In the midst of a global recession that reduced the global demand for weapons, the United States managed to expand its share of worldwide arms agreements significantly in 2008, according to a September report by the Congressional Research Service (CRS). Last year, developing countries continued to be the most important markets for arms sales, the report said.
The report, “Conventional Arms Transfers to Developing Nations, 2001-2008,” is the 2009 edition of the CRS’s annual analysis, authored since 1982 by international security specialist Richard Grimmett. It analyzes arms transfer agreements worldwide while giving particular attention to sales to developing countries.
The total value of all arms transfer agreements in 2008 was $55.2 billion, the lowest level since 2005, the report said. The peak was $59.7 billion in 2007.
In 2008 the United States concluded $37.8 billion worth of arms transfer agreements, representing 68.4 percent of all such agreements globally. That is up significantly from the U.S. total of $25.4 billion in 2007, which represented only 42.5 percent of global agreements. (See ACT, December 2008.)
During 2008, the United States also made worldwide deliveries of $12.2 billion, continuing eight years of dominance as the world’s top deliverer of arms. Grimmett defines arms deliveries as “items actually transferred,” while arms transfer agreements represent contracts signed between supplier and recipient countries. Due to their complexity, arms deals can take years to implement and can be adjusted over time, leading to figures for agreements and deliveries that rarely match.
Several other countries are significant arms sellers, although none on the scale of the United States. Italy was a distant second, with $3.7 billion in agreements, up from $1.2 billion in 2007, followed by $3.5 billion for Russia, down from $10.8 billion in 2007. These top three suppliers collectively made 81.5 percent of all international arms transfer agreements in 2008.
Worldwide weapons orders in 2008 were down 7.5 percent from 2007. A main factor in the drop was the decision by some purchasing countries to forgo major new systems because of budgetary restraints imposed by the global recession and rising oil prices, the report said. Those countries opted to limit purchases to the upgrading of existing systems, training and support services, or the integration of already purchased weapons into their forces, Grimmett said.
Continuing a trend that can be seen since 2001, developing countries, defined in the report as all countries except Australia, Canada, Japan, New Zealand, Russia, the United States, and European countries, have increasingly been the major market for arms from the world’s largest suppliers. Arms sales to developing countries comprised 76.4 percent of worldwide arms sales in 2008, with the United States generally finding its largest markets in the Near East, a region stretching from Morocco to Iran. Russia found its largest markets in Asia, the report said.
In 2008 the United States made 70.2 percent of its agreements with developing countries. Russia and France each made more than 90 percent of its agreements with such countries; for China and the United Kingdom, the figure was 100 percent.
Between 2007 and 2008, the value of arms transfer agreements with developing countries increased slightly, from $41.1 billion to $42.2 billion. The decrease in global arms sales during this time came from developed countries, where total arms sales decreased from $18.6 billion in 2007 to $13.0 billion in 2008. Deliveries to developing countries in 2008 were equal to $18.3 billion, slightly lower than the 2007 level of $18.4 billion and the lowest level during the 2001-2008 reporting period.
Oil Price Effects
Spiking oil prices squeezed budgets devoted to arms purchases in many countries in 2008, but increased oil revenue swelled defense budgets in oil-exporting developing countries and allowed them to devote huge sums of money to arms purchases, Grimmett said. Saudi Arabia led all developing countries in arms purchases over the reporting period, with a value of $36.7 billion since 2001 and $8.7 billion in 2008. The United Arab Emirates (UAE) has signed $15.3 billion in agreements since 2001, with $9.7 billion coming in 2008. Venezuela, another major oil exporter, has also emerged as a significant purchaser of arms, with agreements totaling $5.8 billion since 2001.
The United States dominated sales agreements with developing countries in 2008. Its sales of $29.6 billion represented 70.1 percent of the market, up 39.9 percentage points over 2007. In addition to taking advantage of its well-established network of purchasers for defense articles and services, the United States has been able to maintain a steady stream of orders for upgrades, spare parts, and support services, even when it has not concluded major new deals for weapons systems, Grimmett said.
An important market for the United States has traditionally been the Near East region, where Saudi Arabia has consistently been a top purchaser of U.S. arms. The UAE has emerged as a large customer as well, signing agreements in 2008 for a comprehensive Patriot air defense missile system for more than $6.5 billion.
The United States also sought to expand its military cooperation with India in 2008, signing a nearly $1 billion deal for C-130J cargo aircraft. In a recent speech, Assistant Secretary of State for Political-Military Affairs Andrew Shapiro cited arms sales as an “important tool for broadening and deepening our partnerships with emerging powers such as India.” An end-use monitoring agreement signed in July by India and the United States may pave the way for the sale of advanced weaponry, including fighter aircraft, in the near future. (See ACT, September 2009.)
Russia, which has relied on the Chinese and Indian markets for high-value arms sales, has worked in recent years to expand its base of customers through creative financing options, such as debt swaps and “licensed production agreements,” which allow its customers to produce and sell Russian weapons, Grimmett said. Russia also has improved its follow-on support services, which have been viewed as lacking in the past, the CRS report said. Russia’s military hardware has been attractive to less-affluent developing countries because it ranges from basic to the most highly advanced systems, the report said.
Russian exports to China during the reporting period have included fighter aircraft, destroyers, submarines, anti-ship missiles, military transport aircraft, aerial refueling tankers, and jet engines. Grimmett wrote that such purchases show that “Chinese arms acquisitions are apparently aimed at enhancing its military projection capabilities in Asia, and its ability to influence events throughout the region.”
Russia’s most significant agreements in 2008 include deals with India to provide 80 Mi-17 helicopters for $1.3 billion and to upgrade MiG-29 fighters for $1 billion.
An important emerging market for Russia is Venezuela, with which Moscow has concluded significant agreements for the sale of fighter aircraft and helicopters, along with licensing agreements to produce AK-103 assault rifles. Following the Sept. 13 announcement of a $2.2 billion agreement between Russia and Venezuela, Secretary of State Hillary Rodham Clinton said the deal raises “the question as to whether there is going to be an arms race in the region.” She also said that Venezuela needs to be “putting in place procedures and practices to ensure that the weapons that they buy are not being diverted,” highlighting a long-standing U.S concern that arms are being diverted to criminal groups elsewhere in the region.
Although Russia has had some success in diversifying its arms exports, Grimmett said that long-term foreign sales of Russian arms may be hampered by the absence of sustained investment in research and development that other suppliers, such as the United States, have undertaken.
Currently a major importer of arms, China has also emerged as a growing source of arms for developing countries in Africa and Asia that are looking for options that are more affordable than the major weapons systems offered by other suppliers.
China’s arms sales to developing nations peaked at $2.8 billion in 2005 and amounted to only $800 million in 2008. One notable sale was that of an airborne warning and control system to Pakistan for $278 million in 2008. China is not likely to earn large revenues from such transfers but may view them as “a means of enhancing its status as an international political power, and increasing its ability to obtain access to significant natural resources, especially oil,” Grimmett said.