Press Release

Norway's Projected Defense Expenditure CAGR of 2.51% Expected To Be One of Europe's Highest

February 16th, 2012

Global Information Inc. would like to present a new market research report, "The Norwegian Defense Industry - Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017" by GlobalData.

Norways defense budget is relatively small compared to those of key global markets, recording a CAGR of 7.22% over the review period. However, while the defense expenditures of other European countries are expected to decrease over the forecast period due to budget constraints, Norways defense budget is expected to increase over the forecast period as a result of continued military modernization. Indeed, Norways projected forecast-period defense expenditure CAGR of 2.51% is expected to be one of the highest in Europe (reference see graph below).


The defense expenditure of Norway registered a CAGR of 7.22% during the review period (2207 2011) and is expected to record a CAGR of 2.51% over the forecast period (2012 2016). The primary reasons for this expectation of increased spending include Norways involvement in international peacekeeping missions, border disputes with Russia and the expected expansion of home guard training activities. Furthermore, as a percentage of GDP, Norwegian defense expenditure stood at an average of 1.4% during the review period, a figure expected to increase to an average of 1.5% during the forecast period as a result of stronger economic growth.

Norwegian homeland security expenditure is expected to record a CAGR of 8.0% during the forecast period, driven by the increased perceived threat from radical and foreign terrorist organizations such as al-Qaeda. The country is also expected to invest in the modernization and strengthening of its home guard over the forecast period.

In Norway, offsets are mandatory for all defense procurements equal to or exceeding US$82.2 million, with foreign investors required to invest 100% of the contract value back into the Norwegian economy. The offset project must also cater to defense related, security related or dual use products. If an investor is unable to fulfil their offset obligation within 10 years of the agreement, they is liable to pay a penalty of at least 10% of the outstanding value. Furthermore, the countrys offset program has offset multipliers, which vary from 1 to 5, depending upon the sector the offset agreement caters to.

Foreign OEMs predominantly enter the Norwegian defense industry through the formation of joint ventures or strategic alliances with domestic defense firms. During the last 25 years, firms such as Thales Australia, BAE Systems and Raytheon have entered the market through these routes, with such methods favored as they allow both companies to capitalize on each others capabilities. Additionally, the government also encourages investors to enter the market by collaborating on research and development programs, as this involves the extensive transfer of technology and therefore enhances the capabilities of the domestic defense industry.

Although Norway allows foreign investors to enter its defense industry, and foreign and domestic investments are treated equally by law, regulations, standards, and practices often favor Norwegian, Scandinavian and European Economic Area (EEA) investors. This makes the entry of non-European investors more challenging. Furthermore, as the country completed the modernization of its armed forces during the review period, market opportunities are now limited for future investors.

As one of the founding members of NATO, Norway is an active contributor to the UN-led international operations in Afghanistan and Iraq, with the countrys main international commitment during the review period having been its involvement in the International Security Assistance Force (ISAF), a NATO-led security mission in Afghanistan established by the United Nations Security Council. Although Norway is also involved in other UN-led missions in Lebanon (UNIFIL), Darfur (UNAMID), Sudan (UNMIS), the Middle East (UNTSO), Ethiopia and Eritrea (UNMEE), and Kosovo (UNMIK), Afghanistan remains Norways main international commitment and the country contributed US$10 million to the Afghan Nation Army (ANA) Trust Fund in 2011.

According to the Norwegian MOD, the procurement of battle vehicles and artillery, which includes medium-weight, standard armored vehicles, armored reconnaissance systems and artillery in collaboration with Sweden, is expected to account for 85% total expenditure on land systems during 2010 2017. The primary reason for this is the fact that such vehicles have to be replaced frequently due to wear and tear sustained during operations abroad.

From 2010 to 2017, 86% of investments in Norways air systems program are expected to focus on the procurement of new aircraft, although the ministry is also expected to spend significant amounts in order to maintain the F-16 aircraft as a front line of combat fighters until these are replaced. Preparations for the procurement of new combat aircraft are already in progress, with the first deliveries planned for the end of 2017.

During 2005 2010, Spain emerged as the predominant arms supplier to Norway, with a share of 68.4%; followed by the US, with a 17.5% share; and France, with an 8.6% share. In 2010, however, the US was the largest supplier of defense equipment to Norway; followed by France, with a 21.5% share; with Spain accounting for a nil share.

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