ASEAN Defense: ICD Research says “Thai military procurement corrupt”

Blog Note:

  • ICD says military procurement in Thailand corrupt

Currently, in the Thai parliament, a debate rages over the corruption in the Thai military. The government and the military off course says there is no corruption. Yet Thailand is rated as one of the most corrupt country globally, and the Thais themselves says Thailand is currently the most corrupt in history. There is no receipt in corruption at the level we are speaking of. But ICD, a global level defense research house, says it plainly that there is corruption.

The following is from ICD:

Executive Summary Thailand

© ICD Research

  • There have been instances of foreign investors having to pay bribes in order to win a procurement contract.

Thai defense expenditure expected to increase at a CAGR of 14.56% during the forecast period Thai military spending, estimated at US$5.6 billion in 2011, has increased at a CAGR of 21.15% during the review period and is projected to register a CAGR of 14.46% during the forecast period to reach US$9.7 billion by 2015.

Thai defense expenditure is expected to be driven by modernization initiatives in addition to border disputes, security threats and an arms race with neighboring countries. Moreover, years of defense budget underfunding has created the need for a comprehensive modernization program for equipment including fighter aircraft, military helicopters, armored carrier vehicles and diesel submarines. To enable this Thailand is aiming to increase defense expenditure as a percentage of GDP from 1.6% in 2011 to 2.1% in 2015.

During the review period an average of 70% of the nation’s defense spending was earmarked for revenue expenses while an average of 30% was spent on capital expenditure. However, during the forecast period the share of capital expenditure in the overall defense budget is expected to increase to an average of 35% as the country focuses on replacing the existing fleet of obsolete military hardware.

As a result of this increase in capital expenditure defense equipment suppliers will witness a surge in demand for advance defense systems such as fighter aircraft, military helicopters, armored vehicles, surveillance equipment, warships and submarines. The country is expected to spend US$14.2 billion on its HLS during the forecast period

The country’s HLS spending recorded a CAGR of 11.47% during the review period and is expected to witness a CAGR of 7.03% during the forecast period to reach an estimated US$3.3 billion in 2015. On a cumulative basis, Thailand is expected to spend US$14.2 billion on HLS over the forecast period.

The nation’s HLS budget is driven by an increase in terrorist activities, mass protests and domestic instability. Over the next five years, significant investment is expected in equipment capable of countering maritime security threats and controlling riots. Suppliers of HLS products will also witness a surge in demand for surveillance equipment such as CCTVs and biometric identification systems.

Arms imports by the country are anticipated to increase during the forecast period The defense industrial base of Thailand is largely undeveloped and as a result the country is highly dependent on foreign suppliers to meet its military needs. Modernization of the country’s armed forces increased imports in real terms during the review period. Over the past five years the US emerged as the largest suppliers of defense equipment to the country. While aircraft were the most imported military hardware in 2009, it is anticipated that during the forecast period the country will follow a more balanced procurement pattern.

EXECUTIVE SUMMARY© ICD Research.

This report is a licensed product and is not to be photocopied

The Thai Defense Industry – Market Opportunities and Entry Strategies, Analyses and Forecasts to 2015 Published January 2011

Thailand mandates defense offsets for all procurements exceeding US$9.5 million

Offsets are compulsory for all defense procurements in the country exceeding US$9.5 million.

Foreign investors are obligated to invest between 20% and 50% of their contract value into the Thai economy.

Even though the government encourages offsets in order to enhance the defense industrial base of the country, indirect offsets are also accepted. Additionally, the country treats counter-purchase as an eligible offset activity.

If a foreign OEM is unable to fulfill its offset obligation, it is obligated to pay 5% of the unfulfilled offset obligation as penalty.

Foreign OEMs venture into the market through defense exhibition and direct commercial sales The country has hosted a biennial defense exhibition since 2003, providing investors an opportunity to access the country’s defense market.

During 2009, manufacturers representing 28 countries participated in the event. Exhibitors included Saab, Am General, Harris, Israel Aerospace Industries and Israel Military Industries. Thailand’s domestic defense industry is largely undeveloped, due to which a large number of foreign suppliers enter the market by directly selling arms.

Corruption, lack of transparency and the presence of indirect offsets hampers the growth of the Thai defense industry

Lack of transparency and corruption within the government’s procurement process hampers the entry of foreign investors into the Thai defense sector.

There have been instances of foreign investors having to pay bribes in order to win a procurement contract.

In addition, the country’s acceptance of indirect offsets as an eligible offset activity impedes the growth of the country’s defense sector. Furthermore, the nation allows counter-purchase, according to which foreign suppliers can buy non-defense related goods in exchange of defense equipment. Consequently, domestic suppliers are unable to gain access to advance military technology and are unable to cater to the needs of the international arms market.

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