The Profits of the Defence Industry Worldwide are Declining Despite an Increase in Demand,

The following conclusion was made at The Stockholm International Peace Research Institute (SIPRI).

05/12/2023 - 15:22
Source: Defence Aerospace
Source: Defence Aerospace

Despite global tensions, revenue from major defense companies declined in 2022, reported citing SIPRI.

The report emphasized that this decline was primarily due to supply chain disruptions following the COVID-19 epidemic. The sales of arms and military services by the world's top 100 arms-producing companies in 2022 amounted to $597 billion, which was 3.5% less than in 2021.

Simultaneously, geopolitical tensions, coupled with Russia's invasion of Ukraine, have led to increased demand for weapons and military equipment.

SIPRI's Senior Researcher Diego Lopez da Silva stated that the decline in revenues was unexpected.

"What this decline really shows is that there is a time lag between demand shocks like the war in Ukraine and companies' ability to ramp up production and actually meet that demand," said Lopez da Silva.

In the United States alone, revenue volumes decreased by 7.9%. Nevertheless, the U.S. accounted for 51% of the total revenue from arms sales, with 42 companies ranking in the top 100 producers. American arms suppliers are particularly vulnerable to supply chain disruptions as many of the systems they produce are more complex.

Russian arms manufacturers also noted a significant decline in revenue – by 12% or $20.8 billion. The decrease was partly due to sanctions imposed against Russia over Ukraine, but the report also highlighted that the revenue decline might result from delayed payments by the government.

Notably, Middle Eastern countries showed the largest percentage growth, increasing their arms sales by 11%, reaching $17.9 billion.

Turkish companies, in particular, demonstrated growth, with Baykar, which manufactures unmanned aerial vehicles, experiencing a 94% revenue increase.

The combined revenue of arms suppliers in Asia and Oceania grew by 3.1%, reaching $134 billion in 2022. Although South Korean companies' revenue fell by 0.9%, and its largest defense conglomerate Hanhwa reported an 8% decrease in profits compared to the previous year, significant sales growth is expected in the future due to major contracts with Poland and the UAE.

China, the world's second-largest supplier after the US, revealed that its eight arms companies in the ranking increased their total income by 2.7%, reaching $108 billion.

Looking ahead, Lopez da Silva stated that there were no signs of the demand slowing down.

"In the company reports, we found something very interesting: the number of incoming orders and the backlog of work for companies are significantly increasing. We see that this demand will continue in the coming years. Therefore, we expect further increases in military spending and, consequently, revenues from arms sales."

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