This year, we observed growing defence expansion as nations around the world attempt to keep their military equipment from falling behind that of their adversaries.
Since Russia’s full-scale invasion of Ukraine in February 2022, the Western bloc responded with a flurry of military aid to the war-torn country, a long-term commitment that donors must balance with replenishing their own stocks and stores of military equipment.
Likewise, the deterioration of European security has had a commensurate effect in the Indo-Pacific where countries are preparing for a high intensity conflict as China’s aggressive military posture conflicts with the so-called ‘Rules-based Order.’
This has led the US Government to focus increasingly on the region, where we have begun to see the implementation of deterrence measures such as AUKUS; a critical transnational investment that will expand Australia’s subsurface capabilities.
Notably, in the backdrop of this period of procurement, the Asia-Pacific defence markets have performed exceedingly well as this list of top-performers will reveal.
As the late US diplomat, Henry Kissinger, recognised in 2011: “The centre of gravity of world affairs has left the Atlantic and moved to the Pacific and Indian Oceans.” Never has this been truer than it is today.
South Korea
Throughout 2023, South Korea’s industry managed to tap into the European market.
GlobalData Defence Analyst Tristan Sauer notes that “the South Korean industry’s advantage in terms of capacity and expertise has allowed it to seize foreign investment opportunities more rapidly than other countries, as illustrated by Hanwha’s major export deals to Poland.”
A number of framework agreements were signed for a wide range of defence articles to be delivered to the Polish Government, including 1,000 K2 Black Panther main battle tanks (MBTs) and 672 K9 howitzers – which was recently followed by the disembarkment of the first batches of each in Gdynia, Poland on 6 December.
Likewise, in September 2022, Poland also contracted Korean Aerospace Industries to deliver 48 FA-50 aircraft to replace the ageing MiG-29 aircraft in the Polish Air Force. Poland’s Minister of National Defence, Mariusz Błaszczak, welcomed the construction of the first units in June this year.
In late October, the framework agreement for the acquisition of the first 18 K239 multi-guided Chunmoo launchers, integrated with Polish JELCZ vehicles, along with ammunition, occurred this year.
While Poland serves as the ballooning industry’s principal European customer, Korean companies laid essential foundations for a larger customer base in Europe by establishing offset agreements sharing critical knowledge with Poland to manufacture some systems indigenously.
This is a critical gateway for Poland’s neighbours – such as Romania, and other post-Soviet nations – as they are similarly pushed to modernise their legacy inventories too.
Adopting off-the-shelf K2s and other Korean systems will help to transform these countries’ capabilities as quickly and as cheaply as it had for Poland.
Poland
Predictably, as a result of its extensive procurement policy, Poland has also made the cut as one of 2023’s top defence performers.
The Central European country has made headlines this year with some observers arguing that the power dynamics on the continent have shifted dramatically in Poland’s favour thanks to its extensive military build-up.
Nato forecasts in June 2023 showed that Poland was projected to spend 3.9% of its gross domestic product on defence, more than any other Nato member state. Likewise, according to GlobalData intelligence, Polish defence spending from 2024–28 is predicted to total $135.8bn, or a compound annual growth rate (CAGR) of 10.8%.
Poland provides a unique case study for its ‘mixed procurement’ policy where we see traditional US suppliers being challenged by Korean firms Hanwha and Hyundai Rotem, which are contractors that are part of an ambitious technology transfer agreement that will expand Poland’s domestic industry.
While most major procurement choices are likely finalised, this certainly has not put US platforms out of contention. Polish F-35A fighter jets are in production in Fort Worth, Texas. The country has also received numerous M1A2 Abrams SEPv3 MBTs; even a competency centre will be established in Poznan to maintain these complex land vehicles.
A divided Europe has pushed Poland into the arms of the US this past year, as Polish Prime Minister, Mateusz Morawiecki, called into question the commitment of some western European nations in supporting Ukraine and maintaining a ‘free and open’ Indo-Pacific.
The two nations align militarily as well as politically as a contingent of US soldiers permanently operate in Poland's V-Corps. In addition, the two forces share an integration laboratory in Poland, a step that marks a stronger relationship with the US as the Department of Defense can more easily maintain and sustain Poland’s similar weapon systems closer to the invading Russian forces in the south and east of Ukraine.
Elsewhere, Poland also looks to the UK for ground-based missile defence systems and frigates. Last month, the two countries finalised a £4bn (20.5bn zlotys) deal for MBDA UK to supply 1,000 CAMM-ER missiles for Poland’s Narew short-range air defence systems.
British defence manufacturer Babcock and Polish armaments consortium PGZ announced a framework agreement, establishing a joint venture to work more closely on delivering Poland’s Miecznik frigate programme, modelled on the Arrowhead-140 design used for British Type-31 frigates.
Japan
Similarly, Japan’s defence budget growth has buttressed the island nation’s defence with a formidable fighting force with grand prospects in the near future.
If Japan fulfils its budget goals in the next five years, it will go from the fifth or seventh strongest military power – in terms of firepower and defence spending respectively – to third in the world after the US and China, according to GlobalData intelligence.
Even with Japan’s currency devaluation – a fall by an average of 20% since last year – it is unlikely that the nation’s defence programmes will be sequestered; these include F-35A and B fighters, Mogami-class frigates and V-22 Osprey uncrewed aerial vehicles (UAVs).
The country has also entered ‘Team Tempest’, a trilateral Global Combat Air Programme with Italy and the UK last year, in which the three partners will produce a sixth-generation combat aircraft. Over the next decade this investment will cost Japan Y4trn ($29bn) according to GlobalData intelligence.
Recently, Japan scrapped its long-standing 1% gross domestic product ceiling for annual defence spending and has evinced an intent to increase it by 2% over the next decade. It reflects the country’s intent to bolster its own national defence capabilities. By lifting the cap, Japan would not be bound by any regulations to control defence spending and can freely increase its defence expenditure in correlation to the level of threat.
Hence, Japan’s defence budget is expected to increase at a CAGR of 5.1% over 2024–28. Over the forecast period, defense expenditure is anticipated to increase from $70.3bn in 2024 to $85.9bn in 2028. The acquisition component of defence expenditure is anticipated to grow at a CAGR of 5.9% owing to the need to modernise its air force capabilities, maintaining a competitive defence industrial base.
Australia
Australia has earned its place as a top-performer largely due to its government’s attempt to kick-start its sovereign industrial base. Although the commonwealth’s local defence industry is burgeoning as a result, its efforts fall much shorter than that of other defence industries such as South Korea.
Currently, Australia’s defence output relies on giving its small to medium sized enterprises the capacity to produce defence equipment themselves.
A notable revelation is that 83% of Australia’s military fleet is indigenous, signalling the country’s commitment to nurturing domestic defence industries.
This commitment aligns with Australia’s broader vision of self-reliance and securing its sovereign territories, reducing its dependence on foreign suppliers and ensuring long-term sustainability and resilience.
However, this government strategy does not equate to complete autarky. Instead, Sauer notes that “Japanese and Australian firms are expanding their reach via geopolitical agreements such as the AUKUS treaty or Japan's participation in the Tempest programme.”
When it comes to AUKUS – a trilateral agreement that began in 2021 wherein Australia, the UK and US plan to assist the commonwealth with its development and maintenance of nuclear-powered submarines – the UK and US are driven by a broader Indo-Pacific strategy that deters China. Offering this critical deterrence capability to the Australian Government will help to discourage the Chinese threat to nations’ autonomy in the region.
Brazil
As an outlier of the principal drivers of global defence this year, in Ukraine and the Indo-Pacific conflicts, Brazil has also proven itself as a top-performer this year through its engagement with the Emirati conglomerate, EDGE Group.
Through a plethora of co-operation agreements with local governments, buying large shares of Brazilian smart weapon producers and supplying Brazil’s armed forces, EDGE has tapped into a promising defence market. With the country undertaking major modernisation programmes to increase the capabilities of its armed forces, defence spending is expected to rise significantly.
As Brazil faces no major external security threats, defence expenditure is expected to be driven by internal issues, such as the need to supply the military with the equipment required to tackle drug trafficking, arms smuggling, and organised crime.
At the same time, Brazilian defence primes have also supplied the Brazilian armed forces, but also militaries around the world. In November, Embraer delivered the fifth EMB 145 AEW&C aircraft, now designated as E-99M, to the Brazilian Air Force. More recently, the firm supplied its KC-390 Millennium multi-mission tactical aircraft acquired under the government’s Large Transport Aircraft II programme.
Additional reporting from Andrew Salerno-Garthwaite and Harry McNeil.
