4. Military expenditure and arms production *

Elisabeth Sköns, Evamaria Loose-Weintraub, Wuyi Omitoogun, Petter Stålenheim and Reinhilde Weidacher

World military expenditure reached the lowest point of the post-cold war period in 1998. Since then it has increased by 5% in real terms. In 2000 it amounted to roughly $798 billion, in current dollars, a world average of around $130 per capita. As a share of world gross domestic product (GDP), military expenditure accounted for 2.5% in 2000.
    A decade after the end of the cold war the decline in world military spending is changing into growth. It is a paradox that, in spite of an improved security environment in large parts of the world, since 1998 military expenditure has been rising in all regions.
    The increase in world military expenditure between 1998 and 2000 reflects (a) large increases in the USA and Russia, and rapidly increasing military expenditure in Africa and South Asia, and (b) the resumption of procurement programmes in many parts of the world.
    The USA is by far the major spender, with 37% of total military expenditure in 2000, which reflects its current position as the only superpower. Over the two years 1999–2000, the USA raised its military expenditure by 2.3%, an increase of $6 billion (at constant 1998 prices). The US Government will have critical defence decisions to make in 2001—on national missile defence, on its military doctrine and on procurement funding.
    The rate of increase in Russian military expenditure has been extraordinary during the two years 1999–2000: roughly 44% in real terms according to provisional figures, a combined increase of $13 billion (at constant 1998 prices). However, because of the preceding sharp reductions during the 1990s, the current level of Russian military expenditure is now more comparable with that of the major European countries than with that of the USA. According to SIPRI estimates, Russian military expenditure in 2000 accounted for 6% of the world total and was 10% higher than that of France and 85% lower than that of the USA.
    The regions with the steepest rise in military expenditure in the past two years are Africa—an increase of 37% in real terms—and South Asia—23% in real terms. The increase in Africa is due primarily to armed conflict in a number of countries in the region. Countries contiguous to conflict countries have also had significant increases in their military expenditure. The fact that a few relatively wealthy countries are now embarking on procurement programmes has added to the steep increase in the regional total.
    Global trends in arms procurement are difficult to establish in detail because of lack of statistics. It is however possible to get a general understanding of broad trends based on the limited available data. These suggest that procurement expenditure is likely to increase in the near future, because several of the major spenders have adopted defence plans that include future growth or announced equipment plans which imply a change into growth.
    In NATO the main vehicle for increased equipment expenditure for the future is the NATO Defence Capabilities Initiative (DCI) which, if implemented, will require substantial additions to NATO countries’ procurement budgets over the next 10-year period. While NATO data show that the European NATO countries have already increased their combined equipment expenditures by 11% in real terms over the six-year period 1995–2000, this is perceived as not enough. There is a strong pressure from NATO and the US Government on the governments of the European NATO countries to increase their military budgets in order to live up to their DCI commitments and increase the interoperability of their armed forces with those of the USA. US spending on military equipment continued to decline through 2000 but is expected to begin to rise again when increased authorizations for arms procurement in 1999 and 2000 are translated into future actual expenditures.
    Other major spenders, such as Japan, China and Russia, have also adopted procurement plans which will require increased military budgets in the future. The level of military production in the Russian defence complex almost doubled between 1998 and 2000 to a level corresponding to 18.7% of the level of the Soviet Union’s military output in 1991.
    The expectations during the early years of the post-cold war period of a reduced role for military means of providing security and resolving conflict today appear remote. Military expenditure is rising and arms-producing companies are becoming larger and stronger. The absence of an immediate security threat has been translated into a fear of many diverse types of threat of a more or less unknown nature which could emerge in the future.

   • Appendix 4A contains tables of military expenditure in local currency and constant dollars, and as a share of gross domestic product for the period 1991–2000 .

    • Appendix 4B contains data on NATO military expenditure.
    

    • Appendix 4C explains the sources and methods for the data collection.
 

    • Appendix 4D, by Reinhilde Weidacher, Anne Brandt-Hansen and the SIPRI Arms Industry Network, contains a table of the 100 largest arms-producing companies in the OECD and developing countries in 1999. In spite of a turbulent period of consolidation in the US and European arms industry during the 1990s, significant overcapacities reportedly remain. The arms-producing companies are therefore pressing for new orders. In the USA, the strong rate of concentration in ownership has not been matched by proportionally fast rationalization. It has, however, resulted in reduced competition. The US Government therefore in 2000 introduced defence industrial policy measures with the aim of preserving a sufficient level of competition to improve affordability and promote technological innovation. In Europe, consolidation began in earnest during 1999 and 2000. As a result, three major arms-producing companies have emerged. At the government level, the signing in July 2000 of the six-nation Framework Agreement marks the first step in efforts to create a more integrated European arms industry.

    • Appendix 4E, by Julian Cooper, presents data on and an analysis of Russian military expenditure and arms production. Under President Putin there has been a stronger policy commitment than under Yeltsin to a strengthening of Russia’s weakened military capability. Expenditure on ‘national defence’ increased from 2.6% of GDP in 1999 to a provisional 2.75% in 2000, and further increases are budgeted for 2001. Production of military equipment has also been rising strongly since 1998—by 75% in real terms—due both to increased arms exports and increased domestic orders. Because strong growth was from a low starting point, the level of Russian arms production in 2000 was still less than one-fifth of its level in 1991 and one-third of its 1992 level. After a period of more transparency in military budgeting, there has been increased secrecy again during the past three years. However, advocacy of greater openness in military spending is rising within the State Duma and also within the armed forces.