Future of the Turkish 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 Conditions 14

3.1.1. Military fleet size 14

3.1.2. Procurement Programs 18

3.1.3. Key Drivers and Challenges 19

3.2. Defense Market Size Historical and Forecast 21

3.2.1. Turkey defense expenditure expected to grow during the forecast period 21

3.2.2. Turkey’s strained relationship with Greece, increasing security threat from PKK and active involvement in peacekeeping missions to drive the defense industry 23

3.2.3. Military expenditure as a percentage of GDP is expected to decline over the forecast period 24

3.3. Analysis of Defense Budget Allocation 27

3.3.1. Share of capital expenditure to increase over the forecast period 27

3.3.2. Capital expenditure to increase over the forecast period 29

3.3.3. Per capita defense expenditure to rise over the forecast period 31

3.4. Homeland Security Market Size and Forecast 33

3.4.1. Homeland security (HLS) expenditure expected to grow over the forecast period 33

3.4.2. Threats driving homeland security expenditure 35

3.4.3. Turkey faces a high level of terrorist threat 36

3.4.4. Turkey faces high level of threat from foreign terrorist organizations 37

3.4.5. Turkey has a terrorism index score of

7.5 39

3.5. Benchmarking with Key Global Markets 40

3.5.1. Turkish defense expenditure expected to remain low compared to leading spenders 40

3.5.2. The country’s defense budget is high compared to its regional countries 42

3.5.3. Turkey defense expenditure as a percentage of GDP is expected to decrease 43

3.6. Market Opportunities: Key Trends 44

3.6.1. Top 10 Defense market sectors by value (US$ Million) – Projections over period 2018-2023 44

4. Defense Procurement Market Dynamics 45

4.1. Import Market Dynamics 46

4.1.1. Defense imports expected to decrease over the forecast period 46

4.1.2. The US was the primary supplier of arms to Turkey 47

4.1.3. Aircraft were the major imported military hardware during 2012-2016 48

4.2. Export Market Dynamics 49

4.2.1. Turkey aims to increase defense exports over the forecast period 49

4.2.2. Turkmenistan emerged as the largest importer of Turkish defense equipment during the period 2012-2016 50

4.2.3. Naval vessels accounted for the majority of defense exports during 2012-2016 51

5. Industry Dynamics 52

5.1. Market Regulation 52

5.1.1. The Turkish government encourages offsets to develop the country’s domestic industrial defense base 52

5.2. Market Entry Route 54

5.2.1. Budgeting Process 54

5.2.2. Procurement policy and process 56

5.2.3. Joint venture provides market entry opportunity for foreign OEMs 57

5.2.4. Joint research and development programs provide foreign OEMs with an opportunity for market entry 58

6. Competitive Landscape and Strategic Insights 59

6.1. Competitive Landscape Overview 59

7. Business Environment and Country Risk 61

7.1. Economic Performance 61

7.1.1. GDP per capita 61

7.1.2. GDP, current prices 62

7.1.3. Export of goods and services (LCU Billion) 63

7.1.4. Import of goods and services (LCU Billion) 64

7.1.5. Gross national disposable income (US$ Billion) 65

7.1.6. Local currency unit per US$ 66

7.1.7. Market capitalization of listed companies 67

7.1.8. Market capitalization of listed companies as a percentage of GDP 68

7.1.9. Government cash surplus deficit as a percentage of GDP 69

7.1.10. Goods Exports as a percentage of GDP 70

7.1.11. Good imports as a percentage of GDP 71

7.1.12. Service imports as a percentage of GDP 72

7.1.13. Service exports as a percentage of GDP 73

7.1.14. Foreign direct investments 74

7.1.15. Net foreign direct investment as a percentage of GDP 75

7.1.16. Mining, manufacturing, utilities output 76

8. Appendix 77

8.1. About SDI 77

8.2. Disclaimer 77

List of Tables

Table 1: Turkey – Army Strength 14

Table 2: Turkey – Navy Strength 16

Table 3: Turkey – Air Force Strength 17

Table 4: Turkey – Ongoing Procurement Programs 18

Table 5: Turkish Future Procurement Programs 19

Table 6: Turkey – Defense Expenditure (TRY Billion and US$ Billion), 2014-2023 22

Table 7: Turkey – GDP Growth vs Defense Expenditure According to Percentage of GDP Growth, 2014-2023 25

Table 8: Turkey – Defense Budget Split by Capital and Revenue Expenditure (%), 2014-2023 27

Table 9: Turkey – Defense Capital Expenditure (TRY Billion and US$ Billion), 2014-2023 29

Table 10: Turkey – Per Capita Defense Expenditure (US$), 2014-2023 31

Table 11: Turkey – Homeland Security Expenditure (TRY Billion and US$ Billion), 2014-2023 33

Table 12: Terrorism Index, 2018 37

Table 13: Benchmarking with Key Markets – 2014-2018 vs 2019-2023 40

Table 14: Top 10 Turkey Defense Market Sectors by Value (US$ Million) – 2018-2023 44

Table 15: Turkey – Offset Regulations (%) 52

Table 16: Turkey – Technological Cooperation, Investment, and R&D Multiplier Provision 53

Table 17: Multipliers for Export Related Systems 53

Table 18: Turkey – Budget Formation Timetable 54

Table 19: Turkey – Market Entry by Key Foreign Companies 57

Table 20: Turkey – Market Entry by Key Foreign Companies 58

Table 21: Turkey – Competitive Landscape of Defense Industry, 2018 59

List of Figures

Figure 1: Turkey – Defense Expenditure (TRY Billion), 2014-2023 22

Figure 2: Turkish Defense Expenditure (US$ Billion), 2014-2023 23

Figure 3: Turkey – GDP Growth vs Defense Expenditure According to Percentage of GDP Growth, 2014-2023 25

Figure 4:Turkey – Defense Budget Split by Capital and Revenue Expenditure (%), 2014-2023 28

Figure 5: Turkey – Defense Capital Expenditure (TRY Billion), 2014-2023 30

Figure 6: Turkey – Defense Capital Expenditure (US$ Billion), 2014-2023 30

Figure 7: Turkish Per Capita Defense Expenditure (US$), 2014-2023 32

Figure 8: Turkey – Homeland Security Budget (TRY Billion), 2014-2023 34

Figure 9: Turkish Homeland Security Budget (US$ Billion), 2014-2023 34

Figure 10: Terrorism Heat Map, 2018 36

Figure 11: Terrorism Index, 2018 39

Figure 12: Benchmarking with Key Markets – 2014-2018 vs 2019-2023 41

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2018 and 2023 42

Figure 14: Defense Expenditure According to Percentage of GDP of Largest Military Spenders (%), 2018 43

Figure 15: Turkey – Defense Imports Trend (US$ Million), 2012-2016 46

Figure 16: Turkey – Defense Imports by Country (%), 2012-2016 47

Figure 17: Turkey – Defense Imports by Category (%), 2012-2016 48

Figure 18: Turkey – Defense Exports Trend, 2012-2016 49

Figure 19: Turkey – Defense Exports by Country (US$ Million), 2012-2016 50

Figure 20: Turkey – Defense Exports by Category (%), 2012-2016 51

Figure 21: Turkey – GDP Per Capita (US$), 2015-2025 61

Figure 22: Turkey – GDP Current Prices (US$ Billion), 2015-2025 62

Figure 23: Turkey – Export of Goods and Services (LCU Billion), 2005-2014 63

Figure 24: Turkey – Import of Goods and Services (LCU Billion), 2005-2014 64

Figure 25: Turkey – Gross National Disposable Income (US$ Billion), 2005-2012 65

Figure 26: Turkey – LCU per US$, 2015-2024 66

Figure 27: Turkey – Market Capitalization of Listed Companies (US$ Billion), 2005-2012 67

Figure 28: Turkey – Market Capitalization of Listed Companies (Percentage of GDP), 2005-2012 68

Figure 29: Turkey – Cash Surplus Deficit as (Percentage of GDP), 2008-2012 69

Figure 30: Turkey – Good Exports as a Percentage of GDP, 2005-2014 70

Figure 31: Turkey – Good Imports as a Percentage of GDP, 2005-2014 71

Figure 32: Turkey – Service Imports as a Percentage of GDP, 2005-2014 72

Figure 33: Turkey – Service Exports as a Percentage of GDP, 2005-2014 73

Figure 34: Turkey – Foreign Direct Investments (BoP, Current US$ Billion), 2005-2014 74

Figure 35: Turkey – Net Foreign Direct Investment as a Percentage of GDP, 2005-2014 75

Figure 36: Turkey – Mining, Manufacturing, Utilities Output (LCU Billion), 2005-2014 76