defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017

Wednesday 7 November 2012, Amsterdam

Sri Lankan defense expenditure declined at a CAGR of -2.99% during the review period to value US$1.3 bn in 2012. However, the country’s military expenditure is estimated to register an increase in CAGR of 8.15% during the forecast period, to value US$1.8 bn in 2017. Defense expenditure is expected to be driven by factors such as post war rehabilitation, a tense relationship with India and a persistent threat from separatists. The country’s defense budget as a percentage of GDP is also expected to decline from 2.3% in 2012 to 1.7% in 2017. Overall, the country is expected to invest an estimated US$8.1 bn in its armed forces during the forecast period, out of which approximately US$0.43 bn will be earmarked for the acquisition of defense equipment.

Post-war rehabilitation efforts, a tense relationship with India and persistent threats from separatists are expected will drive the defense expenditure. During the forecast period the country is expected to invest US$7.07 bn in the fulfillment of its defense requirements, stimulated by factors such as post-war rehabilitation, a tense relationship with India and the persistent threat from separatists. Sri Lankan defense expenditure is expected to significantly increase during the forecast period, due to the need to consolidate defense assets after a civil war which lasted 20 years.

During the forecast period (2012-2022) the country is expected to invest US$7.07 bn in its armed forces, of which US$0.33 bn is forecast to be on the acquisition of military hardware, offering foreign OEMs limited opportunities to cater to the Sri Lankan defense industry. Furthermore, during the civil war the country procured weapons by taking loans and, therefore, over the next five years a portion of military expenditure will be spent on the repayment of existing loans. The country is focusing on increasing its revenue expenditure from an average of 87% during the review period to an average of 95% during the forecast period, a factor which is also expected to cause the acquisition of defense equipment to further decline.