Future of the Azerbaijani Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2023

Table of Contents

1. Introduction 6

1.1. What is this Report About? 6

1.2. Definitions 6

1.3. Summary Methodology 8

1.4. About GlobalData 9

2. Executive Summary 10

3. Market Attractiveness and Emerging Opportunities 12

3.1. Current Market Conditions 13

3.1.1. Military Fleet Size 13

3.1.2. Procurement Programs 18

3.1.3. Key Drivers and Challenges 19

3.2. Defense Market Size Historical and Forecast 20

3.2.1. Azerbaijani defense budget to record a CAGR of

5.27% over the forecast period 20

3.2.2. Constant state of dispute with Armenia and military modernization are expected to be the key factors driving defense expenditure 23

3.2.3. The defense budget as a percentage of GDP is expected to increase over the forecast period 24

3.3. Analysis of Defense Budget Allocation 26

3.3.1. Procurement of advanced equipment to drive capital expenditure allocation over the forecast period 26

3.3.2. Capital expenditure is expected to grow at a CAGR of

5.25% over the forecast period 28

3.3.3. Per capita defense expenditure expected to increase over the forecast period 30

3.4. Homeland Security Market Size and Forecast 32

3.4.1. Protection of energy infrastructure and combating drug trafficking will be the key factors driving homeland security 32

3.4.2. Azerbaijan falls under the “some risk” category on the Terrorism Index 33

3.4.3. Azerbaijani faces “some risk” of acts of terrorism 34

3.4.4. Azerbaijan has a terrorism index score of

1.2 36

3.5. Benchmarking with Key Global Markets 37

3.5.1. Azerbaijan’s defense budget is expected to register moderate growth over 2019-2023 37

3.5.2. Azerbaijani defense expenditure is relatively small when compared to the leading defense spenders 39

3.5.3. Azerbaijan spent

3.8% of its GDP on defense in 2018 40

3.6. Market Opportunities: Key Trends and Drivers 41

3.6.1. Top Defense Sectors by Value (US$ Million) – Projections over 2018-2023 41

4. Defense Procurement Market Dynamics 42

4.1. Import Market Dynamics 43

4.1.1. Azerbaijan’s reliance on military imports is expected to decline over the forecast period 43

4.1.2. Azerbaijan imports the majority of its arms from Russia 44

4.1.3. Armored vehicles, missiles and ships dominate Azerbaijani defense imports 45

4.2. Export Market Dynamics 46

4.2.1. Azerbaijan’s defense exports are negligible, however, they are expected to increase considerably over the forecast period 46

5. Industry Dynamics 47

5.1. Market Regulation 47

5.1.1. Azerbaijan’s foreign investment policy prohibits FDI in the defense sector 47

5.2. Market Entry Route 47

5.2.1. Budgeting Process 47

5.2.2. Government-to-government deals form an attractive entry route for foreign manufacturers 48

6. Competitive Landscape and Strategic Insights 49

6.1. Competitive Landscape Overview 49

6.1.1. The majority of defense equipment in Azerbaijan is supplied by foreign manufacturers 49

7. Business Environment and Country Risk 50

7.1. Economic Performance 50

7.1.1. GDP Per Capita 50

7.1.2. Gross Domestic Product 51

7.1.3. Exports of Goods and Services (LCU Billion) 52

7.1.4. Imports of Goods and Services (LCU Billion) 53

7.1.5. Gross National Disposable Income 54

7.1.6. LCU per USD (Period Average) 55

7.1.7. Goods Exports as a Percentage of GDP 56

7.1.8. Goods Imports as a Percentage of GDP 57

7.1.9. Services Imports as a Percentage of GDP 57

7.1.10. Services Exports as a Percentage of GDP 58

7.1.11. Foreign Direct Investment, net (BoP, current US$ Billion) 59

7.1.12. Net Foreign Direct Investment as a Percentage of GDP 61

7.1.13. Mining, Manufacturing, Utilities Output (LCU Billion) 62

8. Appendix 63

8.1. About GlobalData 63

8.2. Disclaimer 63

List of Tables

Table 1: Azerbaijani Army Strength 13

Table 2: Azerbaijani Air Force Strength 16

Table 3: Azerbaijani Navy Strength 17

Table 4: Azerbaijan – Future Procurement Programs 18

Table 5: Azerbaijan – Future Procurement Programs 18

Table 6: Azerbaijani Defense Expenditure (AZN Billion & US$ Billion), 2014-2023 21

Table 7: Azerbaijani GDP Growth and Defense Expenditure as Percentage of GDP Growth, 2014-2023 24

Table 8: Azerbaijani Defense Budget Split Between Capital and Revenue Expenditure (%), 2014-2023 26

Table 9: Azerbaijani Defense Capital Expenditure (AZN Billion & US$ Billion), 2014-2023 28

Table 10: Azerbaijani Per Capita Expenditure (US$), 2014-2023 30

Table 11: Terrorism Index, 2018 34

Table 12: Benchmarking with Key Markets, 2014-2018 vs 2019-2023 37

Table 13: Top Azerbaijani Defense Sectors by Value (US$ Million), 2018-2023 41

Table 14: Azerbaijan – Budget Formation Timetable 47

Table 15: Competitive Landscape of the Azerbaijani Defense Industry 49

List of Figures

Figure 1: Azerbaijani Defense Expenditure (in AZN Billion), 2014-2023 21

Figure 2: Azerbaijani Defense Expenditure (US$ Billion), 2014-2023 22

Figure 3: Azerbaijani GDP Growth vs Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2014-2023 25

Figure 4: Azerbaijani Defense Expenditure Split Between Capital and Revenue Expenditure (%), 2014-2023 27

Figure 5: Azerbaijani Defense Capital Expenditure (AZN Billion), 2014-2023 29

Figure 6: Azerbaijani Defense Capital Expenditure (US$ Billion), 2014-2023 29

Figure 7: Azerbaijani Per Capita Expenditure (US$), 2014-2023 31

Figure 8: Terrorism Heat Map, 2018 33

Figure 9: Terrorism Index, 2018 36

Figure 10: Benchmarking with Key Markets, 2014-2018 vs 2019-2023 38

Figure 11: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2018 and 2023 39

Figure 12: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2018 40

Figure 13: Azerbaijani Defense Imports (US$ Million), 2013-2017 43

Figure 14: Azerbaijani Defense Imports by Country (%), 2013-2017 44

Figure 15: Azerbaijani Defense Imports by Category (%), 2013-2017 45

Figure 16: Azerbaijani GDP Per Capita (US$), 2015-2025 50

Figure 17: Azerbaijani GDP at Current Prices (US$ Billion), 2015-2025 51

Figure 18: Azerbaijani Exports of Goods and Services (LCU Billion), 2005-2014 52

Figure 19: Azerbaijani Imports of Goods and Services (LCU Billion), 2005-2014 53

Figure 20: Azerbaijani Gross National Disposable Income (US$ Billion), 2005-2014 54

Figure 21: LCU per USD (US$), 2015-2025 55

Figure 22: Azerbaijani Goods Exports as a Percentage of GDP, 2005-2014 56

Figure 23: Azerbaijani Goods Imports as a Percentage of GDP, 2005-2014 57

Figure 24: Azerbaijani Services Imports as a Percentage of GDP, 2005-2014 57

Figure 25: Azerbaijani Services Exports as a Percentage of GDP, 2005-2014 58

Figure 26: Azerbaijani Net Foreign Direct Investment (BoP, Current US$ Billion) 2005-2014 60

Figure 27: Azerbaijani Net Foreign Direct Investment as a Percentage of GDP, 2005-2014 61

Figure 28: Azerbaijani Mining, Manufacturing, Utilities Output (LCU Billion), 2005-2014 62