Contributor: Defence Dateline Group, provides monthly and on-demand analysis of current security and defence issues.
As we place one hesitant foot in front of the other this new year, it seems the timing is right to offer the defence industry some predictions and likely trends in purchasing requirements for the coming twelve months. Without being foolhardy, it might do the industry some good to attack the issue head on - from the perspective of ‘big policy’, no less. Not all of these trends are commercially reassuring, but the world is not running out of conflicts or threats and 2011 will bring opportunities in a range of non-traditional markets.
The continent plans more cuts
Clearly, 2011 will be a year of some belt-tightening. Both Germany and the UK have already announced major cuts to their defence budgets, with the UK cutting 8% each year for four years, and Germany targeting air assets and troop numbers as it cuts by €8.3bn. Though France has been loath to implement austerity measures, in 2011 it will be forced to follow suit. Rumblings from the bond markets will combine with public protest at potential cuts to social benefits, making defence spending look like an easy target.
The US seems unlikely to follow this trend. In November 2010, the Republican Party won the midterm elections on a platform of deficit-cutting zeal. Yet they have remained vague as to where their cuts should fall. In a time of war, and with one eye on China, few congressmen will want to risk criticism from the political right. At a time of high unemployment, none will countenance the cancellation of procurement programmes in their own districts. Finally, with government divided between Democrats and Republicans, President Obama will be carefully choosing his conflicts, and major reductions in defence spending are unlikely to be one of them.
Pressure, though, will come from Defence Secretary Robert Gates, who has intimated that he will retire during 2011. He has made fiscal restraint a centrepiece of his attempts to reform the Pentagon, cutting jobs, and ending the Future Combat Systems and F-22 Raptor programmes. At the beginning of the year he announced a $78bn reduction in proposed spending, including cutting the Expeditionary Fighting Vehicle, the Marine Corps’ troubled amphibious tank. He will be determined to gain a valedictory success in this field.
American investment strategy for defence
However, he is likely to face a bitter battle with the incoming chairman of the House Armed Services Committee, Howard McKeon, who has already stated his firm opposition to defence cuts. Perhaps the most likely outcome is that major capital programmes such as the EFV will be permitted to continue, in return for the implementation of administrative and manpower cuts. In particular, the defence industry will have to adapt to proposed new rules on contracting which shift the onus for cost overruns onto contractors.
Meanwhile, service and personnel contractors will face some political pressure, but probably little action. There is a consensus in the policy community that oversight of private contractors in Afghanistan and Iraq should be increased and the December 2010 US defence bill went some way towards this aim. However, the White House will come under increasing public pressure to demonstrate that troops are returning from Afghanistan, meaning that contractors will continue to be too vital to the war effort to significantly restrict them at this point.
There will be more to 2011 than cuts and avoiding being on the wrong end of them. North Korea and a more assertive China are likely to make life in East and South-East Asia feel rather dangerous. South Korea and the Republic of China are obvious potential customers, but Singapore, Indonesia and Thailand may all look to add submarines to their naval forces.
Asian power struggles
Meanwhile, China’s close relations with Pakistan and Sri Lanka, and the likelihood that it will shortly have carrier strike capabilities, will continue to worry India. India is already expanding its own submarine and carrier capabilities, but may also seek to refine and improve its anti-ballistic missile shield. As a potential partner to balance against China, the US will continue to promote cooperation with India, and it may offer some further military hardware in addition to the eight P-8I maritime patrol aircraft it sold to the Indian Navy in March 2009.
A similar logic of fear applies in the Middle East. Tensions will continue over Iran, and with oil prices remaining high, the GCC countries will look to add to their arsenals. Mine clearing vessels, missile defence systems and prestigious fighter jets will remain the top priorities.
Moving northeast from Iran, the war in Afghanistan will continue to rumble on. A dispute between General Petraeus and President Obama over the precise number of troops to return home in 2011 is likely, but suffice to say that the majority of NATO forces there now will still be there in 12 months time.
However, new capital spending on the war is likely to taper off; there will be continued purchases of the latest counter-IED equipment, but little else will be required.
UAVs and cyber
No set of defence predictions would be complete without mention of the obvious headline areas for 2011: UAVs and cyberspace. With most of the major purchasers having already selected their next generation of drones, developments here will be in the fields of R&D, and in their sale to new users. Many of these new users will be countries with remote borders, interested in the homeland security and border patrol applications of UAVs. One counterintuitive effect of the continuing Iranian nuclear crisis is that defence cooperation between Israel and Russia is likely to deepen, with UAVs at the centre of this.
In cyberspace, almost all the major defence spenders will slowly emulate the US by creating a unified cyber-command. Meanwhile, in March 2011, a report on CYBERCOM’s strategy will be submitted to Congress. Given the sheer complexity of setting up CYBERCOM, and the vagueness of its remit, it may be predicted that it will at some point offer consultancy contracts to help with the organisation and implementation of its mission, as well as to supplement its own know-how and force levels. Its imitators will likely have to do the same.
Covering purchasing requirements as a first step might be viewed as a narrow approach. Certainly, it does not begin to touch on mergers and acquisitions, legal disputes and all the other issues that consume middle level and upper management in what has now become a turbulent industry. Yet, there are enough predictions here to keep your average defence executive up at night, whether through excitement or trepidation. What may be said with certainty is that as some familiar conflict areas resolve themselves, levees continue to break in others. Perhaps one modest prediction would be to add that disruptions of rising powers and rogue states will ensure that there will be a role for the defence industry - indefinitely.