Major findings.(Conventional Arms Transfers to Developing Nations, 1999-2006)

General Trends in Arms Transfers Worldwide

The value of all arms transfer agreements worldwide (to both developed and developing nations) in 2006 was $40.3 billion. This was a decrease in arms agreements values over 2005, a decline of nearly 13% (Chart 1)(Table 8A). In 2006, the United States led in arms transfer agreements worldwide, making agreements valued at $16.9 billion (41.9% of all such agreements),up from $13.5 billion in 2005. Russia ranked second with $8.7 billion in agreements (21.6% of these agreements globally), up from $7.5 billion in 2005. The United Kingdom ranked third, its arms transfer agreements worldwide standing at $3.1 billion in 2006, up from $2.9 billion in 2005. The United States, Russia, and the United Kingdom collectively made agreements in 2006 valued at $28.7 billion, 71.2% of all international arms transfer agreements made by all suppliers (Figure 1)(Tables 8A, 8B, and 8D).

For the period 2003-2006, the total value of all international arms transfer agreements ($160 billion) was higher than the worldwide value during 1999-2002 ($156.7 billion), an increase of 2.1%. During the period 1999-2002, developing world nations accounted for 67.1% of the value of all arms transfer agreements made worldwide. During 2003-2006, developing world nations accounted for 65.7% of all arms transfer agreements made globally. In 2006, developing nations accounted for 71.5% of all arms transfer agreements made worldwide (Figure 1)(Table 8A).

In 2006, the United States ranked first in the value of all arms deliveries worldwide, making $14 billion in such deliveries or 51.9%. This is the eighth year in a row that the United States has led in global arms deliveries. Russia ranked second in worldwide arms deliveries in 2006, making $5.8 billion in such deliveries. The United Kingdom ranked third in 2006, making $3.3 billion in such deliveries. These top three suppliers of arms in 2006 collectively delivered nearly $23.1 billion, 85.6% of all arms delivered worldwide by all suppliers in that year (Figure 2)(Tables 9A, 9B, and 9D).

The value of all international arms deliveries in 2006 was $27 billion. This is a increase in the total value of arms deliveries from the previous year (a rise from $26.2 billion), but still the second lowest deliveries total for the 1999-2006 period. Moreover, the total value of such arms deliveries worldwide in 2003-2006 ($120.7 billion) was substantially lower in the value of arms deliveries by all suppliers worldwide from 1999-2002 ($144.8 billion, a decline of over $24 billion) (Figure 2)(Tables 9A and 9B)(Charts 7 and 8).

Developing nations from 2003-2006 accounted for 73.3% of the value of all international arms deliveries. In the earlier period, 1999-2002, developing nations accounted for 71.7% of the value of all arms deliveries worldwide. In 2006, developing nations collectively accounted for 73.6% of the value of all international arms deliveries (Figure 2)(Tables 2A, 9A, and 9B).

Worldwide weapons orders declined in 2006. The total of $40.3 billion, fell from $46.3 billion in 2005, a decline of nearly 13%. Global arms agreement values for the years other than 2006 ranged from $46.3 billion in 2005 to $31.7 billion in 2003. Of the major arms orders secured in 2006 most were made by the traditional major suppliers. In some instances these orders represented significant new acquisitions by the purchasing country. In others they reflected the continuation of a longer term weapons acquisition program.

A decline in new weapons sales can also be explained, in part, by the practical need for some purchasing nations to absorb and integrate major weapons systems they have already purchased into their force structures. The need to do this may, at the same time, increase the number of arms contracts related to training and support services, even as it reduces the number of large and costly orders for new military equipment.

An intensely competitive weapons marketplace continues to lead several producing countries to focus sales efforts on prospective clients in nations and regions where individual suppliers have had competitive advantages resulting from well established military support relationships. Within Europe, arms sales to new NATO member nations to support their military modernization programs have created new business for arms suppliers, while allowing these NATO states to sell some of their older generation military equipment, in refurbished form, to other less-developed countries. While there are inherent limitations on these European sales due to the smaller defense budgets of many of the purchasing countries, creative seller financing options, as well as the use of co-assembly, co-production, and counter-trade agreements to offset costs to the buyers, have continued to facilitate new arms agreements. The United States and European countries or consortia seem likely to compete vigorously for prospective arms contracts within the European region in the foreseeable future. Such sales seem particularly important to European suppliers, as they can potentially compensate, in part, for lost weapons deals elsewhere in the developing world that result from reduced demand for new weapons.

Efforts also continue among developed nations to protect important elements of their national military industrial bases by limiting arms purchases from other developed nations. Nevertheless, several key arms suppliers have placed additional emphasis on joint production of various weapons systems with other developed nations as a more effective way to preserve a domestic weapons production capability, while sharing the costs of new weapons development. The consolidation of certain sectors of the domestic defense industries of key weapons producing nations continues, in the face of intense foreign competition. At the same time, some supplying nations have chosen to manufacture items for niche weapons categories where their specialized production capabilities give them important advantages in the evolving international arms marketplace.

Some developing nations have reduced their weapons purchases in recent years primarily due to their limited financial resources to pay for such equipment. Other prospective arms purchasers in the developing world with significant financial assets have exercised caution in launching new and costly weapons procurement programs. Increases in the price of oil, while an advantage for major oil producing states in funding their arms purchases, has, simultaneously, caused economic difficulties for many oil consuming states, contributing to their decisions to defer or curtail new weapons purchases. The state of the world economy has induced a number of developing nations to choose to upgrade existing weapons systems in their inventories, while reducing their purchases of new ones. This approach may curtail sales of new weapons systems for a time, but the weapons upgrade market can be very lucrative for some arms producers, and partially mitigate the effect of losing major new sales.

Although, overall, there appear to be fewer large weapons purchases being made by developing nations in the Near East and in Asia, when contrasted with arms sales activity over a decade ago, major purchases continue to be made by a select few developing nations in these regions. These purchases have been made principally by China and India in Asia, and Saudi Arabia in the Near East. Even though these tendencies are subject to abrupt change based on the strength of either the regional or international economies, or the threat assessments of individual states, the strength of individual economies of a wide range of nations in the developing world continues to be a significant factor in the timing of many of their arms purchasing decisions.

Latin America, and, to a much lesser extent, Africa, are regions where some nations continue to express interest in …