In 2021, sales of the 100 largest arms producers grew for the 7th consecutive year, despite the economic impact of the pandemic. US remains in the lead. War in Ukraine is likely to influence future dynamics. Last year was not a good year for the economy: labor shortages, disrupted supply chains and goods arriving late or not arriving at all. As in the previous year, the main reason for this was the covid-19 pandemic.
But despite the difficulties, the 100 largest arms producers in the world managed to invoice together 592 billion dollars (R$ 3.1 trillion) in 2021, which corresponds to an increase of almost 2% compared to the previous year.
The US still accounts for the largest share of this. US arms manufacturers account for about half of global sales. However, sales in the US market dropped slightly in 2021.
“The problems caused by supply chain disruptions have hit US companies the hardest,” explains Xiao Liang, one of the authors of the latest annual report from the Stockholm International Peace Research Institute (SIPRI), based in Sweden.
He sees the reason for the retraction in a kind of “long covid” of the economy, which has not yet recovered. “On top of that, there is also the high inflation in the US in 2021. Those are the two main reasons.”
Europe continues to arm itself
On the other hand, sales in Europe grew by 4.2% last year. And that was even before Russia’s invasion of Ukraine on February 24, 2022. According to the Sipri 2022 Report, the Russian war of aggression has boosted demand for weapons in Europe and the United States.
“With all the weapons that are sent to Ukraine, the US and Europe were depleting their stocks, which now have to be replenished”, analyzes Liang. “We are sure there will be more orders, but it is too early to say for sure whether this will translate into higher revenues as early as 2022.”
Currently, however, only the German manufacturer Rheinmetall expects its defense division to see a 30% to 40% jump in order intake in 2023. This prognosis is based on the need to replenish stocks of armored vehicles that have been sent to Ukraine.
lack of time
There’s no shortage of future orders, what’s missing now is another resource: time. An example of this is the US order for Javelin anti-tank missiles. By the end of October 2022, the US had delivered 8,500 of these missiles to Ukraine, the equivalent of between three and four years of production. “Therefore, it is a challenge for companies: they receive more orders, but are they able to fulfill and deliver all orders?”, ponders Liang.
The longer the war lasts, the more urgent the question of how many weapons Western countries will send to Ukraine will become. “We see that some countries are already trying to find that balance,” says Liang. “It’s about balancing your own needs with supporting Ukraine. But at the same time, we know that stocks are falling and that we need to replace them.”
Some European Union (EU) countries are arming themselves massively in response to Putin’s war of aggression. Poland wants to double its number of soldiers in five years, Finland is strengthening its air defenses. Greece, France and Italy are buying new weapons for billions of euros.
Shortly after the outbreak of war, German Federal Chancellor Olaf Scholz announced a special fund of €100 billion for the Bundeswehr, Germany’s armed forces.
Russian companies are stagnant
And Russia itself? “Russia’s defense industry grew only minimally in 2021, but that’s nothing new,” says Lang. According to the Sipri report, one reason for this is the order given by the Russian government to the military-industrial complex in 2016 to increase civilian production.
Russia’s invasion of Ukraine is likely to reverse this trend, according to Lang, as the defense industry will need to support the war effort. Currently, however, there is a lack of components for the production of weapons.
Economic sanctions imposed by Western countries prevent Russia from importing unrestricted chips and semiconductors, parts urgently needed for production, including the manufacture of rockets and tanks.
China and Middle East
Regarding Asia and the Middle East, it is noteworthy that the Middle East is experiencing the fastest growth. The five companies headquartered in the region recorded the highest growth rate of any region represented in the top 100 in 2021.
An ongoing trend in Asia is that China, in particular, is accelerating the pace of production. In recent years, the country has become the second largest arms producer in the world, with only the US currently producing more. The increase in arms sales reflects the extent of modernization of Chinese military equipment and the country’s goal to become self-sufficient in the production of all major weapons categories.
Between 2017 and 2021, China, as well as India, Egypt and Algeria, acquired most of their weapons from Russia. However, the Sipri expert says it is still too early to know exactly how Russia’s invasion of Ukraine is changing the market in this regard. “The war will continue to influence the dynamics for years to come,” says Liang.
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