Future of the Peruvian Defense Industry – Market Attractiveness, Competitive Landscape, and Forecasts to 2022

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. Primary Threat Perception 14

3.1.2. Military Doctrine and Strategy 15

3.1.3. Military Fleet Size 16

3.1.4. Procurement Programs 20

3.1.5. Social, Political and Economic Environment and Support for Defense Projects 21

3.1.6. Political and Strategic Alliances 21

3.2. Defense Market Size Historical and Forecast 22

3.2.1. Defense expenditure to grow at a CAGR of

2.30% over the forecast period 22

3.2.2. Threat of narco-terrorism, defense reforms and modernization, border disputes, and peacekeeping operations to drive defense expenditure 24

3.2.3. Defense budget as a percentage of GDP is anticipated to average

1.1% during the forecast period 25

3.3. Analysis of Defense Budget Allocation 27

3.3.1. Revenue expenditure accounts for the majority of the Peruvian defense budget 27

3.3.2. Peruvian defense capital expenditure is expected to grow at a CAGR of

2.86% during the forecast period 29

3.3.3. Per capita defense expenditure expected to increase during the forecast period 32

3.4. Homeland Security Market Size and Forecast 34

3.4.1. Homeland security expenditure is expected to grow at a CAGR of

7.92% during the forecast period 34

3.4.2. Measures to prevent cocaine trafficking and organized crime to drive HLS expenditure 37

3.4.3. Peru considered at ‘moderate risk’ of a terrorist attack 39

3.4.4. Peru experiences moderate levels of terrorist activity 40

3.4.5. Peru has a terrorism index score of

3.0 42

3.5. Benchmarking with Key Global Markets 43

3.5.1. Peruvian defense budget expected to register marginal growth over the forecast period 43

3.5.2. Peru’s military expenditure is limited compared to countries with the largest defense expenditure 45

3.5.3. Peru allocates a low percentage of GDP to defense 46

3.6. Market Opportunities: Key Trends and Growth Stimulators 47

3.6.1. Transport Aircraft 47

3.6.2. Frigates 48

3.6.3. Multirole Aircraft 49

3.6.4. Training Aircraft 50

3.6.5. Main Battle Tank 51

4. Defense Procurement Market Dynamics 52

4.1. Import Market Dynamics 53

4.1.1. Defense imports expected to increase during the forecast period 53

4.1.2. Russia to account for the majority of Peru’s defense imports during the forecast period 54

4.1.3. Aircraft and missiles are the most imported military hardware 56

5. Industry Dynamics 57

5.1. Five Forces Analysis 57

5.1.1. Bargaining Power of Supplier: Low to Medium 58

5.1.2. Bargaining Power of Buyer: Medium to High 58

5.1.3. Barriers to Entry: Medium 58

5.1.4. Intensity of Rivalry: Medium to High 58

5.1.5. Threat of Substitution: Medium to High 58

6. Market Entry Strategy 59

6.1. Market Regulation 59

6.1.1. Budgeting process 59

6.1.2. Procurement Policy and Process 59

6.1.3. Offset policy aids development of domestic defense industry 60

6.1.4. Peru allows 100% FDI in the defense industry 60

6.2. Market Entry Route 61

6.2.1. The country’s biennial defense exhibition provides an attractive entry route 61

6.2.2. Direct selling is the preferred market entry route for foreign OEMs 62

6.3. Key Challenges 63

6.3.1. Small defense budget and limited technological capability limits the market entry of foreign companies 63

6.3.2. Lack of transparency hampers the growth of the Peruvian defense industry 63

7. Competitive Landscape and Strategic Insights 64

7.1. Competitive Landscape Overview 64

7.2. Key Domestic Companies 65

7.2.1. Los Servicios Industriales de la Marina (SIMA): Overview 65

7.2.2. Los Servicios Industriales de la Marina (SIMA): Products and Services 65

7.2.3. Los Servicios Industriales de la Marina (SIMA): Recent Announcements and Strategic Initiatives 66

7.2.4. Los Servicios Industriales de la Marina (SIMA): Alliances 66

7.2.5. Los Servicios Industriales de la Marina (SIMA): Recent Contract Wins 66

7.2.6. The Army Ammunition Factory (FAME): Overview 67

7.2.7. The Army Ammunition Factory (FAME): Products and Services 67

7.2.8. The Army Ammunition Factory (FAME): Recent Announcements and Strategic Initiatives 68

7.2.9. Desarrollos Industriales Casanave: Overview 69

7.2.10. Desarrollos Industriales Casanave: Products and Services 69

7.2.11. Desarrollos Industriales Casanave: Recent Announcements and Strategic Initiatives 70

7.2.12. Desarrollos Industriales Casanave: Alliances 70

8. Business Environment and Country Risk 71

8.1. Economic Performance 71

8.1.1. GDP Per Capita (US$) 71

8.1.2. GDP, Current Prices (US$ Billion) 72

8.1.3. Exports of Goods and Services, Current Prices (LCU billion) 73

8.1.4. Imports of Goods and Services, Current Prices (LCU billion) 74

8.1.5. Gross National Disposable Income (US$ billion) 75

8.1.6. Local Currency Unit per US$ (Period Average) 76

8.1.7. Market Capitalization of Listed Companies (US$ Billion) 77

8.1.8. Market Capitalization of Listed Companies (% of GDP) 78

8.1.9. Government Cash Surplus/ Deficit as a Percentage of GDP (LCU) 79

8.1.10. Goods Exports as a Percentage of GDP 80

8.1.11. Goods Imports as a Percentage of GDP 81

8.1.12. Services Imports as a Percentage of GDP 82

8.1.13. Services Exports as a Percentage of GDP 83

8.1.14. Foreign Direct Investment, net (BoP, current US$ Billion) 84

8.1.15. Net Foreign Direct Investment as a Percentage of GDP 85

8.1.16. Mining, Manufacturing, Utilities Output LCU Billion 86

9. Appendix 87

9.1. About SDI 87

9.2. Disclaimer 87

List of Tables

Table 1: Peruvian Ground Forces Strength 16

Table 2: Peruvian Navy Strength 18

Table 3: Peruvian Air Force Strength 19

Table 4: Peruvian – Ongoing Development and Procurement Programs (US$ Million), 2014-2018 20

Table 5: Peruvian – Future Procurement Programs 20

Table 6: Peruvian Defense Expenditure (PEN Billion & US$ Billion), 2013-2022 22

Table 7: Peruvian GDP Growth vs. Defense Expenditure as a Percentage of GDP, 2013-2022 25

Table 8: Peruvian Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 27

Table 9: Peruvian Defense Capital Expenditure (PEN Billion & US$ Million), 2013-2022 30

Table 10: Peruvian Per Capita Defense Expenditure (US$), 2013-2022 32

Table 11: Peruvian Homeland Security Expenditure (PEN Billion & US$ billion), 2013-2022 35

Table 12: Terrorism Index, 2017 40

Table 13: Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 43

Table 14: Peru Budget Formation Timetable 59

Table 15: Defense Offset Regulations in Peru 60

Table 16: Competitive Landscape of the Mexican Defense Industry 64

Table 17: Los Servicios Industriales de la Marina (SIMA) – Products and Services 65

Table 18: Los Servicios Industriales de la Marina (SIMA) – Alliances 66

Table 19: Los Servicios Industriales de la Marina (SIMA) – Recent Contract Wins 66

Table 20: The Army Ammunition Factory (FAME) – Product Focus 67

Table 21: Desarrollos Industriales Casanave – Product Focus 69

Table 22: Desarrollos Industriales Casanave – Alliances 70

List of Figures

Figure 1: Peruvian Defense Expenditure (PEN Billion), 2013-2022 23

Figure 2: Peruvian Defense Expenditure (US$ Billion), 2013-2022 23

Figure 3: Peruvian GDP Growth vs. Defense Expenditure as a Percentage of GDP, 2013-2022 26

Figure 4: Peruvian Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 28

Figure 5: Peruvian Capital Budget Allocation (PEN Billion), 2013-2022 31

Figure 6: Peruvian Capital Budget Allocation (US$ Million), 2013-2022 31

Figure 7: Peruvian Per Capita Defense Expenditure (US$), 2013-2022 33

Figure 8: Peruvian Homeland Security Budget (PEN billion), 2013-2022 36

Figure 9: Peruvian Homeland Security Budget (US$ billion), 2013-2022 36

Figure 10: Terrorism Heat Map, 2017 39

Figure 11: Terrorism Index, 2017 42

Figure 12: Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 44

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2017 and 2022 45

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2017 46

Figure 15: Transport Aircraft Market Size (US$ Million), 2017-2027 47

Figure 16: Frigates Market Size (US$ Million), 2017-2027 48

Figure 17: Multirole Aircraft Market Size (US$ Million), 2017-2027 49

Figure 18: Training Aircraft Market Size (US$ Million), 2017-2027 50

Figure 19: Main Battle Tank Market Size (US$ Million), 2017-2027 51

Figure 20: Peruvian Defense Import Trend, 2012-2016 (TIV values) 53

Figure 21: Peruvian Defense Imports by Country (%), 2012-2016 55

Figure 22: Peruvian Defense Imports by Category (%), 2012-2016 56

Figure 23: Industry Dynamics Porter’s Five Forces Analysis 57

Figure 24: Peruvian GDP Per Capita (US$), 2015-2025 71

Figure 25: Peruvian GDP at Current Prices (US$ Billion), 2015-2025 72

Figure 26: Peruvian Exports of Goods and Services, Current Prices (LCU Billion), 2005-2014 73

Figure 27: Peruvian Imports of Goods and Services, Current Prices (LCU Billion), 2005-2014 74

Figure 28: Peruvian Gross National Disposable Income (US$ billion) 2007-2014 75

Figure 29: Local Currency Unit per US$, 2015-2024 76

Figure 30: Market Capitalization of Listed Companies in Peru (US$ Billion), 2005-2012 77

Figure 31: Market Capitalization of Listed Companies in Peru (% of GDP), 2005-2012 78

Figure 32: Peruvian Government Cash Surplus/ Deficit as a % of GDP (LCU), 2005-2012 79

Figure 33: Peruvian Goods Exports as a % of GDP, 2005-2013 80

Figure 34: Peruvian Goods Imports as a % of GDP, 2005-2013 81

Figure 35: Peruvian Services Imports as a % of GDP, 2005-2013 82

Figure 36: Peruvian Services Exports as a % of GDP, 2005-2013 83

Figure 37: Peruvian Foreign Direct Investment, net (BoP, current US$ Billion), 2005-2013 84

Figure 38: Peruvian Net Foreign Direct Investment as a % of GDP, 2005-2013 85

Figure 39: Mining, Manufacturing, Utilities Output (LCU Billion), 2005-2014 86