The Turkish Defense Market: Evolving Opportunities
In a report from our partner ICD research, SLD readers have a chance to purchase a comprehensive overview and forecast of this important market.
This report offers insights into the market opportunities and entry strategies adopted by foreign OEMs (original equipment manufacturers) to gain a market share in the Turkish defense industry. In particular, it offers in-depth analysis of the following:
- Market opportunity and attractiveness: detailed analysis of the current industry size and growth expectations during 2013–2017, including highlights of the key growth stimulators. It also benchmarks the industry against key global markets and provides detailed understanding of emerging opportunities in specific areas.
- Procurement dynamics: trend analysis of imports and exports, together with their implications and impact on the Turkish defense industry
- Industry structure: five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.
- Market entry strategy: analysis of 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.
- Competitive landscape and strategic insights: analysis of the competitive landscape of the defense industry in Turkey, providing an overview of key defense companies (both domestic and foreign), together with insights such as key alliances, strategic initiatives, and a brief financial analysis.
- Business environment and country risk: a range of drivers at country level, assessing business environment and country risk. It covers historical and forecast values for a range of indicators, evaluating business confidence, economic performance, infrastructure quality and availability, labor force, demographics, and political and social risk.
Turkish defense expenditure is estimated to reach US$20.3 billion by 2017
Military expenditure in Turkey was estimated to value US$15.1 billion in 2012, and, consequently, the Turkish defense industry is one of Asia’s most attractive defense markets. During the review period, defense expenditure declined at a CAGR of -1.50%, and is expected to record a CAGR of 7.67% during the forecast period, to reach a value of US$20.30 billion by 2017. The country’s defense expenditure will largely be driven by a strained relationship with Greece, persistent terror threats, and instability within the region. In addition, Turkish peacekeeping initiatives will continue to put pressure on the government to increase defense expenditure.
As a percentage of GDP, the country’s average defense expenditure stood at 1.94% during the review period; however, this figure is expected to decrease to an average of 1.58% over the forecast period. Despite a steady annual increase in the country’s military expenditure, a reduction in the country’s defense expenditure as a percentage of GDP is predicted due to the anticipated overall growth of the Turkish economy, which is projected to record a CAGR of 9.42% over the forecast period.
During the review period, capital expenditure accounted for an average of 19% of the total defense budget, as the country experienced a sustained period of acquisitions. However, over the forecast period, capital expenditure is expected to increase to 21.8% as the country enters the next defense procurements cycle, resulting in several major procurements for defense modernization. Furthermore, the global economic crisis led the country to postpone, delay or cancel several defense acquisition programs, which are expected to be realized during the forecast period.
Due to these forthcoming procurements, defense equipment manufacturers can expect increased demand for corvette warships, heavy torpedoes, submarine sub-systems, helicopters, sensors, improvised communication and data management systems, unmanned aerial vehicles, and counter improvised explosive device (IED) equipment.
In 2012, Turkey’s homeland security expenditure was estimated to value US$9.39 billion. The country invests significantly in homeland security in order to protect itself from potential terrorist attacks and maritime security threats. In the forecast period, key investment is expected in surveillance and detection systems for naval bases and ports, in addition to border surveillance systems.
The majority of Turkish defense requirements are met through imports; however, Azerbaijan emerged as the only defense export destination in 2011
Despite the global economic downturn in 2009, the country’s arms imports registered an increase of 10.10% over the previous year. Throughout the review period, Germany emerged as the largest supplier of arms to Turkey, with a market share of 30.54%. In 2011, the US accounted for the majority of the country’s arms imports, amounting to about 61.52% of total defense imports. During the review period, Israel accounted for 19.37% of total imports. However, during the forecast period, Turkish defense imports will be dominated by Western European suppliers such as Germany and Italy, as a result of the deterioration of Turkish-Israeli relations due to the Israeli government’s refusal to issue an apology for the attack of a humanitarian aid flotilla in international waters, an incident which resulted in the deaths of nine Turkish nationals.
During 2007–2011, Turkish defense exports declined at a CAGR of -36.96%, and were valued at merely US$6 million in 2011. During 2007–2011, Georgia, Pakistan, and Malaysia emerged as the largest consumers of Turkish military exports, of which land platforms such as armored vehicles, ships, and artillery, accounted for the greater portion.
Turkish offset policy contractually obliges foreign contractors to invest 50% of the contract value into the country’s defense sector
Offsets are mandatory for all defense procurements in Turkey equal to or exceeding US$10 million, and foreign investors are required to invest 50% of the contract value into the country’s defense sector. Offset policies have been in practice since 1991, and are designed to increase exports and develop the domestic industrial defense base, due to which only direct offsets are accepted. Foreign investors are liable to fulfill their offset obligation within the effective period of the procurement contract.
Depending on the specifications of the procurement agreement, if deemed appropriate by the Undersecretariat of Defense industries, the effective period of the offset agreement can be a maximum of a further two years, in addition to the effective period of the procurement agreement. In the circumstance of non- or under-performance of the offset contract, the investor is obliged to pay a penalty equal to 6% of the total offset contract value. Furthermore, the country’s offset program has introduced offset multipliers which vary from 1 to 5, dependent upon the sector the offset agreement caters to.
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