Arms sales jump as global supply struggles to meet demand while defence budgets grapple with national politics


As NATO races to supply Ukraine before Donald Trump takes office, Europe is struggling to touch two percent of its GDP on defence expenditure while Russia plans to spend more than 32 percent of its national budget on its military.

Russia hikes defence budget

Russian President Vladimir Putin approved the 25 percent hike in spending of which almost one third is undisclosed. The defence budget will cover the years 2025 to 2027 and will amount to 32.5 percent of the national budget — Russia’s highest ever defence budget, coming to over $145 billion.

Meanwhile, European NATO leaders have been repeating to each other the need to increase their own defence spending with the Trump presidency beginning in January. According to dpa, German Defence Minister Boris Pistorious said last month Russia “has long since switched completely to a war economy,” and the country is currently producing as many weapons and ammunition in three months as the entire European Union does in a year.

 

All this comes after the U.S. and the United Kingdom granted permission to Ukraine to deploy long-range weapons like ATACMS and Storm Shadow missiles against targets inside Russian territory. Russia responded by conducting a strike against Ukraine with their new Oreshnik Intermediate Range Ballistic Missile (IRBM).


European countries are worried over the prospect of a wider Russian military strike against NATO, beyond current indications of hybrid warfare. In the last month, the German Bundeswehr has been reaching out to industry and municipalities to encourage them to prepare for such eventualities. Norway, Sweden and Finland have issued manuals to their citizens to prepare them for such a possibility that include information about basic first-aid, storage of essential items, awareness of warning systems, shelter locations and digital security.


Europe struggles to touch two percent

According to the European Defence Agency, European Union countries increased their defence spending by 10 percent last year to an all-time high of €279 billion, a bill which is expected to touch €326 billion this year. But only eight union countries touched the minimum recommended expenditure of two percent of their GDP. Poland has spent the most of them all on defence.



British Foreign Minister David Lammy was quoted by Reuters as supporting defence spending targets beyond two percent. European Commission President Ursula von der Leyen has also called for a hike in defence spending by EU member countries saying the average expenditure was only 1.9 percent of their GDP.

 NATO Secretary General Mark Rutte credits President-elect Trump for pushing member countries to increase their defence spending and agrees that two percent is insufficient. “It was President Trump who, after we took a decision in Wales in 2014, when he came on board as president of the US in 2016, 2017, has pushed us to ramp up defence spending,” said Rutte at the NATO Foreign Ministers Meeting earlier this week. Trump has criticised other NATO members for not contributing enough to alliance security.

“I believe strongly, and I know many allies believe strongly that two percent is simply not enough. That is simply not enough, if longer term, we want to keep our deterrence at the level it is now,” added Rutte.

Race to rush military aid to Ukraine



There’s also a rush to send military aid to Ukraine before Trump takes office. The U.S. Biden administration has announced a new military aid package for Ukraine worth $725 million that includes air defence, munitions for rocket systems, artillery and antitank weapons. This is the 71st military aid package the U.S. has sent Ukraine since August 2021. The latest batch of weapons includes anti-personnel non-persistent landmines, munitions for NASAMS, Counter-drone systems, HIMARS and artillery, besides Javelin and AT-4 anti-armour systems in addition to Stinger and TOW missiles. The Biden administration is attempting to disburse $7 billion worth of military supplies to Ukraine that have been approved by the U.S. Congress before Trump takes office.

Around the same time, German Chancellor Olaf Scholz went to Ukraine and announced a military aid package of €650 million would be delivered by the end of this year that includes ten Leopard main battle tanks, 60 M84 and M80 Infantry Fighting Vehicles, 6,000 unguided missiles, 500 unguided missiles, two Iris-T air defence systems and 4,000 drones. Germany has pledged or delivered around €28 billion worth of weapons and military equipment since February 2022, according to dpa.

Demand beating supply, costs beating volumes



But other countries are facing different challenges. The Netherlands has found that it will not be able to spend €750 million in military aid earmarked for Ukraine simply because supply is not able to keep up with demand.

Rutte said at the NATO Foreign Ministers Meeting, “The defence industrial base we are producing not enough at too high prices, and the delivery is too slow. So, defence industry needs to put in more shifts. Needs to put in more production lines.”

Rutte divided the blame between industry and politicians. “We cannot have a situation where we pay more for the same and we see large kickbacks to the shareholders,” adding, “We need to work closely together to make sure that we produce at a much higher rate and an acceptable price.”

He added for good measure, “I know that most of the CEOs of defence companies agree with me, and they see, of course, the money going around, and they also see that the South Korean defence industrial base is getting into the market in a number of countries, who are now buying South Korean, because our own defence companies are not producing at the rate we need.”

Politics is local

The former prime minister of the Netherlands, Rutte put the responsibility of making the two percent goal on political leaders. “When you look what countries are spending on pensions, on the social security system and on health, you need a fraction of that spending to make sure that the defence spending gets to a level where we can sustain our deterrence longer term. And this is for politicians to decide on. This is making choices in scarcity, because there are always too many demands on the money, which is always limited. And this is why you have politicians. To one, make sure that there are enough jobs, that the economy is doing well. And secondly, to keep your country safe. This is about keeping the country safe, to keep the whole of the alliance, all 32 nations, safe longer term. And if then the outcome will be that we would stick to the two percent because we somehow, and I would find this very strange, is that will be the outcome. I don’t accept it, and I don’t expect it, but if the outcome will be we will stick to the two percent then that is a deliberate choice politicians have to explain to their voters.”

It’s complicated. Scholz, for example, who was criticised for his hour-long telephone call with President Putin last month, is running for election in February after his government collapsed. He has attempted to show-off a measured policy of supplying Ukraine with military equipment without making Germany and other NATO countries a military target for Russia. But his political rivals in the coming elections either call his policy too cautious towards supplying Ukraine or oppose it altogether.

Christmas through the year for arms companies


Rutte also said he expects a new command formation called the NATO Security Assistance and Training for Ukraine to begin work at a site in Wiesbaden in Germany before the end of this year. The new command will replace the U.S.-led Ramstein format for organising military aid to Ukraine.



Not surprisingly, arms companies have done well with all this.

According to the Stockholm Peace Research Institute (SIPRI) arms sales by the top hundred arms companies rose to $632 billion in 2023 and every single one of these hundred companies scored over a billion dollars in sales for the first time. 

While European arms companies did not experience as much of a growth in sales as others, their revenues are expected to grow further as new orders come into play. Two Russian state-owned companies, Rostec and United Shipbuilding Corporation experienced their ‘combined revenues increase by 40 per cent to reach an estimated $25.5 billion,’ mostly because of a ’49 per cent increase in arms revenues recorded by Rostec.’

The SIPRI data said, ‘The four South Korea-based companies (Hanwha Group, Korea Aerospace Industries, LIG Nex1, Hyundai Rotem) recorded a combined 39 per cent increase in arms revenues to reach $11.0 billion,’ while, ‘The five companies based in Japan (Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Fujitsu, NEC Corporation, Mitsubishi Electric Corporation) saw their combined arms revenues rise by 35 per cent to $10.0 billion.’ The top-five earners remained U.S. companies, Lockheed Martin, RTX, Northrop Grumman, Boeing and General Dynamics. The total arms revenue of the nine Chinese companies in the top-hundred list reached $103 billion with a 0.7 percent increase year-on-year — their smallest increase since 2019. The three Israeli companies (Elbit, Israel Aerospace Industries and Rafael) on the list saw their revenues reach $13.6 billion ‘with the outbreak of war in Gaza.’

The ten companies in the list with the highest growth in revenue since 2022 were:

• NEC Corporation: 83.9%
• Mitsubishi Electric Corporation: 69.4%
• JSC Ukrainian Defense Industry: 68.7%
• Hanwha Group: 52.7%
• Fujitsu: 50.4%
• Rostec: 49.3%
• Turkish Aerospace Industries: 45.3%
• Korea Aerospace Industries: 44.9%
• Hyundai Rotem: 44%
• V2X: 30.2%

The biggest percentage fall in arms revenues between 2022 and 2023 was that of Dassault Aviation Group with 40.8 percent lower revenues. The company was 25th on the list for 2022 and is No. 46 on the 2023 list.

But 

EU member countries are expected to spend €90 billion on defence kit up from €60 billion last year. And there’s more where that came from. The EU is discussing plans for a defence bond to finance military acquisitions, with the new European Commissioner for Defence Andrius Kubilius saying that Europe would need €500 billion to build a common air defence shield besides €200 billion just to upgrade infrastructure and logistics for mobilisation of troops across the European Union. Under new plans agreed this year, the alliance plans to have the ability to move 300,000 troops to NATO’s border with Russia stretching from the Arctic down to the Black Sea within 30 days.

But for now, the two sides are displaying courtesy and caution. According to the Russian Ministry of Defence, “On November 27, on the initiative of the Russian side, Chief of the General Staff of the Russian Federation General of the Army Valery Gerasimov and Chairman of the Joint Chiefs of Staff of the Armed Forces of the United States of America General Charles Brown had a telephone call. During the conversation, the American side was informed of exercises in the eastern part of the Mediterranean Sea by groups of forces of the Russian Navy and Russian Aerospace Forces with live fires and launches of precision missiles. This information was provided in order to prevent possible incidents due to presence of United States and NATO ships in the vicinity of the Russian exercise area.”

Visuals of the joint drills conducts by the Russian Navy and Russian Aerospace Forces in the eastern Mediterranean Sea on December 03, 2024 | Video: Russian Ministry of Defence

According to the Russian Ministry of Defence, the Russian Navy and and Russian Aerospace Forces conducted joint drills from December 01 – December 03, 2024 in which frigates Admiral of the Soviet Union Fleet Gorshkov and Admiral Golovko fired Tsirkon hypersonic missiles, and the diesel-electric submarine Novorossiysk launched a Kalibr cruise missile at a naval target. At the same time, a Bastion coastal missile system launched an Oniks cruise missile from a designated area on the coast of the Mediterranean Sea. More than 1,000 troops, 10 ships and support vessels, 24 aircraft, including the Russian Aerospace Forces MiG-31I fighter jets equipped with Kinzhal hypersonic missiles, and Bastion coastal missile systems were involved in the drills.

The Russian defence ministry said, “The drills in the eastern Mediterranean Sea are being conducted in compliance with the applicable norms of international law and the agreements of the Russian Federation with foreign States on the prevention of maritime incidents outside territorial waters and in the airspace above them.”