Report Price: US$ 1250 (Single User) Future of the Afghan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020

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1 Report Price: US$ 1250 (Single User) Future of the Afghan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020

2 Summary Future of the Afghan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020 report offers the reader detailed analysis of the defense budget over the next five years. Alongside it offers insights into the market opportunities and entry strategies adopted by foreign OEMs (original equipment manufacturers) to gain a market share in the Afghan defense industry. The report provides detailed analysis of the current industry size and growth expectations during , 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. Key Findings The impending withdrawal of ISAF from Afghanistan in December 2014, necessitated the need to have a strong and efficient Afghan National Security Forces (ANSF) and is expected to propel the Afghan government to apportion an average of XX% of its GDP for defense purposes over compared to an average of XX% between 2011 and Afghanistan s defense budget is projected to increase at a CAGR of XX% from US$XX billion in 2016 to US$XX billion in The defense capital expenditure is expected to increase from US$XX million in 2015 to US$XX million by 2020, while its share of total expenditure is expected to grow from an average of XX% between 2011 and 2015, to XX% over the forecast period. Defense equipment such as fighter and multi-role warplanes, helicopters, small arms and ammunitions, and armored vehicles are expected to be in high demand. Key Features and Benefits The report provides detailed analysis of the Afghan defense industry during , including the factors that influence the military expenditure. It provides detailed expectations of growth rates and projected total expenditure. It provides the manufacturers with insights on market opportunities along with industry structure and dynamics prevalent in the country. In addition, the report focuses on the regulations governing the Afghan defense industry and the potential market entry strategies with an expert analysis of the competitive structure. 2

3 Defense expenditure (US$ Bn) Growth rate (%) 3 1. Market Attractiveness and Emerging Opportunities 1.1. Defense Market Size Historical and Forecast Afghan defense expenditure is expected to be US$XX billion over the forecast period Afghanistan s defense budget, valued at US$XX billion in 2015, grew at a CAGR of XX% from US$XX billion in Continued internal turmoil and initiatives to reconstruct the country s military sector were the main factors driving defense expenditure. The budget is expected to increase to from US$XX billion in 2016 to US$XX billion by 2020, at a CAGR of XX%. On a cumulative basis, defense expenditure is expected to value US$XX billion, in comparison to the US$XX billion spent during With the withdrawal of NATO troops from Afghanistan in December 2014, the government is expected to increase its expenditure on armed forces training and military hardware procurement towards the end of the forecast period. The following table and figure show the Afghan defense expenditure between 2011 and 2015: Table 1: Afghan Defense Expenditure, Year Defense expenditure (US$ bn) Defense growth percentage Source: Ministry of Defense, Afghanistan and SDI analysis CAGR Figure 1: Afghan Defense Expenditure, % % -5% -10% -15% Defense Expenditure (US$ bn) Defense Expenditure Growth Rate -20% Source: Ministry of Defense and SDI analysis

4 Defense expenditure (US$ Bn) Growth rate (%) 4 The following table and figure show projected defense expenditure of the Afghanistan over the forecast period: Table 2: Afghan Defense Expenditure, Year Defense expenditure (US$ bn) Defense growth percentage Source: Ministry of Defense, Afghanistan and SDI analysis CAGR Figure 2: Afghan Defense Expenditure, % 0.8% 0.6% % 0.2% 0.0% -0.2% -0.4% -0.6% Defense Expenditure (US$ bn) Defense Expenditure Growth Rate -0.8% Source: Ministry of Defense and SDI analysis

5 Defense Budget Split (%) Analysis of Defense Budget Allocation Defense capital expenditure is expected to increase at a CAGR of XX% over the forecast period The share of capital expenditure in Afghanistan s total defense budget fluctuated over the period , owing to the unstable scenario prevailing in the country. The allocation towards capital expenditure increased from XX% in 2011 to XX% in 2015; while being negligible in 2012 and peaking at XX% in Over the forecast period, the procurement of weapons, construction of infrastructure, and acquisition of assets are expected to drive capital expenditure. Increased focus on armed forces training sessions and betterment of military personnel pay have resulted in a higher share of the defense budget being allocated towards revenue expenditure; a trend expected to continue over However, the average share of revenue expenditure is expected to be XX% over the forecast period, lower than the average share of XX% during The following table and chart display Afghan s defense budget share of capital, revenue and other expenditure between 2011 and 2015: Table 3: Afghan Defense Budget Split Between Capital and Revenue Expenditure (%), Year Capital Expenditure Share Revenue Expenditure Share Source: Ministry of Defense, Afghanistan and SDI analysis Figure 3: Afghan Defense Budget Split Between Capital and Revenue Expenditure (%), % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Capital expenditure (%) Revenue expenditure (%) Source: Ministry of Defense and SDI analysis

6 Defense Budget Split (%) 6 The following table and chart display Afghan defense budget share of capital and revenue expenditure over the forecast period: Table 4: Afghan Defense Budget Split Between Capital and Revenue Expenditure (%), Year Capital Expenditure Share Revenue Expenditure Share Source: Ministry of Defense, Afghanistan and SDI analysis Figure 4: Afghan Defense Budget Split Between Capital, Revenue and Other Expenditure (%), % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Capital expenditure (%) Revenue expenditure (%) Source: Ministry of Defense and SDI analysis

7 7 2. Industry Dynamics - Porter s Five Forces Analysis Figure 4: Industry Dynamics Porter s Five Forces Analysis Barrier to Entry Bargaining Power of Supplier Intensity of Rivalry Bargaining Power of Buyer Threat of Substitute Source: SDI analysis

8 8 Report Methodology SDI s dedicated research and analysis teams consist of experienced professionals with a background in industry research and consulting in the defense sector. The following research methodology is followed for all databases and reports: Secondary Research The research process begins with exhaustive secondary research to source reliable qualitative and quantitative information related to the defense market. The secondary research sources that are typically referred to include, but are not limited to: Industry associations National government documents and statistical databases Company websites, annual reports, financial reports, broker reports, investor presentations Industry trade journals and other literature Internal and external proprietary databases News articles, press releases, and webcasts specific to the companies operating in the market Primary Research SDI conducts hundreds of primary interviews a year with industry participants and commentators in order to validate its data and analysis. A typical research interview fulfills the following functions: Provides first-hand information on market size, market trends, growth trends, competitive landscape, and future outlook Helps to validate and strengthen secondary research findings Further develops the analysis team s expertise and market understanding Primary research involves interactions, telephone interviews, and face-to-face interviews for each market category, division, and sub-division across geographies The participants who typically take part in such a process include, but are not limited to: Conventions Industry participants: CEOs, VPs, business development managers, market intelligence managers, and national sales managers External experts: investment bankers, valuation experts, research analysts, and key opinion leaders specializing in defense markets Currency conversions are performed on the basis of average annual conversion rate format calculations All the values in tables, with the exception of compounded annual growth rate (CAGR) and compounded annual rate of change (CARC), are displayed to one decimal place; therefore, due to this rounding method, growth rates may appear inconsistent with absolute values The forecasted values are projected on the basis of nominal values; the inflation was not taken into account

9 9 TABLE OF CONTENTS 1. Introduction What is this Report About? Definitions Summary Methodology SDI Terrorism Index About Strategic Defence Intelligence Executive Summary Market Attractiveness and Emerging Opportunities Defense Market Size Historical and Forecast Afghanistan s defense expenditure is expected to grow at a CAGR of 13.73% over US Aid to Afghanistan is expected to decrease over the forecast period Social Security Reform and rebuilding the military sector to drive defense expenditure over the forecast period Afghan defense expenditure as a percentage of GDP expected to increase Analysis of Defense Budget Allocation Afghanistan to increase its allocation for capital expenditure over the forecast period Capital expenditure to increase at a CAGR of 18.34% over the forecast period Revenue expenditure to be US$11.2 billion cumulatively over Per capita defense expenditure expected to increase during the forecast period Homeland Security Market Size and Forecast Afghan homeland security budget to increase at a CAGR of 12.35% over the forecast period Measures to curb terrorism and the drug trade to drive homeland security expenditure Afghanistan falls under worst affected of terrorism category Benchmarking with Key Global Markets Afghanistan to register a high defense expenditure growth rate over Afghanistan s defense expenditure is low compared to neighboring defense spenders Afghanistan to allocate an average of 9.8% of GDP towards the defense sector over Afghanistan faces a high threat from terrorist organizations Market Opportunities: Key Trends and Growth Stimulators Aircraft Police modernization Border Security Defense Procurement Market Dynamics Import Market Dynamics Afghanistan s defense industry relies on imports from foreign countries Afghanistan sourced the majority of its arms from the US... 53

10 Armored vehicles and aircraft dominate military hardware imports Export Market Dynamics Arms exports to be nil over the forecast period Industry Dynamics Five Forces Analysis Bargaining power of supplier: medium Bargaining power of buyer: medium Barrier to entry: low Intensity of rivalry: medium Threat of substitution: high Market Entry Strategy Market Regulation Afghanistan does not disclose any FDI policy imposed by the country Offset obligation not disclosed by the government Market Entry Route Equipment manufacturers can enter the market through government-to-government deals Key Challenges Corruption and malpractices Lack of Skilled labor Limited defense budget Competitive Landscape and Strategic Insights Competitive Landscape Overview Key Companies General Dynamics: overview General Dynamics: products and services General Dynamics: recent contract wins Sierra Nevada Corporation: overview Sierra Nevada Corporation: products and services Sierra Nevada Corporation: alliances Sierra Nevada Corporation: recent contract wins Lockheed Martin Corp.: overview Lockheed Martin Corp.: products and services Lockheed Martin Corp.: recent announcements and strategic initiatives Lockheed Martin Corp.: recent contract wins Business Environment and Country Risk Demographics & Social Statistics Population Rural... 64

11 Population - Urban Economic Performance Gross Domestic per Capita Gross Domestic Product, current US$ Exports of Goods and Services Imports of Goods and Services Manufacturing Output Consumer Price Index Local Currency Unit per US$ LCU per AFN, period average Total Government Cash Surplus/Deficit Government Cash Surplus/Deficit Energy and Utilities Total Conventional Thermal Electricity Net Generation Hydroelectricity Net Generation Total Conventional Thermal Electricity Installed Capacity Total Electricity Imports Proved reserves of Natural Gas Total Petroleum Consumption Infrastructure Quality and Availability Rail lines, total network Overall Construction Minerals Mining, Manufacturing, Utilities Output Technology Patents Granted Appendix About SDI Disclaimer...86

12 12 LIST OF FIGURES Figure 1: Afghan Defense Expenditure (US$ Billion), Figure 2: Afghan Defense Expenditure (US$ Billion), Figure 3: Afghan Defense Expenditure (in AFN Billion), Figure 4: Afghan Defense Expenditure (in AFN Billion), Figure 5: US Aid to Afghanistan (US$ Billion), Figure 6: US aid to Afghanistan (US$ Billion), Figure 7: Afghan GDP Growth vs. Defense Expenditure Growth and Defense Expenditures as a Percentage of GDP Growth (US$), Figure 8: Afghan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as a Percentage of GDP Growth (US$), Figure 9:Afghan Defense Budget Split Between Capital and Revenue Expenditure (%), Figure 10: Afghan Defense Budget Split Between Capital and Revenue Expenditure (%), Figure 11: Afghan Defense Capital Expenditure (US$ million), Figure 12: Afghan Defense Capital Expenditure (US$ million), Figure 13: Afghan Capital Expenditure (in AFN Billion), Figure 14: Afghan Capital Expenditure (in AFN Billion), Figure 15: Afghan Revenue Budget Allocation (US$ million), Figure 16: Afghan Revenue Budget Allocation (US$ million), Figure 17: Afghan Revenue Expenditure (in AFN Billion), Figure 18: Afghan Revenue Expenditure (in AFN Billion), Figure 19: Afghan Per Capita Defense Expenditure (US$), Figure 20:AfghanCapita Defense Expenditure (US$), Figure 21: Afghan Homeland Security Budget (US$ Billion), Figure 22: Afghan Homeland Security Budget (US$ Billion), Figure 23: Afghan Homeland Security Budget (AFN Billion), Figure 24: Afghan Homeland Security Budget (AFN Billion), Figure 25: SDI Terrorism Heat Map, Figure 26: SDI Terrorism Index, Figure 27: Benchmarking with Key Markets vs Figure 28: Defense Expenditure of the World s Largest Military Spenders (US$ Billion), 2015 and Figure 29: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), Figure 30: Afghan Defense Import Trend, (TIV values) Figure 31: Afghan Defense Imports by Country (%), Figure 32: Afghan Defense Imports by Category (%), Figure 33: Industry Dynamics Porter s Five Forces Analysis Figure 34: Afghanistan Population Rural (In Millions), Figure 35: Afghanistan Population Urban (In Millions), Figure 36: Afghanistan GDP per capita, Figure 37: Afghanistan Gross Domestic Product (current US$ Billion), Figure 38: Afghanistan Exports of goods and services (current US$ Billion), Figure 39: Afghanistan Imports of goods and services (current US$ Billion), Figure 40: Afghanistan Manufacturing Output (US$ Billion), Figure 41: Afghanistan Consumer Price Index, Figure 42: Afghanistan LCU per US$, Figure 43: Afghanistan LCU per AFN, period average, Figure 44: Afghanistan Government cash surplus/deficit (LCU Billion), Figure 45: Afghanistan Government cash Surplus/deficit as a percentage of GDP, Figure 46: Afghanistan Total Conventional Thermal Electricity Net Generation (Billion KWH), Figure 47: Afghanistan Hydroelectricity Net Generation (Billion KWH), Figure 48: Afghanistan Total Conventional Thermal Electricity Installed Capacity (Million Kilowatts), Figure 49: Afghanistan Total Electricity Imports (Billion KWH), Figure 50: Afghanistan Proved reserves of Natural Gas (Trillion Cubic feet), Figure 51: Afghanistan Total Petroleum Consumption (Thousand Barrels per Day), Figure 52: Afghanistan Rail lines (total route-km), Figure 53: Afghanistan Overall Construction (US$ Billion), Figure 54: Afghanistan Mining, Manufacturing, Utilities Output(US$ Billion), Figure 55: Afghanistan Patents Granted,

13 13 LIST OF TABLES Table 1: Afghan Defense Expenditure (US$ Billion), Table 2: Afghan Defense Expenditure (US$ Billion), Table 3: Afghan Defense Expenditure (in AFN Billion), Table 4: Afghan Defense Expenditure (in AFN Billion), Table 5: US Aid to Afghanistan (US$ Billion), Table 6: US Aid to Afghanistan (US$ Billion), Table 7:Afghan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as a Percentage of GDP Growth (US$), Table 8: Afghan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as a Percentage of GDP Growth (US$), Table 9: Afghan Defense Budget Split Between Capital and Revenue Expenditure (%), Table 10: Afghan Defense Budget Split Between Capital and Revenue Expenditure (%), Table 11: Afghan Defense Capital Expenditure (US$ million), Table 12: Afghan Defense Capital Expenditure (US$ million), Table 13: Afghan Capital Expenditure (in AFN Billion), Table 14: Afghan Capital Expenditure (in AFN Billion), Table 15: Afghan Revenue Budget Allocation (US$ million), Table 16: Afghan Revenue Budget Allocation (US$ billion), Table 17: Afghan Revenue Expenditure (in AFN Billion), Table 18: Afghan Revenue Expenditure (in AFN Billion), Table 19: Afghan Per Capita Defense Expenditure (US$), Table 20: Afghan Per Capita Defense Expenditure (US$), Table 21: Afghan Homeland Security Budget (US$ Billion), Table 22: Afghan Homeland Security Budget (US$ Billion), Table 23: Afghan Homeland Security Budget (AFN Billion), Table 24: Afghan Homeland Security Budget (AFN Billion), Table 25: Benchmarking with Key Markets vs Table 26: SDI Terrorism Index Table 27: Aircraft Procurement Contracts Table 28: Afghan Police Modernization Program Table 29: Afghan Border Security Program Table 30:General Dynamics Product focus Table 31:General Dynamics Recent Contract Wins Table 32:Sierra Nevada Corporation Product focus Table 33:Sierra Nevada Corporation Alliances Table 34: Sierra Nevada Corporation Recent Contract Wins Table 35:Lockheed Martin Corp. Product focus Table 36:Lockheed Martin Corp. Recent Contract Wins... 63