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

Table of Contents

1. Introduction 7

1.1. What is this Report About? 7

1.2. Definitions 7

1.3. Summary Methodology 9

1.4. About Strategic Defense Intelligence 10

2. Executive Summary 11

3. Market Attractiveness and Emerging Opportunities 13

3.1. Current Market Scenario 14

3.1.1. Military fleet size 14

3.1.2. Procurement Programs 16

3.1.3. Key Drivers and Challenges 17

3.2. Defense Market Size Historical and Forecast 19

3.2.1. Kazakh annual defense expenditure to reach US$4.6 billion by 2023 19

3.2.2. Modernization and acquisition of military equipment and counter-terrorism to drive Kazakhstan’s defense expenditure 21

3.2.3. The country’s defense expenditure as a percentage of GDP is expected to average

1.5% over the forecast period 23

3.3. Analysis of Defense Budget Allocation 25

3.3.1. Share of capital expenditure to increase considerably over the forecast period 25

3.3.2. Capital expenditure budget is expected to increase during the forecast period 27

3.3.3. Per capita defense expenditure expected to increase during the forecast period 29

3.4. Homeland Security Market Size and Forecast 30

3.4.1. Homeland security budget is projected to increase at a CAGR of

7.79% during the forecast period 30

3.4.2. Human trafficking, drug smuggling, and cybercrime form the major components of homeland security expenditure 32

3.4.3. Kazakhstan is at some risk from external and internal threats 34

3.4.4. Kazakhstan faces moderate threats from terrorist organizations 35

3.4.5. Kazakhstan has a terrorism index score of

3.0 37

3.5. Benchmarking with Key Global Markets 38

3.5.1. Kazakh defense expenditure is expected to increase at a CAGR of

8.76% over the forecast period 38

3.5.2. Kazakhstan’s military expenditure is low when compared to countries with the largest defense expenditure 40

3.5.3. Kazakhstan allocates a low percentage of GDP to defense 41

3.6. Market Opportunities: Key Trends and Growth Stimulators 42

3.6.1. Top 10 Defense Market Sectors by Value (US$ Million) – Projections over period 2018–2023 42

4. Defense Procurement Market Dynamics 43

4.1. Import Market Dynamics 44

4.1.1. The current need to modernize the armed forces will drive defense imports 44

4.1.2. Russia was the leading supplier of arms to Kazakhstan during the historic period; a trend that is expected to continue during the forecast period 45

4.1.3. Aircraft accounted for the majority of defense imports during 2010–2014 46

4.2. Export Market Dynamics 47

4.2.1. Kazakhstan does not export arms due to its under-developed domestic arms industry 47

5. Industry Dynamics 48

5.1. Market Regulation 48

5.1.1. Kazakhstan does not disclose any offset obligations imposed by the country 48

5.1.2. Foreign direct investment (FDI) in defense sector regulations are not disclosed by the government 48

5.2. Market Entry Route 49

5.2.1. Budgeting process 49

5.2.2. Government-to-government agreements are the preferred market entry route for foreign OEMs 50

5.2.3. Joint venture and license manufacturing agreements provide an attractive market entry route 50

5.3. Key Challenges 51

5.3.1. Corruption and lack of transparency create roadblock for foreign companies 51

5.3.2. Domination of Russian companies poses a challenge to other foreign firms 51

6. Competitive Landscape and Strategic Insights 52

6.1. Competitive Landscape Overview 52

6.1.1. Foreign suppliers manufacture defense systems overseas and deliver to Kazakhstan 52

7. Business Environment and Country Risk 53

7.1. Economic Performance 53

7.1.1. GDP Per Capita 53

7.1.2. GDP, Current Prices 54

7.1.3. Exports of goods and services (LCU Billion) 55

7.1.4. Imports of goods and services (LCU Billion) 56

7.1.5. Gross National disposable income (US$ Billion) 57

7.1.6. Local Currency Unit per US Dollars 58

7.1.7. Market capitalization of listed companies (US$ Billion) 59

7.1.8. Market capitalization of listed companies (% of GDP) 60

7.1.9. Goods exports as a % of GDP 61

7.1.10. Goods imports as a % of GDP 62

7.1.11. Services imports as a % of GDP 63

7.1.12. Service exports as a % of GDP 64

7.1.13. Foreign direct investment, net (BoP, current US$ Billion) 65

7.1.14. Net foreign direct investment as % of GDP 66

7.1.15. Mining, Manufacturing, Utilities Output 67

8. Appendix 68

8.1. About SDI 68

8.2. Disclaimer 68

List of Tables

Table 1: The Kazakhstan Ground Forces Strength 14

Table 2: Kazakhstan Air Force Strength 14

Table 3: Kazakhstan Navy Strength 15

Table 4: Kazakh – Ongoing Development and Procurement Programs (US$ Million) 16

Table 5: The Kazakh – Future Procurement Programs 16

Table 6: Kazakh Defense Expenditure (KZT Billion and US$ Billion), 2014–2023 19

Table 7: Kazakh GDP Growth and Defense Expenditure as Percentage of GDP Growth (%), 2014–2023 23

Table 8: Kazakh Defense Budget Split Between Capital and Revenue Expenditure (%), 2014–2023 25

Table 9: Kazakh Defense Capital Expenditure (KZT Billion & US$ Billion), 2014–2023 27

Table 10: Kazakh Per Capita Defense Expenditure (US$), 2014–2023 29

Table 11: Kazakh Homeland Security Expenditure (KZT Billion and US$ Billion), 2014–2023 30

Table 12: Terrorism Index, 2018 35

Table 13: Benchmarking with Key Markets – 2014–2018 vs. 2019–2023 38

Table 14: Top Kazakh – Defense Market Sectors by Value (US$ Million), 2018–2023 42

Table 15: Kazakh Budget Formation Timetable 49

Table 16: Competitive Landscape of the Kazakh Defense Industry 52

List of Figures

Figure 1: Kazakh Defense Expenditure (KZT Billion), 2014–2023 20

Figure 2: Kazakh Defense Expenditure (US$ Billion), 2014–2023 20

Figure 3: Kazakh GDP Growth vs. Defense Expenditure as Percentage of GDP Growth, 2013–2023 24

Figure 4: Kazakh Defense Budget Split Between Capital and Revenue Expenditure (%), 2014–2023 26

Figure 5: Kazakh Capital Budget Expenditure (KZT Billion),2014–2023 28

Figure 6: Kazakh Capital Budget Allocation (US$ billion), 2014–2023 28

Figure 7: Kazakh Per Capita Defense Expenditure (US$), 2014–2023 29

Figure 8: Kazakh Homeland Security Budget (KZT Billion), 2014–2023 31

Figure 9: Kazakh Homeland Security Budget (US$ Billion), 2014–2023 31

Figure 10: Terrorism Heat Map, 2018 34

Figure 11: Terrorism Index, 2018 37

Figure 12: Benchmarking with Key Markets – 2014–2018 vs. 2019–2023 39

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2018 and 2023 40

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2018 41

Figure 15: Kazakh Defense Import Trend(US$ million), 2013–2017 (TIV values) 44

Figure 16: Kazakh Defense Imports by Country (%), 2013–2017 45

Figure 17: Kazakh Defense Imports by Category (%), 2013–2017 46

Figure 18: Kazakh GDP Per Capita (US$), 2015–2025 53

Figure 19: Kazakh GDP, Current Prices (US$ Billion), 2015–2025 54

Figure 20: Kazakh Exports of Goods and Services (LCU Billion), 2005–2014 55

Figure 21: Kazakh Imports of goods and services (LCU Billion), 2005–2014 56

Figure 22: Kazakh Gross National Disposable Income (US$ Billion), 2005–2012 57

Figure 23: Local Currency per US$, 2015–2024 58

Figure 24: Kazakh Market capitalization of listed companies (US$ Billion), 2005–2012 59

Figure 25: Kazakh Market capitalization of listed companies (% of GDP), 2005–2012 60

Figure 26: Kazakh Goods exports as a % of GDP, 2005–2013 61

Figure 27: Kazakh Goods imports as a % of GDP, 2005–2013 62

Figure 28: Kazakh Services Imports as a % of GDP, 2005–2013 63

Figure 29: Kazakh Service Exports as a % of GDP, 2005–2013 64

Figure 30: Kazakh Foreign Direct Investment, net (BoP, current US$ Billion), 2005–2013 65

Figure 31: Kazakh Net foreign direct investment as % of GDP, 2005–2013 66

Figure 32: Kazakh Mining, Manufacturing, Utilities Output (US$ Billion), 2005–2014 67