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Future of the Brazilian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2019

This report is the result of SDI's extensive market and company research covering the Brazilian defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.

Introduction and Landscape

Why was the report written?

The Future of the Brazilian Defense Industry - Market Attractiveness, Competitive Landscape, and Forecasts to 2019 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain market share in the Brazilian defense industry.

What is the current market landscape and what is changing?

Brazil which is the largest defense spender in Latin America is projected to spend US$190 billion on its armed forces during the forecast period. Defense expenditure registered a negative CAGR of -2.58% during the review period, primarily due to the recent fiscal budget cuts in 2013 as the Government aims to reduce the inflation. However, it is anticipated to record a CAGR of 7.82% during the forecast period driven primarily by aggressive procurement of naval vessels, the border monitoring program- SISFRON (Sistema Integrado de Monitoramento de Fronteiras) and SISGAAZ (Sistema de Gerenciamento da Amazonia Azul) to be implemented during the forecast period. The Brazilian defense industry is expected to focus its expenditure on the FX-2 program, nuclear-powered attack submarines (SSN), aircraft carriers, transport helicopters and also modernizing its armored vehicles.

What are the key drivers behind recent market changes?

Modernization of defense systems, development of indigenous defense capabilities, and large defense procurement projects expected to drive the Brazilian defense expenditure

What makes this report unique and essential to read?

The Future of the Brazilian Defense Industry - Market Attractiveness, Competitive Landscape, and Forecasts to 2019 provides detailed analysis of the current industry size and growth expectations from 2015 to 2019, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

Key Features and Benefits

The report provides detailed analysis of the current industry size and growth expectations from 2015 to 2019, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

The report includes trend analysis of imports and exports, together with their implications and impact on the Brazilian defense industry.

The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.

The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.

The report helps the reader to understand the competitive landscape of the defense industry in Brazil. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.

Key Market Issues

Brazil has a strict offset obligation for defense deals, equivalent to 100% of the contract value. This has proved a challenge for those foreign OEMs whose government has a policy of limited technology transfer, including the US-based company Boeing. Moreover, Brazil's offset policy requires that defense contracts use domestic companies for the manufacture and assembly of defense systems. A number of foreign OEMs have agreed to such offset requirements due to the availability of inexpensive labor and raw materials in the country. However, a significant portion of these companies are reluctant to share proprietary information with Brazil, and often fail to supply defense systems to the country as a consequence. These rigorous requirements by Brazil often delay the approval of defense deals.

A significant challenge faced by defense suppliers to Brazil is the time taken by the Ministry of Defense to ratify defense deals. As defense procurements occur through competitive bidding, competing companies must undergo technical compliance checks, after which the ministry enters a lengthy negotiation process with bidders, designed to secure the maximum technology transfer at the lowest price. Although the armed forces are in charge of conducting trials on shortlisted equipment and forwarding their recommendations to the Ministry of Defense (MoD) who perform the final financial negotiations with the concerned seller.

Key Highlights

The Brazilian MoD is increasing efforts to replace its aging military systems and equipment acquired during the Soviet era. The country is expanding its naval fleet to increase regional maritime security by procuring Amazonas Class Ocean Patrol Vessels from UK and France. Further in an agreement signed with France in 2008, Brazil jointly manufacturing four Scorpene attack submarines, anticipated to enter service in 2017 along with a nuclear-powered submarine to be commissioned in 2023.Additionally in 2013, the Brazilian Air Force has chosen Saab's Gripen over other prospects which included Dassault's Rafale jet and Boeing's F/A 18 Super Hornet under a US$4.5 billion to provide 36 fighter jets by 2020.The country's defense ministry is also currently in the process of strengthening its military ties with Russia, having initiated a US$1 billion planned procurement of anti-aircraft missile batteries. The country also plans to replace its domestically manufactured Urutu armored personnel carriers with 2,044 units of Italian-made Iveco Vehicles, in a deal worth US$3.5 billion. Such major projects are set to fuel strong growth in the industry during the forecast period, as the government procures a large amount of military hardware.

Brazil's ambitious international sporting events are anticipated to boost the country's spending on the homeland security during the forecast period. Millions of spectators are expected to attend the 2014 Football World Cup and 2016 Olympics, which will take place in Brazil and will require additional security. The country has invested significantly in command and control centers, training, and security equipment such as mobile police stations, boats, cameras, anti-bomb systems, video-walls, radio communications, media intelligence monitoring, video-monitoring and cyber security software.

Brazil largely relies on imports to modernize its ageing aircraft fleet, and has allocated significant funds for procurement under of the fourth-generation FX-2 program fighters. Brazilian aircraft imports account for almost 46% of its total arms procurements, and involves the import of advanced fighter jets and components for the manufacture of indigenous aircraft systems such as helicopters and cargo aircraft. In December 2013, a contract worth US$ 4 billion has been signed with Saab to procure 36 Gripen fighter aircrafts. Further during the forecast period, the development of domestically manufactured air transport and refueling aircraft KC-390 is expected to import engine and navigation system from foreign manufacturers. The Brazilian Air Force (FAB) has contracted with International Aero Engines (IAE) to supply V2500-E5 engine power plants for the KC-390 transport aircraft.

Table of Contents

1. Introduction

  • 1.1. What is this Report About?
  • 1.2. Definitions
  • 1.3. Summary Methodology
  • 1.4. SDI Terrorism Index
  • 1.5. About Strategic Defence Intelligence

2. Executive Summary

3. Market Attractiveness and Emerging Opportunities

  • 3.1. Defense Market Size Historical and Forecast
    • 3.1.1. Brazilian defense budget to post steady growth rate over the forecast period
    • 3.1.2. Regional dynamics and foreign military aid are expected to be key factors driving defense expenditure
    • 3.1.3. Burdened with refugees, Brazilian economy may offer less support to military expenditure
  • 3.2. Analysis of Defense Budget Allocation
    • 3.2.1. Personnel salaries to dominate military expenditure over the forecast period
    • 3.2.2. Military aid from the US dominate the kingdom's capital expenditure
    • 3.2.3. Per capita defense expenditure expected to increase over the forecast period
  • 3.3. Homeland Security Market Size and Forecast
    • 3.3.1. Brazilian homeland security expenditure expected to increase at a CAGR of 7.82%
    • 3.3.2. Internal conflicts and counter-terrorism will be the key factors driving homeland security expenditure
    • 3.3.3. Brazil considered at 'moderately affected' of terrorist attack
  • 3.4. Benchmarking with Key Global Markets
    • 3.4.1. Brazil to remain at the bottom of the top defense spenders list
    • 3.4.2. Brazil trails its neighbors in terms of defense expenditure as a percentage of GDP
    • 3.4.3. Brazil is one of the countries highly affected by terror attacks
  • 3.5. Market Opportunities: Key Trends and Drivers
    • 3.5.1. Anti-tank and anti-aircraft capabilities expected to be in demand
    • 3.5.2. Demand for armored vehicles expected to increase
    • 3.5.3. Procurement of helicopters and technology to enhance border security and counter-terrorism

4. Defense Procurement Market Dynamics

  • 4.1. Import Market Dynamics
    • 4.1.1. Defense industry heavily relies on imports from foreign countries
    • 4.1.2. Russia, Belgium, and the US were the key defense suppliers to Brazil
    • 4.1.3. Aircraft and missiles dominated Brazilian defense imports
  • 4.2. Export Market Dynamics
    • 4.2.1. Arms exports to recover during the forecast period
    • 4.2.2. Kenya and Lebanon were major destinations for Brazilian defense exports
    • 4.2.3. Aircraft and armored vehicles are the main exported defense products

5. Industry Dynamics

  • 5.1. Five Forces Analysis
    • 5.1.1. Bargaining power of supplier: high
    • 5.1.2. Bargaining power of buyer: low
    • 5.1.3. Barrier to entry: medium
    • 5.1.4. Intensity of rivalry: low to medium
    • 5.1.5. Threat of substitution: low to medium

6. Market Entry Strategy

  • 6.1. Market Regulation
    • 6.1.1. The Brazilian government allows FDI in the defense industry
    • 6.1.2. Brazil does not impose any offset obligations
  • 6.2. Market Entry Route
    • 6.2.1. Government-to-government deals are the preferred market entry route for foreign OEMs
    • 6.2.2. Joint ventures and technology transfer open new market entry strategy choices
  • 6.3. Key Challenges
    • 6.3.1. Small defense budget does not attract investors and suppliers
    • 6.3.2. Corruption acts as an obstacle for market entry

7. Competitive Landscape and Strategic Insights

  • 7.1. Competitive Landscape Overview
    • 7.1.1. Brazilian defense sector is dominated by foreign competitors
  • 7.2. Key Domestic Companies
    • 7.2.1. KADDB: Overview
    • 7.2.2. KADDB: Major Products and Services
    • 7.2.3. KADDB: Recent Announcements and Strategic Initiatives
    • 7.2.4. KADDB: Alliances

8. Business Environment and Country Risk

  • 8.1. Demographics and Social Statistics
    • 8.1.1. Population - Rural
    • 8.1.2. Population - Urban
    • 8.1.3. Number of Households
  • 8.2. Economic Performance
    • 8.2.1. GDP per Capita
    • 8.2.2. Gross Domestic Product
    • 8.2.3. Exports of Goods and Services
    • 8.2.4. Imports of Goods and Services
    • 8.2.5. Gross National Disposable Income
    • 8.2.6. Manufacturing Output
    • 8.2.7. Consumer Price Index
    • 8.2.8. Wholesale Price Index
    • 8.2.9. LCU per US$ (period average)
    • 8.2.10. LCU per Euro (period average)
    • 8.2.11. Lending Rate (%)
    • 8.2.12. Deposit Rate
    • 8.2.13. Real Interest Rate
    • 8.2.14. Market Capitalization of Listed Companies
    • 8.2.15. Market Capitalization of listed companies as a % GDP
    • 8.2.16. Total Government cash surplus/deficit
    • 8.2.17. Total Government cash surplus/deficit as % of GDP
    • 8.2.18. Total Central Government Debt
    • 8.2.19. Total Central Government Debt as % of GDP
    • 8.2.20. Goods Exports as a % of GDP
    • 8.2.21. Goods Imports as a % of GDP
    • 8.2.22. Goods Trade Surplus/Deficit as a % of GDP
    • 8.2.23. Services Imports as a % of GDP
    • 8.2.24. Services Exports as a % of GDP
    • 8.2.25. Services Trade Surplus/Deficit as a % of GDP
    • 8.2.26. Net Foreign Direct Investment
    • 8.2.27. Net Foreign Direct Investment as % of GDP
    • 8.2.28. International reserves, including gold
  • 8.3. Energy and Utilities
    • 8.3.1. Total Conventional Thermal Electricity Net Generation
    • 8.3.2. Hydro Electricity Net Generation
    • 8.3.3. Total Conventional Thermal Electricity Installed Capacity
    • 8.3.4. Total Electricity Exports
    • 8.3.5. Total Electricity Imports
    • 8.3.6. Total Petroleum Consumption
    • 8.3.7. Total Non-Hydro Renewable Electricity Net Generation
  • 8.4. Infrastructure Quality and Availability
    • 8.4.1. Roads, total network
    • 8.4.2. Rail lines
    • 8.4.3. Air transport, freight
  • 8.5. Minerals
    • 8.5.1. Mining, Manufacturing, Utilities Output
  • 8.6. Technology
    • 8.6.1. Patents Granted
  • 8.7. Telecommunication
    • 8.7.1. Telephone Lines
    • 8.7.2. Telephone lines Penetration Rate

9. Appendix

  • 9.1. About SDI
  • 9.2. Disclaimer

List of Tables

  • Table 1: Brazilian Defense Expenditure (US$ Billion), 2010-2014
  • Table 2: Brazilian Defense Expenditure (US$ Billion), 2015-2019
  • Table 3: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2010-2014
  • Table 4: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2015-2019
  • Table 5: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2010-2014
  • Table 6: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2015-2019
  • Table 7: Brazilian Capital Expenditure (US$ billion), 2010-2014
  • Table 8: Brazilian Capital Expenditure (US$ billion), 2015-2019
  • Table 9: Brazilian Homeland Security Budget (US$ billion), 2010-2014
  • Table 10: Brazilian Homeland Security Budget (US$ billion), 2015-2019
  • Table 11: Benchmarking with Key Markets - 2009-2013 vs. 2014-2018
  • Table12: SDI Terrorism Index
  • Table 13: Brazil - Offset Guidelines and Agreements
  • Table14:Embraer- Product focus
  • Table15:Embraer- Alliances
  • Table16: Embraer- Recent Contract Wins
  • Table17:Forjas Taurus SA- Product focus
  • Table18: Forjas Taurus SA- Alliances
  • Table19:Embraer- Recent Contract Wins
  • Table20:Avibras Industria Aerospacial- Product focus
  • Table21:Avibras Industria Aerospacial- Alliances
  • Table22:Avibras Industria Aerospacial- Recent Contract Wins
  • Table23:Companhia Brasileira de Cartuchos- Product focus
  • Table24: Companhia Brasileira de Cartuchos (CBC)- Recent Contract Wins
  • Table25:Helibras- Product focus
  • Table26:Helibras- Alliances
  • Table27:Helibras- Recent Contract Wins
  • Table28:Industria de Material Belico do Brasil (IMBEL)- Product focus
  • Table29:Industria de Material Belico do Brasil (IMBEL)- Alliances
  • Table30:Industria de Material Belico do Brasil (IMBEL)- Recent Contract Wins
  • Table31:Aeroelectronica- Product focus
  • Table32:Aeroelectronica- Alliances
  • Table33:Aeroelectronica- Recent Contract Wins
  • Table34:Industria Naval do Ceara- Product focus
  • Table35:Industria Naval do Ceara- Recent Contract Wins
  • Table36: Northrop Grumman- Product focus
  • Table37:Northrop Grumman- Alliances
  • Table38:Northrop Grumman - Recent Contract Wins
  • Table39:EADS Brazil- Product focus
  • Table40: EADS Brazil- Alliances
  • Table41: EADS Brazil- Recent Contract Wins
  • Table42: Lockheed Martin- Product focus
  • Table43: Lockheed Martin- Alliances
  • Table44:Lockheed Martin- Recent Contract Wins

List of Figures

  • Figure 1: Brazilian Defense Expenditure (US$ Billion), 2010-2014
  • Figure 2: Brazilian Defense Expenditure (US$ Billion), 2015-2019
  • Figure 3: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2010-2014
  • Figure 4: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2015-2019
  • Figure 5:Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2010-2014
  • Figure 6: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2015-2019
  • Figure 7: Brazilian Capital Expenditure (US$ billion), 2010-2014
  • Figure 8: Brazilian Capital Expenditure (US$ billion), 2015-2019
  • Figure 9: Brazilian Defense Expenditure Allocation (US$ billion), 2010-2014
  • Figure 10: Brazilian Homeland Security Budget (US$ billion), 2010-2014
  • Figure 11: Brazilian Homeland Security Budget (US$ billion), 2015-2019
  • Figure 12: SDI Terrorism Heat Map, 2012
  • Figure 13: SDI Terrorism Index, 2012
  • Figure 14: Benchmarking with Key Markets - 2008-2012 vs. 2013-2017
  • Figure 15: Defense Expenditure of the World's Largest Military Spenders (US$ Billion), 2013 and 2018
  • Figure 16: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2013
  • Figure 17: Border Security (US$ Million), 2014-2024
  • Figure 18: Fighters and Multi-Role Aircraft (US$ Million), 2014-2024
  • Figure 19: Homeland Security Infrastructure (US$ Million), 2014-2024
  • Figure 20: Submarines Market (US$ Million), 2014-2024
  • Figure 21: Offshore Patrolling Vessels(US$ Million), 2014-2024
  • Figure 22: Transport and Utility Aircraft (US$ Million), 2014-2024
  • Figure 23: Military Software Infrastructure (US$ Million), 2014-2024
  • Figure 24: Brazilian Defense Import Trend, 2008-2012 (TIV values)
  • Figure 25: Brazilian Defense Imports by Country (%), 2008-2012
  • Figure 26: Brazilian Defense Imports by Category (%), 2008-2012
  • Figure 27: Brazilian Defense Exports By Value (US$ million), 2008-2012
  • Figure 28: Brazilian Defense Exports by Country (%),2008-2012
  • Figure 29: Brazilian Defense Exports by Category (%),2008-2012
  • Figure 30: Industry Dynamics - Porter's Five Forces Analysis
  • Figure 31: Embraer - Revenue Trend Analysis (R$ Million), 2008-2012
  • Figure 32: Embraer - Operating Profit Trend Analysis (R$ Million), 2008-2012
  • Figure 33: Embraer - Net Profit Trend Analysis (R$ Million), 2008-2012
  • Figure 34: Forjas Taurus SA - Revenue Trend Analysis (R$ Million), 2008-2012
  • Figure 35: Forjas Taurus SA - Operating Profit Trend Analysis (R$ Million), 2008-2012
  • Figure 36: Forjas Taurus SA - Net Profit Trend Analysis (R$ Million), 2008-2012
  • Figure 37: Industria de Material Belico do Brasil (IMBEL) - Revenue Trend Analysis (R$ Million), 2007-2011
  • Figure 38: Industria de Material Belico do Brasil (IMBEL) - Operating Profit Trend Analysis (R$ Million), 2007-2011
  • Figure 39: Industria de Material Belico do Brasil (IMBEL) - Net Profit Trend Analysis (R$ Million), 2007-2011
  • Figure 40: Brazil Population - Rural (In Millions), 2010-2019
  • Figure 41: Brazil Population - Urban (In Millions), 2010-2019
  • Figure 42: Brazil Population - Number of Households (In Millions), 2009-2018
  • Figure 43: Brazil GDP per capita, 2010-2019
  • Figure 44: Brazil Gross Domestic Product (current US$ Mn), 2010-2019
  • Figure 45: Brazil Exports of goods and services (current US$ Bn), 2003-2012
  • Figure 46: Brazil Imports of goods and services (current US$ Bn), 2002-2011
  • Figure 47: Brazil Gross national disposable income (US$ Bn), 2003 - 2012
  • Figure 48: Brazil Manufacturing Output (US$ Bn), 2003-2012
  • Figure 49: Brazil Consumer Price Index, 2009-2018
  • Figure 50: Brazil Wholesale Price Index, 2003-2012
  • Figure 51: Brazil LCU per US$, 2009-2018
  • Figure 52: Brazil Market Capitalization of listed Companies (US$ Bn), 2003-2012
  • Figure 53: Brazil Market Capitalization of listed companies as a % of GDP, 2004-2013
  • Figure 54: Brazil Government cash surplus/deficit (LCU Bn), 2001-2010
  • Figure 55: Brazil Goods Exports as a % of GDP, 2004-2013
  • Figure 56: Brazil Goods Imports as a % of GDP, 2004-2013
  • Figure 57: Brazil Goods balance as a % of GDP, 2004-2013
  • Figure 58: Brazil Services Imports as a % of GDP, 2004-2013
  • Figure 59: Brazil Services Exports as a % of GDP, 2004-2013
  • Figure 60: Brazil Services balance as a % of GDP, 2004-2013
  • Figure 61: Brazil Net Foreign Direct Investment (current US$ bn), 2004-2013
  • Figure 62: Brazil Net FDI as a % of GDP, 2004-2013
  • Figure 63: Brazil International reserves, including Gold (US$ Bn), 2004-2013
  • Figure 64: Brazil Total Conventional Thermal Electricity Net Generation (Bn KWH), 2003-2012
  • Figure 65: Brazil Hydroelectricity Net Generation (Bn KWH), 2003-2012
  • Figure 66: Brazil Nuclear Electricity Net Generation (Bn KWH), 2003-2012
  • Figure 67: Brazil Total Conventional Thermal Electricity Installed Capacity (Million Kilowatts), 2003-2012
  • Figure 68: Brazil Proved reserves of Natural Gas (Trillion Cubic feet), 2004-2013
  • Figure 69: Brazil Total Petroleum Consumption (Thousand Barrels per Day), 2004-2013
  • Figure 70: Brazil Rail lines (Total route Km), 2007-2012
  • Figure 71: Brazil Air transport, freight (Million ton-Km), 2003-2012
  • Figure 72: Brazil Overall Construction (US$ Bn), 2009-2018
  • Figure 73: Brazil Mining, Manufacturing, Utilities Output(US$ Bn), 2004-2013
  • Figure 74: Brazil Research and Development (thousands LCU), 2001-2010
  • Figure 75: Brazil Patents Granted, 2003-2012
  • Figure 76: Brazil Telephone lines (in mn), 2003-2012
  • Figure 77: Brazil Telephone lines Penetration Rate (per 100 people), 2004-2013
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