6. Military expenditure and arms production*
Elisabeth Sköns, Agnès Courades Allebeck, Evamaria Loose-Weintraub and Reinhilde Weidacher

World military expenditure, which has been declining since 1987, corresponded to roughly $740 billion in 1997. The decline has averaged 4.5% per year during the 10-year period 1988-97, but the rate of decline has slowed down in recent years and was only 1% in the past two years.

The deepest cuts over the 10-year period were made by Russia and other successor states of the USSR. Their combined military expenditure in 1997 was around one-tenth of that of the USSR in 1988. Spending has also declined significantly in Africa, North America and Central America, where there have been cuts by around one-third over the 10 years.

The Middle East and Asia have been exceptions to the trend. Military spending in the Middle East has increased by 9% but there have been considerable fluctuations over the period, with a peak around 1991 as a result of the Persian Gulf War. In both South and East Asia, military expenditure increased by around 25% over the 10 years. However, in several East Asian countries the military budgets adopted for 1997 were cut as a result of the financial crisis in the region, and future expenditure plans are being revised downwards.

The arms industries in most of the 20 major arms-producing countries have been forced to cut their capacity in response to the sharp fall in domestic arms procurement expenditures. This has led to an intensive restructuring of the industry. In spite of the return to growth in the arms purchases of many countries, this adjustment process is expected to continue. The rate of concentration remained high in the US arms industry in 1996 and 1997. The restructuring process in Western Europe progressed more slowly, but there were indications in 1997 that the process of international concentration was speeding up in Europe.

No data exist on global arms production. SIPRI estimates for the top 100 arms-producing companies in the Organisation for Economic Co-operation and Development (OECD) and the developing countries (excluding China) show that the value of sales in 1996 remained virtually unchanged from 1995, at $156 billion. Among the top 100 companies in 1996 US companies accounted for 55% of the combined arms sales, while 40 West European companies accounted for 35%, and 14 companies in other OECD countries and 8 in non-OECD countries (India, Israel and South Africa) together accounted for the remaining 10%.

In appendix 6D Julian Cooper shows that it is possible to estimate Soviet and Russian military spending, with an extended time series for the military expenditure of Russia and the former USSR. The problems involved in making such estimates include lack of transparency (particularly before 1992), 'military' items placed under other budget heads, and the huge difference between adopted military budgets and actual expenditures during the 1990s. Estimates are presented in current roubles, as a proportion of GNP and in US dollars using purchasing-power parity rates. The conclusion is that military expenditure has fallen from an estimated $257 billion in the USSR in 1987 to $24.1 billion in Russia in 1997, and as a proportion of GNP from 16.6% in 1987 to 3.8% in 1997.

Appendices 6A and 6B contain tables of military expenditure by region, country and income group and for NATO countries by function.
Appendix 6C explains the sources and methods for the military expenditure data.
Appendix 6D by Julian Cooper, is a study of the military spending of the USSR and the Russian Federation in 1987-97.
Appendix 6E by Elisabeth Sköns, Reinhilde Weidacher and the SIPRI Arms Industry Network, contains financial and employment data on the top 100 companies in the OECD and developing countries in 1996.