The NATO ammunition market is anticipated to grow at a CAGR of more than 5% during the forecast period.
- Owing to the perceived threat of a military standoff from Russia, the NATO countries are aiming to enhance their defense expenditure to modernize their defense capabilities.
- Furthermore, the ongoing deployment pattern of NATO forces in different countries across the globe as part of their peacekeeping missions has necessitated the procurement of advanced weaponry and associated ammunition.
- However, the COVID-19 pandemic has had a deleterious effect on the economy of the NATO countries, hence some pipeline programs are liable to be deferred during the forecast period, thereby restricting the growth of the market.
Key Market Trends
Enhanced Defense Spending Closely Linked to New Procurement Contracts
Several NATO countries are now focusing on augmenting their military firepower and defensive capabilities, in the wake of the growing threats from other nations and the increasing deployment of NATO forces to fight insurgent groups in various countries in the world. On the other hand, there is continuous pressure from the US on other NATO countries to increase military spending by at least 2% of their GDP. In this regard, these countries are increasing their military spending, to facilitate the strengthening of their military arsenal. The growth in defense budgets will support the nations to enhance their combat capabilities and help the NATO countries execute their individual and collective defense strategies as planned. According to SIPRI, the total military spending by all NATO member states in 2019 (excluding North Macedonia that joined in 2020) was USD 1035 billion. Out of this, military spending by the United States alone was as much as USD 732 billion in 2019 while the military spending of Germany grew considerably by about 10% in 2019, to USD 49.3 billion. Bulgaria’s military spending increased by 127% while Romania’s military spending increased by 17%. Poland is also increasing its military spending and the country pledged to increase its military spending to 2.5% of its GDP by 2030. Bolstered by the increasing defense spending, the militaries of the NATO countries are continuously changing, aimed at transforming themselves into more capable, modern, and technologically advanced forces, for which they are procuring various weapon systems and associated ammunition aimed at enhancing their defensive prowess.
The US to Dominate the Market During the Forecast Period
In 2019, the US accounted for the largest market share due to its gigantic defense spending which is multifold compared to other NATO countries. The US defense expenditure witnessed a 5.3% YoY growth to account for USD 732 billion in 2019. For FY2021, the requested US defense budget of USD 704.6 billion is aimed at improving the military readiness and invest modernization of its armed forces. On this note, in January 2020, Olin Corporation was awarded a USD 75.7 million contract modification to produce small-caliber ammunition, comprising 5.56mm, 7.62mm, and .50 caliber. The contract is scheduled for completion by May 2021. Also, in March 2020, the US Department of Defense (DoD) awarded a USD 119 million contract to FN Herstal for around 167,000 units of M4 and M4A1 carbines by 2025. The induction of new rifles is expected to generate a parallel demand for compatible 5.56mm ammunition used by the M4 family of assault rifles. The procurement plans are not limited to small-caliber ammunition and several other weapon procurement plans are also underway, thereby creating huge growth opportunities for the market in focus in the US. For instance, in March 2020, the US Army awarded a USD 339 million contract to BAE Systems for the production of 48 vehicle sets of M109A7 Self-propelled Howitzer (SPH) and its companion, the M992A3 Carrier, Ammunition, Tracked (CAT) vehicle and includes post-delivery support and spare parts.
The NATO ammunition market is highly competitive and is marked with the presence of many prominent players, such as Olin Corporation, RUAG Group, BAE Systems plc, Rheinmetall AG, and Nexter Group competing for a larger market share.
The stringent safety and regulatory policies in the defense segment are expected to restrict the entry of new players. Furthermore, since a contract for developing a precision munition requires high technological expertise and spans over several years, careful identification and continuous monitoring of associative risks are required to be undertaken to assess their effects on the operational parameters of the manufacturing company. The assessment includes consideration for technical requirements, a listing of scheduled and associated tasks, and detailed cost analysis.
Furthermore, the sales of weapon platforms are primarily influenced by the prevalent economic situations in dominant markets such as the US and UK. Hence, in periods of economic downturn, purchases may be subjected to deferral or cancellation and a relatively slower rate of adoption, which in turn, can adversely affect the market dynamics. Moreover, the contracts are often subjected to include offset clauses which enhances the risks pertaining to the timely completion of the project. Due to the associated risks regarding the technical aspects, scheduling of activities and costs are subjected to change based on macroeconomic factors, and subsequently, influence the associative profits of the associated parties in a contract.
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