Latin American Defense Spending to Grow Steadily Over Next Five Years Despite Economic Hardships
(Source: Forecast International; issued Nov 07, 2017)
NEWTOWN, Conn. --- From a global perspective, Latin America does not spend a lot of money on defense. Making up only 4 percent of the global total, Latin America ranks behind North America, Europe, Asia, and the Middle East in spending. Economic problems caused by declining commodity prices have caused defense budgets to slip even further between 2014 and 2016.

Still, defense spending declines have seemed to stabilize in recent years. After declining from 4.9 percent of the global total in 2013 to 3.9 percent in 2016, spending will hover around 4 percent for the next few years. Spending is being driven by the need to combat drug trafficking and transnational criminal groups.

Brazil is the largest spender on defense in Latin America. In most years, Brazil makes up nearly half of all defense spending in the region. Colombia follows Brazil as the next highest defense spender in Latin America, typically making up about 15 percent of the region's defense budgets. After the two big spenders, the next five countries can be divided into two tiers based on their defense budgets. Mexico and Argentina fall into the upper tier, spending 7.8 percent and 7.3 percent of the regional total, respectively. Cuba, Chile, and Peru - which fall into the second tier - spend 4.6 percent, 4.3 percent, and 3.6 percent, respectively.

The primary obstacle to defense spending in most Latin American countries continues to be a cycle of economic advances and declines, making it hard for governments to provide a steady flow of funding for their militaries. In addition, Latin America does not face threats from terrorists or poor diplomatic relations, further reducing the need for large standing armies.

That said, threats remain in the region, particularly from drug cartels, gangs, and insurgents. These groups create internal violence that necessitates government action. In order to combat their threats, defense spending in the region will grow at a steady pace between 2017 and 2021. Latin American countries will spend $315.7 billion on defense budgets during that time.

Relatively small defense budgets and open competitions have increased the competitive intensity in Latin America. Companies that want to secure contracts will need to compete with most major aerospace and defense suppliers. Often the winners will be those most willing to exchange industrial offsets, technology sharing, and licensed production for a contract.

Given the insurgency and counternarcotics concerns in the region, many Latin American countries are primarily interested in weaponry that can be employed in counterinsurgency, low-intensity conflict. They are also interested in paramilitary equipment, such as small arms, helicopters, patrol boats, armored vehicles, trucks, and communications equipment, rather than larger systems intended primarily for conventional conflict, such as fighter aircraft, tanks, or large naval vessels.

The top five defense markets in 2017 are Brazil, Colombia, Mexico, Argentina, and Cuba. Combined, spent $49.1 billion on defense, accounting for 82.8 percent of the regional total. Spending in those five countries increased 9.4 percent from 2016 figures, driven largely by increases in Brazil. Given the economic and political problems in the country, defense spending is expected to stabilize moving forward.

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