It may sound surprising, but the 15 countries with highest defense spending and largest military budgets account for 80% of global military spending. According to the Stockholm International Peace Research Institute (SIPRI), global military spending amounted to $1.69 trillion in 2016. It might seem like a lot, but it’s just 2.2% of the global GDP and represents around $227 per person. Moreover, SIPRI points out in its 2017 yearbook that defense spending inched up by just 0.4% last year, which strengthens the trend of a slowdown in spending that has been persistent since 2011. In the previous 13 years (between 1998 and 2011) defense spending registered much larger growth.
Even though military expenditure growth has slowed down, there are still many armed conflicts around the world that require the use of military forces. According to the Upsala Conflic Data Program, cited by SIPRI, there were 49 conflicts at the end of 2016, down by three from the previous year. Out of these, 47 were conflicts that were fought within the borders of a single state, either against the government or territory and 18 of these conflicts required the involvement of troops from other countries on one or both sides of the parties involved in the conflict. More international intrastate conflicts were against Islamist organizations than any other group, with 13 conflicts recorded in 2016.
The main regions that include the most military conflicts are the Middle East and North Africa, with Syria, Libya, and Yemen being among the most unstable regions. The Islamic State remains an important force in the region, despite the serious losses it has sustained in Iraq, Syria, and Libya. The international community has been targeting the Islamic State’s main revenue streams. The targeting is done either in a military way, through bombing oil infrastructure, locations where the organization has stashed its cash and key financial operatives, or through blocking access to international financial systems, asset freezes, and preventing donations. Nevertheless, the Islamic State is likely to remain a great danger to the international community in the upcoming years, SIPRI said.
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Despite the fact that defense spending and military budgets around the world slowed down on average, in the 15 countries with the highest defense spending and largest military budgets, it still represents an important part of the economy, which allows many companies to thrive with capital received through military and defense contracts awarded from the government. Two ETFs that offer investors exposure to the U.S aerospace and defense industry, the iShares Dow Jones US Aerospace & Def.ETF (BATS:ITA) and the PowerShares Aerospace & Defense (ETF) (NYSEARCA:PPA), advanced by 40% and 34% over the last 12 months, respectively, while over the past five years, these ETFs, whose portfolios also include some of the 10 biggest defense contractors in the world, surged by 167% and 150%, respectively.
According to PricewaterhouseCoopers, the global aerospace and defense industry registered 25 deals in the first-half of 2017, the total value of which amounts to $17.7 billion, up by 9% on the year, although this M&A activity was mainly driven by the Aircraft and Parts category. However, Deloitte points out that the industry is shifting away from the large mergers aimed at creating synergies and reducing costs, and, instead, companies are seeking out acquisition targets that could deliver new products, or allow expansion into new markets. It’s clear why many companies are trying to get access to new markets, since among the 15 countries with the highest defense spending and largest military budgets, five are also among the largest importers of major weapons, according to SIPRI.
With this in mind, let’s take a look at the 15 countries with highest defense spending and largest military budgets, according to SIPRI data and see some of the main aerospace and defense industry trends in these countries.
15. Israel
Military Spending: $18 Billion
Israel spent $18 billion on its military in 2016, which amassed 5.8% of its Gross Domestic Product. In addition, the country received around $3.5 billion in military aid from the U.S. Israel is also one of the top exporters of major weapons, with a share of 2.3%, according to SIPRI. Israel’s “lavish” military spending is understandable, given that the country is surrounded by potential enemies.
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14. UAE
Military Spending: $22.8 Billion
We are continuing our list of countries with highest defense spending and largest military budgets with the United Arab Emirates spent $22.5 billion on its military in 2014, with data for the following years not available, according to SIPRI. Between 2007 and 2014, the country more than doubled its military spending, which also represented 5.7% of its GDP at the end of 2014, the second-highest among the 15 countries with the highest defense spending and largest military budgets, after Saudi Arabia. According to Reuters, the UAE and other gulf states don’t intend to cut their military spending because of low oil prices, since they need a high level of security. The UAE is also one of the top importers of major weapons.
13. Brazil
Military Spending: $23.7 Billion
Brazil’s defense budget represents around 1.3% of its GDP, but during 2016, its spending declined by 7.2%, according to SIPRI, as the country plunged into recession outlined by an economic and political crisis. Nevertheless, Brazil’s military expenditures are the government’s second-largest budget item, topping even education. Brazil’s high military spending can be justified by its intention to be the leading country on the South American continent and the ever-growing tensions in Venezuela, which might require military intervention from other countries.
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12. Australia
Military Spending: $24.6 Billion
Australia’s military expenditures represent just 2% of its GDP as of the end of 2016, but the country is also one of the top importers of weapons. Last year, Australia announced plans to invest $195 billion on defense over the next decade, in order to double the number of submarines and buy three new destroyers, nine frigates and 12 offshore patrol boats. The increase in its military budget is explained by the growing threats coming from the Korean Peninsula, as well as the tensions in the South China Sea.
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11. Italy
Military Spending: $27.9 Billion
We are continuing our list of countries with highest defense spending and largest military budgets with Italy that is one of the top exporters of weapons in the world. The country’s military spending currently represents just 1.5% of its GDP, but between 2007 and 2016, the country’s spending was cut by 16%. As a member of NATO, Italy has to increase its military spending. The block aspires (not requires) to have all member countries spend at least 2% of their GDP on their military. However, even though its military spending is one of the lowest in NATO, Italy plays a major role in European security, with its coast guard and navy constantly engaged in saving migrants in the Mediterranean.
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10. South Korea
Military Spending: $36.8 Billion
Being bordered on the North by one of the most unstable countries in the world, it’s not surprising that South Korea’s military spending ranks it among the 15 countries with the highest defense spending and largest military budgets, amassing 2.7% of its GDP. In addition to North Korea, tensions abound between many neighboring countries, such as between China and Japan, and India and Pakistan. Even though between 2007 and 2016, South Korea’s military expenditures increased by 35%, its spending as a percentage of GDP remained largely the same, helped by economic growth that allowed an increase in spending without over-burdening the budget.
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9. Germany
Military Spending: $41.1 Billion
Germany ranks 9th in our list of countries with highest defense spending and largest military budgets. It is another NATO member that under-spends on its military. Its military expenditures as apercentage of GDP sits at just 1.2%, well below the 2% threshold. However, historically-speaking, Germany has its reasons to have a restrained military power, as it was responsible for the last two World Wars, which is why both the country’s citizens and its neighbors are not really looking forward to the country spending more on its military. Nevertheless, as the largest economy in Europe, Germany plays a major role in European and international security.
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8. Japan
Military Spending: $46.1 Billion
Even though its the eighth-ranked country in terms of countries with highest defense spending and largest military budgets, Japan’s spending represents just 1% of its GDP. Japan’s location in proximity to North Korea, as well as the ongoing tensions with China over claims in the East China Sea, are just two of the reasons why Japan’s military budget is so high.
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7. UK
Military Spending: $48.3 Billion
As one of the global superpowers, it’s not surprising that the United Kingdom, the number 7 in our list of countries with highest defense spending and largest military budgets is also one of the top spenders on military. The UK’s military spending amassed 1.9% of its GDP. Between 2007 and 2016, the UK’s military spending declined by 12%, while its spending as a percentage of GDP declined by 30 basis points. The UK is also a top exporter of weapons.
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6. France
Military Spending: $55.7 Billion
Not only does France already have one of the largest military budgets, it also plans to add another $1.9 billion to it next year. Further increases are expected in the following years as well, as France, definitely one of the countries with highest defense spending and largest military budgets, is readying to face any potential threat to its security or to international peace. The NATO state’s military expenditures represent 2.3% of its GDP. France is also one of the top exporters of weapons and is engaged in operations against jihadists in Syria, Iraq and West Africa. Moreover, the French government has also deployed military forces to protect its citizens against terror attacks on its soil. Earlier this year, two French companies, Zodiac Aerospace SA and Safran SA agreed to merge in a deal worth $7.75 billion, which is this year’s largest aerospace and defense deal.
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5. India
Military Spending: $55.9 Billion
Next in our list of countries with highest defense spending and largest military budgets is India. India is one of the nine countries that have nuclear weapons, with around 125 warheads. It is also the largest importer of weapons, accounting for 13% of total imports. India is also involved in a conflict over the Kashmir region with neighboring Pakistan, which resulted in an active confrontation in September 2016. India’s military spending accounts for 2.5% of its GDP, having surged by 54% between 2007 and 2016.
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4. Saudi Arabia
Military Spending: $63.7 Billion (estimated)
Saudi Arabia’s military spending is estimated at $63.7 billion, which represents around 10% of its GDP. This makes the number 4 in our list of countries with highest defense spending and largest military budgets, the largest spender in the Middle East. Saudi Arabia is the second-largest importer of weapons, with a share of 8.2%. The country has a very tense relationship with Iran over various issues, including its relationship with the United States and other western countries and its interpretations of Islam.
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3. Russia
Military Spending: $69.2 Billion
Up next in our list of countries with highest defense spending and largest military budgets is Russia that is a military superpower, unsurprisingly ranking as one of 15 countries with the highest defense spending and largest military budgets. Russia has been involved in a number of conflicts, including the one in eastern Ukraine and in Syria, where it launched an air campaign in support of the Syrian government. In addition, the relationship between Russia and the United States has been deteriorating lately, which has sparked global concerns and a lot of uncertainty. The deterioration of the U.S-Russia relationship also led to an estrangement between Russia and European Union countries, as well as countries that are members of NATO. Russia is currently the second-largest exporter of weapons, accounting for 23% of total exports. Its military spending is equal to 5.3% of its GDP and it surged by 87% between 2007 and 2016. Russia has the largest number of warheads at 7,000, and the largest number of deployed warheads at 1,950.
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2. China
Military Spending: $215 Billion (estimated)
China is on the second spot among countries with highest defense spending and largest military budgets. China has significantly boosted its military spending over the last decade, as it advanced by 118% between 2007 and 2016 and was equal to 1.9% of its GDP last year. The country plans to further increase its defense budget by 7% this year due to the escalation of tensions between North Korea and other countries. The Chinese government has also been building artificial islands in the South China Sea in waters that are claimed by other nations, which led to a number of incidents between Chinese and U.S, Vietnamese, and Philippine ships. China is also involved in territorial disputes with Japan and is supporting the North Korean regime.
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1. United States
Military Spending: $611 Billion
The U.S. not only has the largest military spending in the world, but its expenditures are only slightly lower than those of the following nine countries combined. The U.S accounts for 33% of all weapon exports and is involved in most major conflicts around the world, playing a major role in the fight against the Islamic State. As the largest NATO member, the U.S also has 800 military bases in other countries and earlier this year inaugurated its first military base in Israel. Recently, the U.S Senate approved a $700 billion military bill for next year. The U.S is also a nuclear superpower, with 6,800 warheads, including 1,800 deployed. Overall, U.S military spending accounts for 3.3% of its GDP and during the last decade that spending has inched down by 4.8% to sit 20% lower than its peak in 2010. The decline can be attributed to 2011 legislation that capped military spending, although subsequent legislation adopted in 2013 and 2015 eliminated those restrictions.
The U.S is also home to some of the largest aerospace and defense companies, some of which have engaged in a number of M&A transactions. In 2016, Rockwell Collins, Inc. (NYSE:COL) bought B/E Aerospace for $8.20 billion and Leidos Holdings, Inc. (NYSE:LDOS) merged with the IT services businesses of Lockheed Martin Corporation (NYSE:LMT) in a deal worth $5.93 billion. Both deals were the largest in the industry last year.
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These are the 15 countries with highest defense spending and largest military budgets. Not only are these countries spending staggering amounts of money on their defense, but some of them also plan further increases in order to be able to face any potential threats. The question remains whether or not the governments of these countries will use all their military power to maintain global peace, or will spark more conflicts with potentially devastating consequences.
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