By P.K.Balachandran
Colombo, December 7:
Global revenue from arms sales had plunged in 2022 due to the failure of the US arms industry to meet orders, says the international arms monitor Stockholm International Peace Research Institute (SIPRI), in its latest report.
In 2022, US arms companies had failed to meet orders while Asian companies delivered, the report said.
Given the US companies’ dominance over international arms manufacturing and sales, their failure to deliver on orders led to a global fall in revenue from arms sales and military services in 2022, SIPRI says.
It reported that globally, revenues from sales of arms and military services by the 100 largest companies in the arms industry totalled US$ 597 billion in 2022, 3.5% less than in 2021. The decline was the result of falling arms revenues among major companies in the United States.
Interestingly, the decline in revenue occurred even as demand rose sharply. Weapons production lagged behind demand.
However, revenues increased substantially in Asia and Oceania and the Middle East. SIPRI predicts that outstanding orders and a surge in new contracts could rise significantly in the next few years.
Ukraine War’s Role
Russia’s invasion of Ukraine and geopolitical tensions around the world fuelled a strong increase in demand for weapons and military equipment in 2022. But despite receiving new orders, many US and European arms companies could not significantly ramp up production capacity because of labour shortages, soaring costs and supply chain disruptions that were exacerbated by the war in Ukraine, SIPRI observes.
In addition, countries placed new orders late in the year and the time lag between orders and production meant that the surge in demand was not reflected in these companies’ 2022 revenues, SIPRI said.
“Many arms companies faced obstacles in adjusting to production for high-intensity warfare,” said Dr Lucie Béraud-Sudreau, Director of SIPRI’s Military Expenditure and Arms Production Programme.
“ However, new contracts were signed, notably for ammunition, which could be expected to translate into higher revenue in 2023 and beyond,” he added.
Asian Companies Deliver
In contrast to the major US and European suppliers, companies in Asia, Oceania and the Middle East saw their arms revenues grow significantly in 2022 They had demonstrated an ability to respond to increased demand within a shorter time frame, SIPRI says.
This was especially true in countries where companies maintained responsive ‘ever-warm’ manufacturing capabilities, such as Israel and South Korea. These relied on short supply chains, SIPRI points out.
The US Case
Arms revenues of the 42 US companies in the Top 100 fell by 7.9% to US$ 302 billion in 2022. They accounted for 51% of the total arms revenue of the Top 100. Of the 42 US companies, 32 recorded a fall in year-on-year arms revenue, most commonly citing ongoing supply chain issues and labour shortages stemming from the Covid-19 pandemic.
“We are beginning to see an influx of new orders linked to the war in Ukraine and some major US companies, including Lockheed Martin and Raytheon Technologies, received new orders as a result. However, because of these companies’ existing order backlogs and difficulties in ramping up production capacity, the revenue from these orders will probably only be reflected in company accounts in two to three years’ time,” said Nan Tian, SIPRI Senior Researcher.
Asia outperformed Europe on the back of military modernization drives, SIPRI pointed out. The arms revenues of the 22 companies from Asia and Oceania listed in the ranking, rose by 3.1 % to reach US$ 134 billion in 2022.
This was the second consecutive year where Top 100 arms revenues for Asia and Oceania were higher than those for Europe.
SIPRI quoted Xiao Liang, a researcher with the SIPRI Military Expenditure and Arms Production Programme as saying: “Domestic demand and reliance on local suppliers shielded Asian arms companies from supply chain disruptions in 2022. Companies in China, India, Japan and Taiwan all benefited from sustained government investment in military modernization.”
While the combined arms revenues of the four South Korean companies in the Top 100 fell by 0.9% primarily due to an 8.5% recorded by the country’s biggest arms producer, Hanwha Aerospace, two South Korean companies reported revenue growth, most notably LIG Nex1.
South Korean companies are likely to see increased revenues in coming years due to a surge in booked orders after signing major arms deals with Poland and the United Arab Emirates (UAE).
European Companies
The arms revenues of the 26 companies in the Top 100 based in Europe rose by 0.9% to reach US$ 121 billion in 2022, SIPRI said.
“The war in Ukraine created a demand for material suited to a war of attrition, like ammunition and armoured vehicles. Many European producers of these items saw their revenues grow,” said Lorenzo Scarazzato, a researcher with the SIPRI Military Expenditure and Arms Production Programme.
“They included companies based in Germany, Norway and Poland. For instance, Poland’s PGZ increased its arms revenue by 14% benefiting from the accelerated military modernization programme the country is pursuing,” Scarazzato said.
Trans-European companies Airbus and KNDS were among the main sources of arms revenue growth in Europe, largely due to deliveries against long-standing orders.
Middle East Companies
Turkiye companies drove a significant increase in Middle Eastern arms revenue, SIPRI noted. The Middle East saw the largest percentage rise in arms revenue of any region in 2022, as all seven Middle East-based companies in the Top 100 recorded substantial growth. Their combined arms revenues of US$ 17.9 billion marked an 11% year-on-year increase.
The four Turkiye companies’ total arms revenues reached US$ 5.5 billion—22% more than in 2021.
The aggregate arms revenues of the three Israeli companies in the ranking reached US$ 12.4 billion in 2022, a 6.5% increase compared with 2021.
“Middle Eastern companies that specialize in less technologically sophisticated products were able to scale up production faster in response to surging demand,” said Dr Diego Lopes da Silva, SIPRI Senior Researcher.
“‘A case in point is Turkiye’s Baykar, producer of the Bayraktar TB-2 drone. Baykar entered the Top 100 for the first time after its arms revenue rose by 94%, the fastest growth rate of any company in the ranking,” da Silva said.
China Surges
In 2022 China accounted for the second largest share of combined Top 100 arms revenues by country, at 18%. The aggregate arms revenues of the eight Chinese arms companies in the ranking increased by 2.7% to US$ 108 billion, SIPRI pointed out.
The arms revenues of the seven companies in the UK listed in the Top 100 grew by 2.6% to reach US$ 41.8 billion, or 7.% of the total.
Russian Sales Fall
Due to a lack of data, only two Russian companies were included in the Top 100 for 2022. Their combined arms revenues fell by 12% to US$ 20.8 billion.
The only Ukrainian company in the Top 100, UkrOboronProm, saw a 10% real-terms drop in its arms revenue to US$ 1.3 billion. Although its arms revenue increased in nominal terms, this was more than offset by the country’s high inflation.
Military Budgets
Writing in www.visualcapitalist.com Marcus Lu says that in 2022, global military budgets hit US$2.2 trillion, an eighth consecutive year of increase.
The US is the biggest weapons exporter, accounting for 40% of the total volume of international arms transfers between 2018–2022. Nearly one-fifth of these exports headed to Saudi Arabia. Other significant amounts went to Japan (8.6%) and Australia (8.4%), Lu says quoting SIPRI.
Russia (16%) and France (11%) are second and third, followed by China (5%) and Germany (4%) to round out the top five major arms exporters.
India’s Buying Spree
France’s export volumes grew considerably (+44%) from the previous five-year period, thanks to big sales to India, which included 62 combat aircraft and four submarines, one-third of all French weapons trade, Lu points out.
On the other hand, Russia’s exports by volume had decreased (-31%) even before sanctions kicked in after the invasion of Ukraine. Its biggest trade partners, India and China, had prioritized developing their own weapons industries.
South Korea the Rising Star
Another country whose arms sales are skyrocketing is South Korea, which ranks 9th in the overall share of global arms exports, but has seen a 74% increase in its export volumes. Key recipients of South Korea arms include the Philippines, India, and Thailand.
South Korean President Yoon Suk Yeol has pledged to grow his country into the world’s fourth largest arms exporter by 2027, Lu points out.
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