Romanian
defense expenditure declined at a CAGR of -11.96% during the review period to
an estimated value of US$1.64 billion in 2012 as a consequence of the global
financial crisis and fiscal pressures in Romania. The country’s military
expenditure is estimated to register a CAGR of 6.78% during the forecast
period, to value US$2.14 billion in 2016. Defense expenditure is expected to be
driven by factors such as participation in peace keeping missions, joint
training operations, and improvements in border control measures. As a result
of a decrease in overall defense expenditure, the country’s defense budget as a
percentage of GDP is also expected to decline, from 0.8% in 2011 to 0.7% in 2016 (reference see graph below).
Romania is expected to invest US$9.39
billion in its armed forces, of which expenditure on the acquisition of
military hardware is forecast to be US$1.56 billion, offering foreign OEMs
limited opportunities to cater to the Romanian defense industry. Due to the
economic crisis, Romania had postponed the procurement of equipment in 2011,
which resulted in dropping shares of capital expenditure in overall defense
expenditure.
According to Transparency
International's 2011 Corruption Perceptions Index, Romania dropped in rank to
25th in the EU. Incidents of malpractice within the country’s military
industrial base may limit the growth of the country’s defense sector. In
addition to damaging the country’s image in the global arms market, it also
discourages foreign OEMs from entering the market.
As a result of low investment on R&D
of advanced technology defense systems, the country’s defense capabilities are
limited in terms of production of aircraft, small arms, and ammunition. Many
domestic companies act as subcontractors to larger European and US defense
companies. This forced the country to import defense equipment such as air
defense systems, sensors, aircraft and aircraft parts, armored vehicles,
missiles, and engines, as domestic suppliers lack the capabilities to
manufacture advanced defense systems.
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