Future of the Venezuelan 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

3.1.1. Military Fleet Size 14

3.1.2. Procurement Programs 19

3.1.3. Key Drivers and Challenges 21

3.1.4. Small defense budget and underdeveloped domestic industry discourages foreign participation 21

3.1.5. Corruption serves as an obstacle for market entry 21

3.1.6. The arms embargo against Venezuela makes market entry difficult for foreign defense companies 21

3.1.7. Venezuelan economic crisis 22

3.2. Defense Market Size, Historical and Forecast 23

3.2.1. Venezuelan defense expenditure expected to increase at a CAGR of

0.32% over 2019-2023 23

3.2.2. Modernization, border disputes, and the development of the domestic defense industry are expected to drive defense expenditure over the forecast period 25

3.2.3. Venezuelan defense expenditure as a percentage of GDP to increase 27

3.3. Analysis of Defense Budget Allocation 29

3.3.1. Revenue expenditure accounts for the majority of the Venezuelan defense budget over the forecast period 29

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

0.02% over the forecast period 31

3.3.3. Per-capita defense expenditure expected to decrease during the forecast period 34

3.4. Homeland Security Market Size and Forecast 35

3.4.1. Homeland security budget to register a CAGR of

0.91% over the forecast period 35

3.4.2. Civil unrest, drug trafficking, and organized crime to drive the HLS market 37

3.4.3. Venezuela to be at ‘moderate risk’ from terrorist attacks 38

3.4.4. Venezuela faces moderate threat from foreign terrorist organizations 39

3.4.5. Venezuela has a terrorism index score of

3.6 41

The terrorism index is calculated based on the following factors: 41

3.5. Benchmarking with Key Global Markets 42

3.5.1. Venezuela’s defense budget to remain low over the forecast period 42

3.5.2. Venezuela’s military expenditure is limited compared to countries with high defense expenditure 44

3.5.3. Venezuela allocates a high percentage of GDP to defense 45

3.6. Market Opportunities: Key Trends and Growth Stimulators 46

3.6.1. Top 10 Defense Market Sectors by Value (US$ Million) – Projections Over 2018-2023 46

4. Defense Procurement Market Dynamics 47

4.1. Import Market Dynamics 48

4.1.1. Limited capability of domestic defense market drives imports 48

4.1.2. Venezuela largely imports from Russia 49

4.1.3. Air defense systems, missiles, and armored vehicles are the most imported military hardware 50

4.2. Export Market Dynamics 51

4.2.1. Defense exports increased during the historic period 51

5. Market Entry Strategy 52

5.1. Market Regulation 52

5.1.1. Venezuela does not disclose any offset obligations 52

5.1.2. Venezuela allows 100% FDI in the defense industry 52

5.2. Market Entry Route 53

5.2.1. Budget Process 53

5.2.2. Procurement Policy and Process 53

5.2.3. Direct selling is the preferred market entry route for foreign OEMs 54

5.2.4. Joint product development and military collaborations provide market entry opportunities 55

6. Competitive Landscape and Strategic Insights 56

6.1. Competitive Landscape Overview 56

7. Business Environment and Country Risk 57

7.1. Economic Performance 57

7.1.1. Gross Domestic per Capita 57

7.1.2. Gross Domestic Product, current US$ 58

7.1.3. Exports of Goods and Services 59

7.1.4. Imports of Goods and Services 60

7.1.5. Gross National Disposable Income 61

7.1.6. Local Currency Unit per US$ 62

7.1.7. Market Capitalization of Listed Companies 63

7.1.8. Market Capitalization of Listed Companies as a Percentage of GDP 64

7.1.9. Total Government Cash Surplus/Deficit as a Percentage of GDP 65

7.1.10. Exported Goods as a Percentage of GDP 66

7.1.11. Imported Goods as a Percentage of GDP 67

7.1.12. Services Exports as a Percentage of GDP 68

7.1.13. Services Imports as a Percentage of GDP 69

7.1.14. Foreign Direct Investments, Net (BoP, Current US$ Billion) 70

7.1.15. Net Foreign Direct Investment as a Percentage of GDP 71

7.1.16. Mining, Manufacturing and Utilities Output (LCU Billion) 72

8. Appendix 73

8.1. About SDI 73

8.2. Disclaimer 73

List of Tables

Table 1: Venezuelan Army Strength 14

Table 2: Venezuelan Air Force Strength 17

Table 3: Venezuelan Navy Strength 18

Table 4: Venezuelan – Ongoing Development and Procurement Programs 19

Table 5: Venezuelan – Future Procurement Programs 20

Table 6: Venezuelan Defense Expenditure (VEF Billion & US$ Billion), 2014-2023 23

Table 7: Venezuelan GDP Growth and Defense Expenditure as a Percentage of GDP Growth, 2014-2023 27

Table 8: Venezuelan Defense Budget Split Between Capital and Revenue Expenditure (%), 2014-2023 29

Table 9: Venezuelan Defense Capital Budget (VEF Billion & US$ Billion), 2014-2023 32

Table 10: Venezuelan Per Capita Defense Expenditure (US$), 2014-2023 34

Table 11: Venezuelan Homeland Security Expenditure (VEF Billion & US$ Billion), 2014-2023 35

Table 12: Terrorism Index, 2018 39

Table 13: Benchmarking with Key Markets, 2014-2018 vs. 2019-2023 42

Table 14: Top 10 Venezuelan Defense Market Sectors by Value (US$ Million) – 2018-2023 46

Table 15: The Venezuelan Budget Formation Timetable 53

Table 16: Competitive Landscape of the Venezuela Defense Industry 56

List of Figures

Figure 1: Venezuelan Defense Expenditure (VEF Billion), 2014-2023 24

Figure 2: Venezuelan Defense Expenditure (US$ Billion), 2014-2023 24

Figure 3: Venezuelan GDP Growth and Defense Expenditure as a Percentage of GDP Growth, 2014-2023 28

Figure 4: Venezuela Defense Budget Split Between Capital and Revenue Expenditure (%), 2014-2023 30

Figure 5: Venezuelan Capital Expenditure on Defense (VEF Billion), 2014-2023 32

Figure 6: Venezuelan Defense Capital Expenditure (US$ Billion), 2014-2023 33

Figure 7: Venezuelan Per Capita Defense Expenditure (US$), 2014-2023 34

Figure 8: Venezuelan Homeland Security Expenditure (VEF Billion), 2014-2023 36

Figure 9: Venezuelan Homeland Security Budget (US$ Billion), 2014-2023 36

Figure 10: Terrorism Heat Map, 2018 38

Figure 11: Terrorism Index, 2018 41

Figure 12: Benchmarking with Key Markets: 2014-2018 vs. 2019-2023 43

Figure 13: Defense Expenditure of Countries with the Highest Global Military Expenditure (US$ Billion), 2018 and 2023 44

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2018 45

Figure 15: Venezuelan Defense Imports, 2013-2017 (TIV Values) 48

Figure 16: Venezuelan Defense Imports by Country (%), 2013-2017 49

Figure 17: Venezuelan Defense Imports by Category (%), 2013-2017 50

Figure 18: Venezuela GDP per Capita, 2015-2025 57

Figure 19: Venezuela Gross Domestic Product (current US$ Billion), 2015-2025 58

Figure 20: Venezuela Exports of Goods and Services (LCU Billion), 2005-2013 59

Figure 21: Venezuela Imports of Goods and Services (LCU Billion), 2005-2013 60

Figure 22: Venezuela Gross National Disposable Income (US$ Trillion), 2005-2013 61

Figure 23: Venezuela LCU per US$, 2015-2024 62

Figure 24: Venezuela Market Capitalization of Listed Companies (US$ Billion), 2005-2012 63

Figure 25: Venezuela Market Capitalization of Listed Companies as a Percentage of GDP, 2005-2012 64

Figure 26: Venezuelan Government Cash Surplus/Deficit as a Percentage of GDP, 2000-2005 65

Figure 27: Venezuelan Exported Goods as a Percentage of GDP, 2005-2013 66

Figure 28: Venezuelan Imported Goods as a Percentage of GDP, 2005-2013 67

Figure 29: Venezuelan Services Exports as a Percentage of GDP, 2005-2013 68

Figure 30: Venezuelan Services Imports as a Percentage of GDP, 2005-2013 69

Figure 31: Venezuelan Foreign Direct Investments, Net (BoP, Current US$ Billion), 2005-2013 70

Figure 32: Venezuela Net Foreign Direct Investment as % of GDP, 2005-2013 71

Figure 33: Mining, Manufacturing and Utilities Output (LCU Billion), 2005-2014 72