The Eastern European defense market is poised to record a CAGR of more than 4% during the forecast period (2020 – 2025).
- Several countries in Eastern Europe made huge increases in their defense spending in 2019. According to SIPRI, the defense spending by Bulgaria rose by 121.33% in 2019, to reach USD 2.18 billion, followed by Slovakia, which grew by 43.9% to reach USD 1.87 billion. Spending by countries, like Romania, Moldova, and Ukraine, also increased by more than 13% in 2019.
- Countries in the region are also going through many military modernization plans, and they are planning to upgrade their armed, naval, and air forces. Such factors may drive the market in the coming years.
- Growing perceptions of threat from Russia and calls from the United States to the NATO countries to increase their defense spending are also some growth drivers for the market.
Key Market Trends
Vehicles Segment Accounted for a Major Market Share in 2019
In 2019, the vehicles segment dominated the market, owing to the various ongoing upgrade and procurement programs in the region. Currently, most of the investments are being directed toward fleet expansion initiatives. Additionally, fleet modernization plans are underway for many countries, as most of the fleet in the region belonged to the Soviet era. Many countries in the region are members of NATO and have vowed to increase their military spending to 2% of the GDP. Countries, like Poland and Russia, are investing in increasing the fleet of naval vessels. For instance, Poland launched a second Kormoran II-class minehunter named ORP Albatros in October 2019, and it is expected to be delivered to the navy by 2020. Similarly, in January 2020, Sredne-Nevsky Shipyard, part of United Shipbuilding Corporation, delivered the newest project 12700 Aleksandrit-class minesweeper Vladimir Yemelyanov to the Russian Navy. The Russian Navy plans to build and procure a total of 40 Project 12700 mine countermeasure vessels by 2035. In addition to the naval capabilities, the countries are also developing their air and land capabilities for surveillance and combat missions. In May 2019, the US State Department approved the sales of 12 UH-60M Black Hawk helicopters and related equipment to the Czech Republic for an estimated cost of USD 800 million. Such procurements are anticipated to propel the growth of the vehicles segment of the market.
Poland to Show Significant Growth During the Forecast Period
Currently, Russia is the largest defense market in Eastern Europe. Globally, Russia is one of the military superpowers, and the country has been increasing its military spending over the years. In 2019, Russia's military spending increased by 6.05%, as compared to that in 2018. However, at USD 65.1 billion, Russia’s military spending was the fourth highest in the world in 2019. In 2019, Russia’s military expenditure was 3.9% of the GDP. With such high military spending, the country is dominating the market in the region, with various procurements and aftermarket investments. However, during the forecast period, Poland is expected to show significant growth among other countries in the region. Poland's military is continuously undergoing changes, aimed at transforming it into a more capable, modern, and NATO-compatible force. In 2019, Poland’s military expenditure was 2% of the GDP, and the Polish government has further pledged to raise the military expenditure to 2.5% by 2030. The government is making changes in every area of operation, including training, protection, communications, and weapon systems, and across all types of vehicles. The main elements of the Polish army’s modernization plans include the improvement of troop capacity and air defense systems and the development of weaponry and manned and unmanned vehicle strength. In 2020, the Polish Air Force ordered 32 Lockheed Martin F-35 Joint Strike Fighter Aircraft under a deal worth USD 4.6 billion. These aircraft will replace the aging MiG-29 and Su-22 aircraft that are currently in service. Such procurement activities for land, air, and sea platforms will propel the growth of the market in the region during the forecast period.
Rostec, United Aircraft Corporation (UAC), BAE Systems PLC, Thales Group, and Ukroboronprom are some of the major players in the market. Major players, in order to reduce the supply chain complexity, are acquiring or merging with smaller players. In addition, the merger plans between larger firms, like Rostec and UAC (expected to be completed by the first half of 2020), may further consolidate the market in Russia, thereby, strengthening their plans to become the largest players, together, in the region. Players can make use of the rising opportunities from countries, like Romania, Bulgaria, and Ukraine, as these countries increased their defense spending in 2019, and they are planning for further upgrades of military equipment.
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