09 Apr 13
South Africa today spends about 1% of its gross domestic product (GDP) on defence, in comparison to the global average figure of 2.5%, reported auditing and consultancy firm Deloitte on Tuesday. This low level of defence spending is exemplified by the fact that the South African Air Force has placed 12 of its 26 Gripen fighters in long-term storage. In the 1980s, defence expenditure absorbed 4% of the country’s GDP.
“There are various reasons for this reduction in defence spending including the cost of operations versus budget allocations,” said Deloitte aerospace and defence leader Igna Gray. “South Africa, despite the reduction in spend is still considered a regional military power in Africa with a focus on peacekeeping on the continent and in neighbouring countries.”
“Global military expenditure as a percentage of GDP in 2011, showed that Saudi Arabia had the highest spend at 8.4%, followed by Israel (6.8%) and then the US (4.7%),” she reported. “Placing South Africa on the list would see it being compared to Japan, which is 17th on the list at 1% – the same as South Africa.”
There is, however, a global trend of reduced spending on defence. “Defence budget declines in the UK and Europe are offset by smaller aggregate increases in countries like China, Russia, India, Saudi Arabia [and] the United Arab Emirates and may be more pronounced if the US Budget Control Act’s automatic cuts also come into effect,” stated Gray.
Lower defence spending worldwide could result in excess capacity in the global defence industry. This could “create opportunities for industry consolidation, particularly at supplier levels,” she observed.
In contrast, the civilian aerospace sector is growing strongly. Commercial aerospace sector revenues grew by 13.6%, while operating earnings rose 23.5%. Operating earnings in the defence sector increased much less, by 8.2%.