Jane’s Intel Briefing: Covid-19 Impact on the Defence & Military Sector

The Covid-19 Coronavirus pandemic presents a swiftly evolving challenge to the defence sector, with repercussions on budgets and spending plans, industry deliveries, and financial stability being forecast or already felt.

Similarly, military forces are having to adapt their operations, deployments, exercises, and training plans.

During this extract briefing, the Jane's team provides a snapshot of developing Coronavirus themes and makes some early predictions of where that impact will be most felt.

Covid-19: Defence industrial reaction- Observations:       

So far the measures that have been taken reflect the severity of the situation in different geographies. The measures taken in Spain have gone deeper, they may provide an indication of the actions that we could see elsewhere if the scale of the challenge worsens.

The measures are broadly similar to those we have seen in adjacent industries; France, Italy, Spain have also seen civilian industrial suspensions. In fact, we’d say that some adjacent areas, such as auto motor production have gone much further and have suspended production across the board; arguably, that’s down to different market conditions at presence. Defence is of course subject to the far longer lead times.

The scale and anticipated period of closures does not point so far to significant derailment of programme schedules, but the situation is evolving, and all the companies we spoke to said that the situation is constantly under review.

Defence budgets in a depression

So to explain scenarios we have the charts below. The green bars are the annual defence budget, which from 2021 onwards reflects our forecast. The grey bars which join them are Covid-19 scenario based on the percentage of the GDP which the defence budget represented from 2009 onwards. The solid line across the chart shows the annual growth of defence spending, with the dashed line showing how our recession scenario diverges.

  • The United States:

Our expectations for the defence budget growth weren’t high, even before the threat for recession, although we were expecting a very small acceleration in 2021. If the country follows the pattern of the previous recession, we can instead expect increasingly large cuts to real defence expenditure in the next few years. The militaries treatment of the situation the country faces decade on is of course profoundly different, so defence budget will likely prove more robust in 2021 and beyond than this exercise suggests.

Although the loss of funding that this model predicts is extremely large, a drop of over 100 billion dollars from our forecast for 2023, it is notably smaller than the fall that occurred in just three years after the budget peaked in 2010.

  • China

China’s slow down scenario is one of the worst that we have seen for defence budgets, despite the expectation that its economy will remain in positive growth. In part, this is because in the early 2000s, China’s defence spending was falling dramatically as a percentage of GDP and the country’s economic output came out relatively unscathed from the global crisis. It was in part the sheer speed of the country’s growth which pushed down defence spending as a proportion of the GDP in those years. As a more developed economy, we wouldn’t really expect to see cuts as large as our scenario model suggests in today’s context. However, the forecast we’re using for the Chinese economy predicts the lowest rate of growth since the early 1990s. So, a reaction outside what we have become used to is possible. In part, the impact of our scenario in China is particularly bad precisely because the outlook has been so strong; instead of growing by nearly 20% in the years to 2023- one of the fastest rates in the world- our alternate forecast would have the country’s defence budget contracting by 4%.

  • India

India is another fast developing economy, but without the background of a long term falling defence as a percentage of the GDP that we saw in China, overlaying its response to a global economic slowdown, yields a slightly less drastic cut to our forecast. As during the global financial crisis, we are expecting Indian GDP growth to remain healthy, though slower, but for defence budgets to decline in relation to that economic output. Compared to our healthy growth forecast, the potential impact of our Covid-19 scenario would leave the country spending 13 billion dollars less in 2023; 2.1% lower than today.

Industry response and budgets to the operational environment for the armed forces during this pandemic.

This map we have particularly analyzes deployments of troops, medical assistance by the armed forces, evacuations, forward looking statements, and the reported cases of Covid-19 within the military.

Important events around the Covid-19 pandemic:

National, bilateral, and multilateral exercises have been affected by this pandemic. Some exercises, like the US-led ‘Defender Eruope 20’ were scaled down, some like India-led exercise ‘Milan 2020’ were postponed, and others like US-led ‘African Lion’, and ‘Phoenix Expess’, ‘Obangame Express’ were cancelled.

In the domestic front, the US training centers have adjusted their training calendars, whereas in countries like India they have postponed interviews and exams for new recruits in the armed forces.

NATO Exercises

The ‘Cold Response’ exercise hosted by Norway was cut short by the host country, but nevertheless many participating forces had already been deployed, and in fact the redeployment has been taking place too. There was still a value from the logistics’ point of view of the exercises bided by being cut short.

‘Defender-Europe 20’ was to be a much bigger exercise, in fact it was supposed to be the largest US deployment to Europe in 25 years calling the return of forces to Germany, the ‘Reforger Exercise’ of the Cold War. But, due to Covid-19 the US Army Europe announced on 16 March that all movement of personnel and equipment from the United States to Europe had ceased as of 13 March.

Also, there were four completely cancelled exercises linked to ‘Defender-Europe 20’, including a particularly relevant exercise given the current security situation; the joint warfighting assessment which was to address the challenges like hypersonic weapons and cruise and ballistic missiles.

However, the armored brigade combat team of US army that has already deployed to Europe will conduct other training with allied forces as part of modified exercise ‘Allied Spirit’, which is another one of these sub exercise of ‘Defender-Europe 20’. There was logistic value to this exercise, only 6000 of the 20,000 troops initially planned were deployed from the US to Europe, and only 3000 of the 20,000 pieces of equipment which were to be sea-lifted actually arrived. But, 9000 vehicles and other equipment were drawn from army pre-position stocks in Europe, that’s actually 75% of what was initially planned. So now they will have additional logistics exercise, of moving the equipment that did make it back to the States or back into its pre-position stocks

Source - Jane's

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