GCC countries may cut defence spending

GCC countries may not be able to sustain the earlier pace of defence and security-related purchases, according to a report. 

Deloitte’s ‘2016 Global aerospace and defence sector outlook’ says that declining oil prices will not augur well for the defence manufacturers and suppliers in the United States and Europe. The report notes that in the 2008-09 slowdown triggered by the financial crisis, GCC buyers acted as a counterbalancing force against the tepid conditions in western economies. During the earlier era of high oil prices, the GCC nations with strong cash positions undertook multi-billion dollar defence modernisation programmes, aimed at equipping militaries with sophisticated weaponry.

For example, Saudi Arabia spent US$80.8 billion on defence in 2014, or 10 per cent of its GDP, making it among the top five largest defence-spending countries in the world, the report says. “However, lower oil prices are likely to affect the cash reserves of these GCC countries and their spending on defence going forward,” Deloitte says.

This situation has created challenges for the global defence sector as countries in this region are their major customers. But, the report says the region may still place new orders on account of the continuing turbulence in some Middle Eastern countries.

Deloitte also said that the global aerospace and defence sector witnessed a 0.5pc decline in 2015, contrary to sustained growth in earlier years, albeit on a constantly declining trend.  “This trend of declines in the global sector revenue growth rates was largely driven by decreased revenues in the defence sub sector, which suffered from cuts in global military expenditure, mainly from the United States,” it said.