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Jennifer Brauner
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Military Expenditure Trends
Foto: Petty Officer 2nd Class Ted Green, U.S. Navy

Military Expenditure Trends

SIPRI is an independent international institute dedicated to research into conflict, armaments, arms control and disarmament. One of the things it is best known for is its annual publication every April of military expenditures.

Presentation for the Belgium Peace Conference
Brussels, 17/11/2012

Introduction

SIPRI is an independent international institute dedicated to research into conflict, armaments, arms control and disarmament. One of the things it is best known for is its annual publication every April of military expenditures. The SIPRI database on military expenditure covers 172 countries and contains consistent data from 1988 to present. It provides the only long-term, historically consistent series of military expenditure data with global coverage available today.

In this presentation I would like to talk you through some of the latest figures and trends in military expenditure, highlighting some case studies that are particularly interesting. I will also touch on the impact of the financial crisis on these trends. If you are interested in having a closer look at the data it is available for free from the SIPRI online military expenditure database at www.sipri.org.

World military expenditure

(figure 1)
JF1World military spending in 2011 is estimated to have been $1,738 billion. This figure represents 2.5 per cent of global gross domestic product or $249 for each person.

The biggest spender is the USA. It is credited with 41% of the world total. The “next nine” biggest spenders, China, Russia, the UK, France, Japan, Saudi Arabia, India, Germany and Brazil, together account for a third of total world military expenditure, while the rest of the world makes up 25.7% (see figure 1).

North American, led by the USA contributes the most to this figure, 42.4%, followed by Asia and Oceania (20.9%), Western and Central Europe (18.8%), the Middle East (7.1%), Eastern Europe (4.6%), Latin America (4.2%), and Africa (2%) (see figure 2).

If we correct for inflation the world total becomes $1 634 billion. This represents a 0.3% increase over 2010, which, given the uncertainties in the data (missing data, budgeted vs actual figures, differing sources), means that world military spending was essentially unchanged in 2011. This is the first time in 13 years that military expenditure has not increased (see figure 3).


(figure 2)

JF2












The levelling-out of military spending results from a very mixed pattern of changes in different countries and regions (see figure 4). This included:

• A decrease in the US of 1.2 per cent in real terms, the first fall in US military spending since 1998;

• A moderate increase in Asia and Oceania (2.3 per cent);

• Falls in Western and Central Europe (1.9 per cent) due to austerity measures, matched by a large increase (10.2 per cent) in Eastern Europe;

• A substantial increase (4.6 per cent) in the Middle East;

• A moderate (3.3 per cent) decrease in Latin America; and

• A large increase (8.6 per cent) in Africa.

It is too early to say whether this flattening of military spending represents a long-term change of trend. On the one hand, US spending is likely to fall due to the withdrawal of US forces from Iraq and the draw-down in Afghanistan, while austerity measures in Europe are likely to mean continuing falls there in the next 2 to 3 years. On the other hand, spending in Asia, Africa and the Middle East continues to increase. Meanwhile, any major new Middle East conflict could change the picture dramatically, both for countries in the region and for the US. But barring such an event, it seems likely that the rapid increases of the last decade are over for now.

(figure 3)

JF3


By region

The United States

In the USA, military spending decreased slightly in 2011 for the first time since 1998. One key reason for this is the long delay in Congress agreeing a budget for Fiscal Year (FY) 2011 as the Administration clashed with Congressional Republicans over measures to reduce the budget deficit, so that the Department of Defense was operating on a series of ‘continuing resolutions’, delaying procurement plans.

Further falls in actual spending can be expected in the coming years, based on the levels of budget authority for National Defense approved or requested for FYs 2011– 2013, which show clear falls. Outlays tend to follow budget authority with a year’s delay. Two principle factors drive the falling trend:

(figure 4)

JF4• The withdrawal of US forces from Iraq and the gradual drawdown in Afghanistan, which means reduced spending on the additional war budget, otherwise known as Overseas Contingency Operations. This can be expected to continue if plans to end combat operations in Afghanistan in 2014 are fulfilled, and if the US does not become involved in any major new war.

• The Budget Control Act, passed by Congress in 2012 as an attempt to reduce US national debt, will also affect military spending. The immediate effect of the Act was to require cuts of $487 billion from the Department of Defense budget from 2012–21, compared with previous plans. However, as those plans involved an increasing ‘base’ DoD budget (excluding Overseas Contingency Operations), the effect of the Act will mean relatively flat budgets in real terms up to 2021.

The combined effects of these two factors will likely mean falling overall military spending for the next few years. These falls may be much higher if further cuts mandated by the ‘automatic sequestration’ clause of the Budget Control Act take place. This provides for automatic across-the-board cuts theoretically commencing in January 2013 and totalling $1.2 trillion by 2021, including $500 billion from National Defense. However, several members of Congress have initiated moves to prevent or delay the military spending portion of the cuts from taking effect, arguing that such cuts would jeopardize US national security. These additional cuts have not been accounted for in current budget projections, or in the Administration’s FY2013 budget request.

The Afghanistan and Iraq wars

It is worthwhile mentioning again the Afghanistan and Iraq wars. One of the dominating factors of the global security environment over the past 10 years, and a key factor influencing military spending in many countries, was the ‘global war on terrorism’ following the terrorist attacks on the USA of 11 September 2001. The highly militarized policy response to these attacks chosen by the USA, which included invasions of Afghanistan and Iraq, had cost the USA over $1.2 trillion in additional military expenditure alone by the end of 2011, and may result in total long-term costs of as much as $4 trillion. Much lower, although still substantial, costs had also been incurred by other participants in these wars. The withdrawal of troops from these countries is one of the main drivers of the reduction in world military expenditure.

Europe

Austerity measures have been sweeping across Europe since 2010, as countries have prioritized deficit reduction above other economic goals, and military expenditure cuts have usually been part of such measures. As a result, a majority of countries have cut military spending since the global financial and economic crisis broke in 2008. However, the patterns and extent of these cuts have varied widely. In most of western Europe, military spending did not begin to fall until 2010, as most countries put in place stimulus measures in 2009, before action to cut deficits began in 2010. In most central and eastern European countries, however, military spending began to fall in 2009, as these generally weaker economies could not sustain such high budget deficits. As a result, and due to the more severe effects of the crisis on Gross Domestic Product (GDP) in these countries, the overall falls in military spending in central and eastern Europe have been particularly sharp.

Among western European countries, the countries with the biggest falls have included many that have faced severe sovereign debt crises, and where austerity measures have been particularly harsh: Greece (down 26 per cent since 2008), Spain (18 per cent), Italy (16 per cent) and Ireland (11 per cent); but also Belgium (12 per cent). In contrast, the top 3 spenders in western Europe—the United Kingdom, France and Germany—have so far made only modest cuts in military spending, in each case less than 5 per cent. Germany and the UK both plan further cuts in military spending in the coming years: the UK by 7.5 per cent in real terms by 2014/15, and Germany by around 4 per cent in cash terms by 2015. France plans roughly constant spending in real terms.

On the other hand, some other European countries have bucked the trend. Poland, having fared better than most through the economic crisis, is also increasing military spending as it seeks to become an even more active participant in NATO, with plans to increase the number of deployable troops. Norway has also continued to increase spending, insulated from the effects of the crisis by oil wealth. Finally, Azerbaijan made the largest real percentage increase (89 per cent) in military spending in the world in 2011, amidst increasing warnings of renewed conflict with Armenia over the disputed Ngorno-Karabakh region.

Russia

Despite experiencing a severe recession in 2009, Russia has increased military spending by 16 per cent in real terms since 2008, including a 9.3 per cent increase in 2011. Russia is now the third largest military spender worldwide, overtaking the UK and France. Further increases in military spending are planned, with draft budget plans showing a 53 per cent increase in real terms of funds allocated to ‘National Defence’ up to 2014. In the longer term, Russia plans to spend 23 trillion roubles ($749 billion) on equipment, research and development (R&D) and support for the Russian arms and military services industry over the period 2011–2020, with plans to replace 70 per cent of Russia’s mostly Soviet-era military equipment with modern weaponry by 2020. However, many analysts are doubtful as to whether the industry will be able to deliver on such ambitious plans after decades of stagnation following the collapse of the Soviet Union.

Asia

Military spending in Asia and Oceania continued to increase in 2011. However, the real terms increase of 2.3 per cent was, as in 2010, slower than in most recent years. Between 2000 and 2009, the regional total increased by an annual average of 6.3 per cent in real terms. Increased spending by China—6.7 per cent in real terms, or just over $8 billion in constant 2010 prices—more than accounted for the total regional increase. In the rest of Asia and Oceania, total military spending decreased marginally by 0.4 per cent, although this reflects a mixed pattern of increases and decreases.

China has increased its military spending by 170 per cent in real terms since 2002, and by more than 500 per cent since 1995. According to SIPRI’s estimate, Chinese military spending in 2011 was 923 billion Yuan Remnimbi ($143 billion), the second highest in the world. At the same time, China’s military spending has remained extremely stable as a share of GDP, at approximately 2 per cent since 2001. China’s increasing military spending has caused concern among China’s neighbours, as well as the dominant Pacific power, the US. The recent announcement of a US ‘pivot’ towards Asia is in part a response to such concerns. China’s extensive and growing trade relations with the countries in its neighbourhood have been marred by disputes— e.g. the border dispute with India, a dispute over the Senkaku (Diaoyu) islands with Japan, and contested maritime borders with several nations in the South China Sea—all of which have led to increased tensions.

However, talk of an ‘arms race’ in the region may be premature, as both data and analysis reveal a mixed pattern of trends in military expenditure and arms acquisition, with China far from the only driving factor. Two countries where concerns over China do appear to have contributed to increased spending are India and Viet Nam. India has increased military spending by 66 per cent since 2002. While both internal conflicts and the long-running conflict with Pakistan remain key issues, India in many ways sees China as a rival for regional power. The long-running border dispute, for example, exacerbates tensions between the two countries.

Viet Nam has increased military spending by 82 per cent since 2003, and has made several major naval acquisitions, partly due to tensions with China in the South China Sea. Nevertheless, both India’s and Viet Nam’s military spending fell in real terms in 2011.

In contrast, Taiwan has made only very modest increases in military spending, totalling 13 per cent since 2002, in part due to the fact that recently re-elected President Ma has pursued a policy of warming relations with China. Japan has seen a gradual decline in its military spending over the past decade. The Philippines, which also experiences significant maritime tensions with China, has increased spending by just 7.4 per cent since 2002, with few major arms purchases.

Other Asian countries have made large military spending increases, but with little relation to China. Indonesian military spending has increased by 82 per cent since 2002, reflecting efforts to build a ‘Minimum Essential Force’ to enable the country to control its vast archipelago, and also perhaps the continued political influence of the military. Increases by Thailand (66 per cent) and Cambodia (70 per cent) are partly the result of their tense border dispute, which saw several armed clashes in 2010 and 2011. In Thailand’s case the long-running insurgency in the south has also contributed to the increase, as did domestic unrest following the military coup in 2006, after which military spending accelerated rapidly.

Latin America

The large increase in 2010 (5.1 per cent) has not continued in 2011, with the region seeing a 3.3 per cent fall in military spending in real terms. The fall is mostly due to Brazil, which cut its initial discretionary military budget (including equipment purchases, but excluding e.g. salaries) by 25 per cent as part of measures to cool the economy and reduce inflation. Mexico’s military spending has increased by 5.7 per cent in 2011, and by 52 per cent since 2002, largely due to the increasing involvement of the military in tackling drug cartels.

Middle East

The figure for the Middle East for 2011 is highly uncertain, due to a lack of data for Iran, Qatar, the United Arab Emirates (UAE) and Yemen, for whom figures have had to be estimated. It is not yet possible to assess the impact of the Arab Spring on military expenditure in the region, as the available figures are from budgets set before the uprisings began. Of countries for whom data is available, the largest increase was by Iraq, at 55 per cent. However, as Iraq has consistently underspent its defence budget in recent years, the final figure for 2011 may be significantly lower. Other countries making significant increases were Bahrain (14 per cent), Kuwait (9.8 per cent), Israel (6.8 per cent) and Syria (6.1 per cent), while Oman made a cut of 17 per cent.

Africa

The figures for Africa are highly uncertain due to missing data for numerous countries including, most significantly, Sudan, Libya and Eritrea. The increase in Africa was entirely accounted for by the 44 per cent increase in Algeria. Excluding Algeria, military expenditure in Africa was essentially constant. In Algeria, a mid-year supplementary budget in July increased the initial budget allocation for the military by 22 per cent, largely due to concerns about potential spill-overs from the conflict in Libya. Moreover, the country has been undertaking a major re-armament programme that made it the seventh largest importer of major conventional weapons between 2007–11, fuelled by its growing revenue from oil and gas exports. Nigeria has also increased military spending rapidly in recent years, also fuelled by oil wealth, and with significant expenditure on military internal security operations, against rebel groups in the Niger Delta and the Islamist terrorist group Boko Haram.

The Impact of the Economic Crisis

One of the main causes of the halt in military spending growth was the economic policies adopted in most Western countries in the aftermath of the global financial and economic crisis that started in 2008. These policies prioritized the swift reduction of budget deficits that increased sharply following the crisis.

As mentioned above, responses were mixed, with the weaker economies of Central and Eastern Europe, but also the hardest hit Western European economics, such as Greece, Spain, Italy and Ireland, cutting their military expenditures sooner.

In an unpublished study of NATO military expenditure, Perlo-Freeman explores further the factors that explain the size of falls (or rises) in European countries since the beginning of the crisis. Using regression analysis, he finds that that military spending was highly income-elastic in response to the crisis. In addition, other things being equal, central European countries cut their military spending by 11% more than western. Finally, he finds that NATO members also appear to have cut their budgets more steeply, suggesting that they ‘free-ride’ on the US.

It is also worth noting that in the case of Greece military expenditures may have contributed significantly to the crisis the country now faces. As a percentage of GDP, Greece has one of the highest defense budgets in the EU (in 2010 only the UK spent more, in 2009, Greece spent them most). The country has cited perceived security risks from Turkey as justification for this high defense spending. Analysts have also argued that Greece’s defense budget still offers plenty of room for further cuts. In 2011, Greek defense expenditure was, in fact on the rise again, from US$7162 billion to US$ 7502 billion, a 4.7% increase.

(figure 5)

JF5












Conclusion

In 2011, military spending fell for the first time in 13 years. This is the result of a very mixed pattern of changes in different countries and regions. Main drivers of the decrease were the withdrawal of troops from Iraq and Afghanistan, as well the economic policies adopted in most Western countries in the aftermath of the global financial and economic crisis that started in 2008. It is too early to say whether this flattening of military spending represents a long-term change of trend, although we do know that at least the US and Europe plan further reductions in military spending. One interesting factor that is still to be observed is the impact of the Arab Spring on military expenditure in the MENA region.

References

Christidis, G (2012), “How Greece Could Save on Defense Spending” (online) <http://www.spiegel.de/international/europe/the-greek-military-budget-offers-plenty-of-room-for-cuts-a-846607.html> (accessed on 13/11/2012).

Perlo-Freeman, S (2012), “NATO military spending in the wake of the crisis”, unpublished.

SIPRI (2012), “Background paper on SIPRI military expenditure data, 2011” (online) < http://www.sipri.org/research/armaments/milex> (accessed on 13/11/2012).

 

Jennifer Brauner

 

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