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Southeast Asia: a Growing Market Southeast Asia: a Growing Market

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Southeast Asia: a Growing Market Southeast Asia: a Growing Market Southeast Asia: A Growing Market Southeast Asia: A Growing Market The South Asia and the Pacific Rim are home to several of the world's largest economies, and two of its largest developing nations – China and India. The former occupies a large presence in the minds of security planners across the region. Buoyed by more than a decade of double-digit growth, China has undertaken a massive military buildup with the declared intention of creating a People's Liberation Army equal in measure to the country's economic and diplomatic stature. While this military modernization effort – replete with an emphasis on power projection – naturally engenders worries among China's regional neighbors, it is the People's Republic's broad claims and unsettled territorial disputes in the East and South China Sea that evoke international concern. To enforce its claims, China has focused much of its recent military modernization efforts on the air-sea domain with an emphasis on force projection. The knock-on effect is that a growing number of nations in Southeast Asia are prioritizing their own respective military upgrades. Conflicting Claims Paracel Islands Standoff, Island-Building, Conflicting Claims China has laid down a claim – the so-called Nine-dashed Line marked on Chinese maps – staking ownership to 90 percent of the maritime area of the South China Sea. But China is not alone in carving out such stakes, as Brunei, Malaysia, the Philippines, Taiwan and Vietnam each present overlapping, competing territorial and jurisdictional claims, be they to islands and reefs, or the right to explore and exploit oil and gas reserves. Moreover, by charting out and laying claim to a 200-mile exclusive economic zone, China risks disrupting the freedom of navigation norms in the area, thus heightening the growing risk for an outbreak of conflict in the region. Incidents such as the "Haiyang Shiyou 981 Standoff," which occurred in May 2014 when a Chinese deepwater drilling rig started operating in the area of the disputed Paracel Islands just 120 miles off the coast of Vietnam, have resulted in political and diplomatic blowback against Beijing. Adding to the apprehension of the countries in the region has been China's land- reclamation and island-building project in the Spratly Islands, which lie strategically in the middle of the South China Sea. As China begins building an airstrip on the man- made reclaimed portion of Fiery Cross Reef, it not only attempts to alter realities "on the ground" by de facto controlling the area, but it also threatens to exert control over the world's busiest shipping lanes through which one-half of all maritime trade passes. Paracel Islands Standoff Island Reclamation Actual Defense Spending Clearly in terms of scale, the sheer size of China's economy, military manpower, and defense investment outstrips those of any and all counter-claimants within its Nine- dashed Line, notwithstanding those countries made nervous by Beijing's exertion of power in the South China Sea. Five countries directly or indirectly impacted by the ongoing buildup of a Chinese presence in the area are now undertaking their own military modernizations, albeit at different paces and with different aims. But these five countries – Indonesia, Malaysia, the Philippines, Singapore and Vietnam – together are allocating more and more funding toward defense. Naturally these countries individually and cumulatively begin from a much smaller budgetary base than China. Furthermore, their year-on-year military funding increases often appear limited when presented in U.S. dollar figures. The latter, of course, reflects the steady strengthening of the dollar on international currency markets since the beginning of 2014. But together, the spending totals of these five countries are expected to grow by almost 8 percent annually. Combined with the multiple requirements each present in terms of air- and sea-based capabilities, these five countries represent growing market opportunities for defense suppliers. ASEAN 5 Defense Expenditure * 2015-2020 figures projected using constant 2015 Q2 exchange rate ASEAN 5 Defense Expenditure * 2015-2020 figures projected using constant 2015 Q2 exchange rate Indonesia Indonesia represents one of the fastest growing military markets in Asia, if not the world. Since 2005, Jakarta has begun the implementation of a military modernization and reform concept referred to as Minimum Essential Force (MEF). The goal behind MEF is to establish a force-of-scale able to meet the minimum response required to a variety of strategic threats by the target date of 2024. To patrol and protect Indonesia's strategic waters, thousands of islands, and the exclusive economic zone (EEZ), the government is looking to build a multifunctional Navy that is able to conduct anti-piracy and disaster relief missions alongside normal requirements. The cornerstone of this future naval force will be a 12-unit submarine capability. Following the U.S. and European Union arms embargoes imposed in 1999, the Indonesian National Defense-Air Force (TNI-AU) fell into disrepair. The last of these bans was lifted in 2005, but by then the operational capabilities of the TNI-AU fighter fleet had been steadily degraded. Going forward, the aim is to field a combat aircraft fleet of 150-160 fighters in 12 squadrons. Indonesia The government of President Joko Widodo has pledged to bring annual defense expenditure up to 1.5 percent of GDP by 2015. By doing so, Indonesia would essentially be doubling its current levels of defense investment, which currently rests at around 0.8 percent of national GDP. Indonesia Facts & Figures: 2011-2015 Average Annual Year-on-Year Nominal Defense Funding Adjustments: +12.8% 2016-2020 Forecast Annual Year-on-Year Nominal Defense Funding Adjustments: +15.3% Naval Power Projection Capacity: Submarines (3), Warships (38) Maritime/Naval Aviation Capacity: Fixed-Wing Special Purpose (23), Helicopters (39) Indonesia * 2015-2020 figures projected using constant 2015 Q2 exchange rate Indonesia These figures represent the People’s Liberation Army Navy and Indonesia’s maritime projection, not total armed forces of each country Malaysia The Malaysian armed forces have been undergoing a prolonged, fitful modernization process that dates all the way back to the 1970s. This process is often exemplified by a military whose ambitions tend to be too large for the government's fiscal appetite, or get delayed indefinitely for economic reasons or due to domestic circumstance. The Malaysian armed forces have a bevy of requirements spanning all three major service branches. Most prominently there remains an outstanding requirement for the Royal Malaysian Air Force's Multi-Role Combat Aircraft (MRCA) program, which calls for the replacement of its MiG-29Ns with 18 new fighters. Meanwhile, the Army seeks to procure short-range and very short-range air defense systems (SHORADs and VSHORADs), M4 carbines, new infantry soldier suites, and around 36 new 6x6 armored fighting vehicles for use in U.N.-led peacekeeping missions. The Royal Malaysian Navy holds a long-standing requirement for a new multipurpose support ship to replace the burned-out Sri Inderapura, as well as requirements for the service-life extensions of the Lekiu class frigates and Kasturi class corvettes and the acquisition of new anti-submarine warfare helicopters. Malaysia Malaysia conducts defense procurement under five-year plans, with the latest such document (the 11th Development Plan 2016-2020) presented to Parliament on May 21. Malaysia Facts & Figures: 2011-2015 Average Annual Year-on-Year Nominal Defense Funding Adjustments: +3% 2016-2020 Forecast Annual Year-on-Year Nominal Defense Funding Adjustments: +3.8% Naval Power Projection Capacity: Submarines (2), Warships (14) Maritime/Naval Aviation Capacity: Fixed-Wing Special Purpose (2), Helicopters (15) Malaysia * 2015-2020 figures projected using constant 2015 Q2 exchange rate Malaysia These figures represent the People’s Liberation Army Navy and Malaysia’s maritime projection, not total armed forces of each country Philippines Following decades of budgetary neglect, a prolonged period of economic growth has allowed the Philippines to begin bolstering its defense earmarks in an effort to modernize its armed forces. Despite a revised approach toward defense prompted by China's aggressive posturing in the South China Sea and bolstered by a prolonged period of economic growth, the Philippines is beginning its first serious military modernization effort from a very low base. For years the Armed Forces of the Philippines (AFP) were neglected, with whatever attention was given to the military pertaining largely to counterinsurgency. As a result, the AFP entered the 2000s as a limited force with negligible air and sea capabilities. Instead, a reliance on close relations with the U.S. was seen in Manila as the best guarantor for the country's security. While "strength through friends" remains a crucial element of the Philippines' security approach today, recognition that the country must invest in some element of air- and sea-borne capability in order to underwrite its own offshore claims and territorial sovereignty now guides procurement policy. Philippines Under the New AFP Modernization Act (Republic Act 10349), signed into law by President Benigno Aquino on December 11, 2012, and revised by the Philippines' Congress two months later in February 2013, the Philippines is embarking on a 15- year effort at bringing its under-equipped and obsolete military inventory up to a higher technical standard. As part of the AFP Modernization Act, the government is to invest PHP75-PHP85 billion ($1.65-$1.88 billion) toward equipment modernization and acquisition over the first five-year period (2013-2017). A slew of AFP acquisition projects remain on tap. These include two Navy frigates (price tag estimated at PHP18 billion, or $397 million), three air surveillance radars (PHP2.68 billion: $59 million), six close air support aircraft (PHP4.97 billion: $110 million), a multipurpose attack craft (PHP864 million: $19 million), and two long- range patrol aircraft (PHP5.98 billion: $132 million), plus various other items.
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