Peru's defence budget is expected to experience growth in the coming years, reaching $2.6bn (9.4bn new sol) by 2028, according to GlobalData's "Peru Defense Market 2023-2028" report.
This surge in defence spending, with a compound annual growth rate (CAGR) of 6.3%, is fueled by the need to counter rising threats from narco-terrorism, border disputes, and the ongoing modernization within Peru's defence sector.
Political instability challenges market entry
Additionally, Peru's Ministry of Defence is actively pursuing partnerships with countries to enhance its defence capabilities through training, technology exchange, and product development, offering foreign companies opportunities to enter the Peruvian defence market, however, political instability and a small defence budget challenge market entry and growth in the country.
The increase in defence spending can be attributed to various factors. Peru's involvement in peacekeeping missions, the need to combat narco-terrorism, and the persistent threat of insurgency by groups like the Shining Path drive the country's defence expenditure. Ongoing modernization initiatives contribute to the anticipated surge in defence spending over the forecast period.
During the historical period, Peru allocated an average of 4% of its defence budget to acquisition expenditures. The acquisition budget 2023 is expected to reach $90 million, marking a 116.1% increase compared to the previous year. This upward trend is set to continue, with the acquisition budget projected to reach $221.7m by 2028.
Key defence procurements in the coming years include frigates, multirole aircraft, submarines, main battle tanks, and armoured personnel carriers.
Peru's defence budget breakdown from 2019 to 2028 reveals a decline in defence expenditure from $2.2bn in 2019 to $1.9bn in 2023. However, the budget is expected to increase from $2bn in 2024 to $2.6bn in 2028, reflecting a CAGR of 6.3%.
In addition to bolstering its defence capabilities through increased spending, Peru actively seeks collaborations with key countries in the defence sector. The Ministry of Defense is pursuing partnerships with the United States, South Korea, Spain, Russia, and others to enhance training, technology exchange, and product development.
Peruvian partnerships
Peru has established a strong cooperative relationship with the United States, focusing on democratic institution strengthening, human rights, environmental protection, and counter-narcotics efforts. Collaborations between Peru and the United States have resulted in significant defence agreements, such as reconditioning 178 Stryker armoured fighting vehicles.
Spain is another crucial partner for Peru, with a memorandum of understanding (MoU) on armament and defence material cooperation.
Peru has also engaged in government-to-government partnerships with South Korea and Russia, leading to advancements in defence technology. Notably, Peru signed an MoU with South Korea for aeronautical technology exchange, enabling local construction of fighter aircraft. Similarly, Russia has become a significant defence supplier to Peru, diversifying the country's defence partnerships.
With a defence budget of $1.9bn in 2023, Peru invests a relatively small portion of its GDP compared to other Latin American countries. Additionally, concerns over corruption and the need for more transparency in the arms procurement process create uncertainties for international suppliers.
The country's pursuit of partnerships with key countries in defence training and technology development opens doors for foreign companies to enter the Peruvian defence market. As Peru strengthens its defence capabilities, these collaborations offer avenues for knowledge exchange, technology transfer, and joint ventures, benefiting Peru and its foreign partners.
Peru seeks collaborations with key countries to bolster its defence sector through training, technology exchange, and product development. However, political instability and a limited defence budget challenge market entry and growth in Peru's defence industry.
