BMI View: As a result of Slovenia's limited external and internal security threats, as well as its weak economy, the country's defence sector is small on a regional comparison. Although Prime Minister Miro Cerar has announced that his government is committed to raising military spending - and despite an improvement in economic conditions from 2016 onwards - we do not expect the defence budget to grow significantly over our forecast period to 2019, as the country will remain relatively secure , and with Ljubl ja na continuing to direct the majority of funding towards socio-economic development. Meanwhile, t he Slovenian defence sector will remain focused on production of parts and components rather than complete products, as local manufacturers lack advanced technological capabilities and investment into defence R&D is limited.
In 2016, we forecast the Slovenian defence budget to reach a value of USD545mn, a 4.4% increase on 2015 levels. This figure continues to make up a comparatively small proportion of GDP. At just 1.3%, in both 2015 and 2016, Slovenia's defence expenditure remains well below the NATO requirement of 2%, illustrating the low level of threat from domestic unrest, terrorism, crime and interstate conflict - as well as still-weak macroeconomic conditions. Prime Minister Miro Cerar has previously stated that his government is committed to raising the Slovenian military budget; however, we do not expect any large spending increases over our forecast period to 2019, as Ljubljana continues to focus its budget on socio-economic development. Moreover, out of the defence budget's already small share of overall spending, the vast majority will be directed towards personnel and maintenance expenses, rather than new procurement and R&D.
We expect Slovenia's security environment to remain relatively stable over the next five years, as domestic threats - associated with perceived corruption, a lack of public confidence in the government, and far-right extremism - and external threats - primarily the border dispute with Croatia over the Gulf of Trieste - are highly unlikely to result in military engagement. The ongoing refugee crisis in Europe - which has seen a mass movement of refugees to the Slovenia-Croatia border - is a potential tension point in coming quarters and may require deployment of additional troops; however, we do not expect this to lead to any major increases in defence spending or new procurement.
Although Slovenia's defence sector is limited in size, it possesses capabilities in specialised areas such as optronics, simulation technology, ammunition, fire control and communications systems as well as unmanned aerial vehicles (UAVs) - represented by small companies such as C-Astral and Arex. Furthermore, several local civil engineering firms also produce parts and components for heavy defence equipment, including Sistemska Tehnika. In recent years, international defence companies have increasingly sought partnerships or acquisitions of smaller, specialised Slovenian military manufacturers, as exemplified by Switzerland's UMS AERO GROUP's recent purchase of a major stake in C-Astral. Going forward, this trend could create opportunities for development of Slovenia's domestic defence sector, especially if Ljubljana's drive to attract foreign investment results in greater government support for local military manufacturers.
Slovenia is in the process of gradually modernising and professionalising its army, which in our view, is likely to provide some opportunities for foreign defence companies over our forecast period. In particular, we highlight that the Slovenian armed forces have requirements for a small number of armoured vehicles and aircraft over the short- to medium-term. We expect the country to continue to strengthen its ground and air defence capabilities in coming years - particularly if regional tensions over the Ukraine crisis persist or escalate.
Key BMI Forecast s :
Slovenian defence expenditure is expected to reach EUR509mn (USD545mn) in 2016.
We forecast this figure to increase to EUR574mn (USD688mn) by 2019, at an annual average growth rate of 4%.
In October 2015, Hungary closed its borders to incoming refugees, primarily from North Africa and Syria. This prompted the mass movement of refugees towards Slovenia's borders instead, where the armed forces have now been deployed to help manage the situation. Ljubljana has stated that it intends to keep borders open as long as neighbouring Austria and Germany do the same. Tensions have risen in Slovenian refugee camps, with a group of young male migrants setting living quarters on fire.
In July 2015, Prime Minister Cerar announced the government's commitment to increasing Slovenia's defence budget closer to the 2% of GDP required by NATO. Cerar stated that there will be a greater focus on supporting research, investment and modernisation in the sector.
In July 2015, Switzerland-based UMS Aero Group signed an agreement to purchase up to 50% of Slovenia's C-Astral. The move will see the exchange of technological knowledge between the two firms as well as C-Astral gaining access to UMS' R&D and client base.
At the time of writing (October 2015), Slovenia has not made any recent procurements of military equipment.
The Slovenia Defence & Security Report features BMI Research's independent forecasts for national and international security, the defence industry, military expenditure, employment in arms production, and arms imports and exports, as well as examining industry trends and prospects, national and multinational arms producers and the regulatory environment.
BMI's Slovenia Defence & Security Report provides professionals, consultancies, government departments, regulatory bodies and researchers with independent forecasts and regional competitive intelligence on the Slovenian defence and security industry.
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- Defence Expenditure: Defence expenditure (local currency and USDbn); defence expenditure (% of total budget); defence expenditure per capita (USD); defence budget (local currency and USDbn).
- Armed Forces (to 2012): Manpower available for military service, manpower fit for militaryservice, army personnel, navy personnel,air force personnel, total armed forces, (‘000) (% population).
- Arms Trade: Arms and ammunition exports and imports (USDmn); bombs, grenades and missiles exports and imports (USDmn); revolver and pistol exports and imports (USDmn); weapons excluding guns and swords exports and imports (USDmn).
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