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Summary
This new report published by industry experts Strategic Defence Intelligence (SDI), provides detailed analysis of the Sri Lankan defense industry, including market size forecasts covering the next five years. In addition to factors influencing demand, the report also highlights key challenges faced by industry participants and contains analysis of industry-leading companies.

This latest SDI report includes:

- An investigation of the key demand drivers and growth stimulators in the Sri Lankan defense market.

- A snapshot of Sri Lanka's defense expenditure and modernization patterns.

- Insights into procurement schedules formulated within the country and a breakdown of the defense budget with respect to the army, navy and air force.

- Detail on the key challenges faced by defense market participants within the Sri Lankan industry.

- An analysis of the prevalent trends in the country's imports and exports over the last five years.

- The top five defense investment opportunities over the coming 10 years.

- Analysis of the competitive landscape of the Sri Lankan defense industry, containing an overview of key players, insights on key alliances, strategic initiatives and a brief financial analysis.


Key Findings
- What is the Sri Lankan Armed Forces expected response to increasing border security issues? In which equipment categories is this issue likely to significantly drive investment?

- With who has Sri Lanka sought to strengthen ties? What has prompted these moves? How has this been reflected in terms of investment and broader economic policy?

- What has accounted for the majority of Sri Lankan defense expenditure historically? How is this likely to change during the forecast period?

- What is the total expenditure of the Sri Lankan Air Force in 2015? What CAGR is expenditure expected to register in 2020? What will be the most influential procurement factor on this forecast figure?

- How does Sri Lanka's defense expenditure compare with China, Japan, India, and Oman, as well as global leading spenders such as the US, Russia, the UK, and France? How will Sri Lanka's preferred strategy impact on foreign Original Equipment Manufacturers (OEMs)?


Synopsis
Sri Lanka's defense budget is expected to register a CAGR of 7.55% during the forecast period to value US$2.9 billion in 2020. This is primarily driven by the country's post-war military ambitions to de-mine land containing anti-tank mines and other IEDs (Improvised Explosive devices); rehabilitate the Northern Province and also counter the threat of the re-emergence of the separatist militant organization - LTTE. The replacement of obsolete military equipment and a tense relationship with India are also significant contributory factors.

As a percentage of GDP, the country's defense expenditure is forecast to average 2.5%, as compared to an historical average of 2.7%. The capital expenditure allocation is expected to increase at an average of 21.4% during the forecast period. This is primarily due to the procurement of advanced defense equipment and the focus on increasing indigenous defense manufacturing capabilities. Key opportunities for equipment suppliers are expected in sectors such as: patrol vessels, naval infrastructure, combat aircraft and transport helicopters. Consequently, revenue expenditure is expected to decrease from an historic average of 85.3% to an average of 78.6% over the forecast period. This will be directed towards additional recruitment, training and development programs for military personnel.

Sri Lanka's homeland security (HLS) stands at US$515.2 million in 2015. It is estimated to reach US$683.6 million in 2020 by registering a growth rate of 6.44% during 2016 to 2020. This expenditure is primarily driven by the efforts to build the country's internal security system to counter the growing problems of communal violence, as well as the growing threats from human, weapon and drug traffickers. As a result, the country is expected to invest in maritime security systems and platforms, surveillance systems and joint military training.

The Sri Lankan defense industrial base is largely undeveloped and, as a result, the country is highly dependent on foreign suppliers to meet its military needs. Ships were the most imported military hardware and this is expected to continue along with the procurement of military aircraft. Sri Lanka does not export any arms to foreign countries, as its domestic defense industry is still in a nascent stage, a situation that this is expected to remain unchanged over the next five years.

To strengthen its indigenous defense capabilities and increase its technological know-how, the government is encouraging partnerships and joint training programs. For example, in January 2014, Sri Lanka discussed military collaboration with Brazil, including joint training exercises and military exchanges. These are expected to commence in 2015.


Reasons To Buy
- Analyse the challenges to foreign defense manufacturers and suppliers. Ensure you comply with prevailing market conditions to avoid any potentially negative effects on your strategies.

- Identify the key factors driving defense expenditure. Target the opportunities threats to Sri Lankan security represent for equipment manufacturers, to develop your expansion plans and generate revenues accordingly.

- Investigate the procurement dynamics of the Sri Lankan defense industry. Identify the key suppliers, whilst assessing the forecast growth categories which offer you the best commercial opportunities.

- Identify what is forecast to generate revenues in reference to technical specifications, recent orders and the country's expected investment pattern. Align your strategy efficiently and cost-effectively to provide you with the best returns.


Key Highlights
- Over the historic period, Sri Lanka's defense expenditure registered growth of 4.07%, increasing from US$1.8 billion in 2011 to US$2.1 billion in 2015

- Sri Lanka's military expenditure, valued at US$2.1 billion in 2015, is expected to increase to US$2.9 billion by 2020, registering a CAGR of 7.55% over the forecast period

- Sri Lankan military expenditure will be driven by the re-emergence of terrorism, de-mining and rehabilitation, and the country's strained relationship with India

- The Defense Ministry is expected to procure patrol vessels and naval infrastructure, combat aircraft, and transport helicopters

Table Of Contents

Future of the Sri Lankan Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2020
Table of Contents
1 Introduction
1.1. What is this Report About?
1.2. Definitions
1.3. Summary Methodology
1.4. SDI Terrorism Index
1.5. About Strategic Defence Intelligence
2 Executive Summary
3 Market Attractiveness and Emerging Opportunities
3.1. Defense Market Size Historical and Forecast
3.1.1. Sri Lankan defense budget to grow at a CAGR of 7.55% during 2016-2020 to value US$2.9 billion in 2020
3.1.2. De-mining and rehabilitation efforts, and a strained relationship with India are expected to drive defense expenditure
3.1.3. Sri Lankan defense expenditure as a percentage of GDP is expected to decrease at an average of 2.5% during 2016-2020
3.2. Analysis of Defense Budget Allocation
3.2.1. Share of capital expenditure expected to increase over forecast period
3.2.2. Capital expenditure to increase at a CAGR of 7.11% during the forecast period
3.2.3. Sri Lankan Army accounts for the largest share of defense expenditure
3.2.4. The country is expected to invest US$6.4 billion in its army during the forecast period
3.2.5. Naval defense budget projected to grow at a CAGR of 6.23% during the forecast period
3.2.6. Air force expenditure expected to register a CAGR of 8.03% during the forecast period
3.2.7. Per capita defense expenditure expected to increase over the forecast period
3.3. Homeland Security Market Size and Forecast
3.3.1. Sri Lankan homeland security expected to grow over the forecast period
3.3.2. Maritime security and communal violence are expected to drive Sri Lankan homeland security expenditure
3.3.3. Sri Lank falls under "highly affected" of terrorism category
3.4. Benchmarking with Key Global Markets
3.4.1. Sri Lankan defense budget expected to increase over the forecast period
3.4.2. Sri Lankan military expenditure remains limited compared to countries with the largest defense expenditure
3.4.3. Sri Lanka spent over 2.7% of its GDP on defense in 2015
3.4.4. Sri Lank faces high threat from foreign terrorist organizations
3.5. Market Opportunities: Key Trends and Growth Stimulators
3.5.1. Demand for patrol vessels and naval infrastructure expected to increase over the forecast period
3.5.2. Air force modernization will create demand for combat aircraft
3.5.3. Demand for transport helicopters expected to surge during the forecast period
4 Defense Procurement Market Dynamics
4.1. Import Market Dynamics
4.1.1. Defense imports are expected to remain low during the forecast period.
4.1.2. Sri Lanka sourced the majority of its arms imports from Israel
4.1.3. Ships and aircraft dominated military hardware imports
4.2. Export Market Dynamics
4.2.1. The country exported negligible defense goods during 2010-2014
5 Industry Dynamics
5.1. Five Forces Analysis
5.1.1. Bargaining power of supplier: low
5.1.2. Bargaining power of buyer: medium
5.1.3. Barrier to entry: medium
5.1.4. Intensity of rivalry: low
5.1.5. Threat of substitution: high
6 Market Entry Strategy
6.1. Market Regulation
6.1.1. Undisclosed FDI policy relating to defense
6.2. Market Entry Route
6.2.1. Cooperative agreement and partnerships an easier way to access the Sri Lanka defense market
6.2.2. Equipment manufacturers enter the market through direct sales
6.3. Key Challenges
6.3.1. Corruption and lack of transparency pose an obstacle for market entry
6.3.2. Underdeveloped domestic industry and internal instability discourages foreign participation
6.3.3. Limited defense budget deters investors from market entry
7 Competitive Landscape and Strategic Insights
7.1. Competitive Landscape Overview
7.1.1. Colombo Dockyard Plc.: overview
7.1.2. Colombo Dockyard Plc.: products
7.1.3. Colombo Dockyard Plc.: recent announcements and strategic initiatives
7.1.4. Colombo Dockyard Plc: alliances
7.1.5. Colombo Dockyard Plc.: recent contract wins
7.1.6. Colombo Dockyard Plc.: financial analysis
8 Business Environment and Country Risk
8.1. Demographics and Social Statistics
8.1.1. Population - Rural
8.1.2. Population - Urban
8.1.3. Population - Number of Households
8.2. Economic Performance
8.2.1. Gross Domestic per Capita
8.2.2. Gross Domestic Product, current US$
8.2.3. Exports of Goods and Services
8.2.4. Imports of Goods and Services
8.2.5. Gross National Disposable Income
8.2.6. Manufacturing Output
8.2.7. Consumer Price Index
8.2.8. Wholesale Price Index
8.2.9. Local Currency Unit per US$
8.2.10. Local Currency Unit per EURO
8.2.11. Lending Rate (%)
8.2.12. Deposit Rate (%)
8.2.13. Real Interest Rate (%)
8.2.14. Market Capitalization of Listed Companies
8.2.15. Market Capitalization of Listed Companies as a % of GDP
8.2.16. Goods Exports as a % of GDP
8.2.17. Goods Imports as a % of GDP
8.2.18. Goods Trade Surplus/Deficit as a % of GDP
8.2.19. Services Imports as a % of GDP
8.2.20. Services Exports as a % of GDP
8.2.21. Services trade surplus/deficit as a % of GDP
8.2.22. Net Foreign Direct Investment
8.2.23. Net FDI as a % of GDP
8.2.24. International reserves, including Gold
8.3. Energy and Utilities
8.3.1. Total Conventional Thermal Electricity Net Generation
8.3.2. Hydroelectricity Net Generation
8.3.3. Nuclear Electricity Net Generation
8.3.4. Total Conventional Thermal Electricity Installed Capacity
8.3.5. Total Petroleum Consumption
8.4. Infrastructure Quality and Availability
8.4.1. Air transport, freight
8.4.2. Minerals
8.4.3. Mining, Manufacturing, Utilities Output
8.5. Technology
8.5.1. Patents Granted
8.6. Telecommunication
8.6.1. Telephone lines
8.6.2. Telephone lines Penetration Rate
9 Appendix
9.1. About SDI
9.2. Disclaimer

List of Tables
Table 1: Sri Lankan Defense Expenditure (US$ Billion), 2011-2015
Table 2: Sri Lankan defense Expenditure (US$ Billion), 2016-2020
Table 3: Sri Lankan Defense Expenditure (in LKR billion), 2011-2015
Table 4: Sri Lankan Defense Expenditure (in LKR billion), 2016-2020
Table 5: Sri Lankan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2011-2015
Table 6: Sri Lankan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2016-2020
Table 7: Sri Lankan defense Budget Split Between Capital and Revenue Expenditure (%), 2011-2015
Table 8: Sri Lankan defense Budget Split Between Capital and Revenue Expenditure (%), 2016-2020
Table 9: Sri Lankan Defense Capital Expenditure (US$ Million), 2011-2015
Table 10: Sri Lankan Defense Capital Expenditure (US$ Million), 2016-2020
Table 11: Sri Lankan Capital Expenditure (in LKR billion), 2011-2015
Table 12: Sri Lankan Capital Expenditure (in LKR billion), 2016-2020
Table 13: Sri Lankan Defense Budget Allocation (%), 2011-2015
Table 14: Sri Lankan Defense Budget Allocation (%), 2016-2020
Table 15: Sri Lankan Defense Budget Allocation for Army (US$ Billion), 2011-2015
Table 16: Sri Lankan Defense Budget Allocation for Army (US$ Billion), 2016-2020
Table 17: Sri Lankan Defense Budget Allocation for Army (LKR Billion), 2011-2015
Table 18: Sri Lankan Defense Budget Allocation for Army (LKR Billion), 2016-2020
Table 19: Sri Lankan Defense Budget Allocation for Navy (US$ Million), 2011-2015
Table 20: Sri Lankan Defense Budget Allocation for Navy (US$ Million), 2016-2020
Table 21: Sri Lankan Defense Budget Allocation for Navy (LKR Billion), 2011-2015
Table 22: Sri Lankan Defense Budget Allocation for Navy (LKR Billion), 2016-2020
Table 23: Sri Lankan Defense Budget Allocation for the Air Force (US$ Million), 2011-2015
Table 24: Sri Lankan Defense Budget Allocation for Air Force (US$ Million), 2016-2020
Table 25: Sri Lankan Defense Budget Allocation for Air Force (LKR Billion), 2011-2015
Table 26: Sri Lankan Defense Budget Allocation for Air Force (LKR Billion), 2016-2020
Table 27: Sri Lankan per capita defense expenditure (US$), 2011-2015
Table 28: Sri Lankan per capita defense expenditure (US$), 2016-2020
Table 29: Sri Lankan Homeland Security Budget (US$ Million), 2011-2015
Table 30: Sri Lankan Homeland Security Budget (US$ Million), 2016-2020
Table 31: Sri Lankan Homeland Security Budget (in LKR billion), 2011-2015
Table 32: Sri Lankan Homeland Security Budget (in LKR billion), 2016-2020
Table 33: Benchmarking with Key Markets - 2011-2015 vs. 2016-2020
Table34: SDI Terrorism Index
Table 35: Colombo Dockyard Plc.- Key Products and Services
Table 36: Colombo Dockyard Plc. - Alliances
Table 37: Colombo Dockyard Plc. - Recent Contracts

List of Figures
Figure 1: Sri Lankan Defense Expenditure (US$ Billion), 2011-2015
Figure 2: Sri Lankan Defense Expenditure (US$ Billion), 2016-2020
Figure 3: Sri Lankan Defense Expenditure (in LKR billion), 2011-2015
Figure 4: Sri Lankan Defense Expenditure (in LKR billion), 2016-2020
Figure 5: Sri Lankan GDP Growth vs. Defense Expenditure Growth and Defense Expenditures Percentage of GDP Growth, 2011-2015
Figure 6: Sri Lankan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2016-2020
Figure 7:Sri Lankan defense Budget Split Between Capital and Revenue Expenditure (%), 2011-2015
Figure 8: Sri Lankan defense Budget Split Between Capital and Revenue Expenditure (%), 2016-2020
Figure 9: Sri Lankan Defense Capital Expenditure (US$ Million), 2011-2015
Figure 10: Sri Lankan Defense Capital Expenditure (US$ Million), 2016-2020
Figure 11: Sri Lankan Capital Expenditure (in LKR billion), 2011-2015
Figure 12: Sri Lankan Capital Expenditure (in LKR billion), 2016-2020
Figure 13: Sri Lankan Defense Budget Allocation (%), 2011-2015
Figure 14: Sri Lankan Defense Budget Allocation (%), 2016-2020
Figure 15: Sri Lankan Defense Budget Allocation for Army (US$ Billion), 2011-2015
Figure 16: Sri Lankan Defense Budget Allocation for Army (US$ Billion), 2016-2020
Figure 17: Sri Lankan Defense Budget Allocation for Army (LKR Billion), 2011-2015
Figure 18: Sri Lankan Defense Budget Allocation for Army (LKR Billion), 2016-2020
Figure 19: Sri Lankan Defense Budget Allocation for Navy (US$ Million), 2011-2015
Figure 20: Sri Lankan Defense Budget Allocation for Navy (US$ Million), 2016-2020
Figure 21: Sri Lankan Defense Budget Allocation for Navy (LKR Billion), 2011-2015
Figure 22: Sri Lankan Defense Budget Allocation for Navy (LKR Billion), 2016-2020
Figure 23: Sri Lankan Defense Budget Allocation for Air Force (US$ Million), 2011-2015
Figure 24: Sri Lankan Defense Budget Allocation for Air Force (US$ Million), 2016-2020
Figure 25: Sri Lankan Defense Budget Allocation for Air Force (LKR Billion), 2011-2015
Figure 26: Sri Lankan Defense Budget Allocation for Air Force (LKR Billion), 2016-2020
Figure 27: Sri Lankan per capita defense expenditure (US$), 2011-2015
Figure 28: Sri Lankan per capita defense expenditure (US$), 2016-2020
Figure 29: Sri Lankan Homeland Security Budget (US$ Million), 2011-2015
Figure 30: Sri Lankan Homeland Security Budget (US$ Million), 2016-2020
Figure 31: Sri Lankan Homeland Security Budget (in LKR billion), 2011-2015
Figure 32: Sri Lankan Homeland Security Budget (in LKR billion), 2016-2020
Figure 33: SDI Terrorism Heat Map, 2015
Figure 34: SDI Terrorism Index, 2015
Figure 35: Benchmarking with Key Markets - 2011-2015 vs. 2016-2020
Figure 36: Defense Expenditure of the World's Largest Military Spenders (US$ Billion), 2015 and 2020
Figure 37: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2015
Figure 38: Sri Lankan Defense Import Trend, 2010-2014 (TIV values)
Figure 39: Sri Lankan Defense Imports by Country (%), 2010-2014
Figure 40: Sri Lankan Defense Imports by Category (%), 2010-2014
Figure 41: Industry Dynamics - Porter's Five Forces Analysis
Figure 42: Colombo Dockyard Plc. - Revenue Trend Analysis (LKR million), 2010-2014
Figure 43: Colombo Dockyard Plc. - Operating Profit Trend Analysis (LKR million), 2010-2014
Figure 44: Colombo Dockyard Plc. - Net Profit Trend Analysis (LKR million), 2010-2014
Figure 45: Sri Lankan Population - Rural (In Millions), 2015-2024
Figure 46: Sri Lankan Population - Urban (In Millions), 2015-2024
Figure 47: Sri Lankan Population - Number of Households (In Millions), 2008-2017
Figure 48: Sri Lankan GDP per capita, 2015-2024
Figure 49: Sri Lankan Gross Domestic Product (current US$ Bn), 2015-2024
Figure 50: Sri Lankan Exports of goods and services (current US$ Bn), 2002-2011
Figure 51: Sri Lankan Imports of goods and services (current US$ Bn), 2002-2011
Figure 52: Sri Lankan gross national disposable income (US$ Bn), 2002-2011
Figure 53: Sri Lankan Manufacturing Output (US$ Bn), 2002-2011
Figure 54: Sri Lankan Consumer Price Index, 2015-2024
Figure 55: Sri Lankan Wholesale Price Index, 2001-2010
Figure 56: Sri Lankan LCU per US$, 2015-2024
Figure 57: Sri Lankan LCU per EURO, 2015-2024
Figure 58: Sri Lankan Lending Rate (%), 2003-2012
Figure 59: Sri Lankan Deposit Rate (%), 2003-2012
Figure 60: Sri Lankan Real Interest Rate (%), 2003-2012
Figure 61: Sri Lankan Market Capitalization of listed Companies (US$ Bn), 2003-2012
Figure 62: Sri Lankan Market Capitalization of listed companies as a % of GDP, 2002-2011
Figure 63: Sri Lankan Goods Exports as a % of GDP, 2002-2011
Figure 64: Sri Lankan Goods Imports as a % of GDP, 2002-2011
Figure 65: Sri Lankan Goods Trade Surplus/Deficit as a % of GDP, 2002-2011
Figure 66: Sri Lankan Services Imports as a % of GDP, 2002-2011
Figure 67: Sri Lankan Services Exports as a % of GDP, 2002-2011
Figure 68: Sri Lankan Services trade surplus/deficit as a % of GDP, 2002-2011
Figure 69: Sri Lankan Net Foreign Direct Investment (current US$ BN), 2002-2011
Figure 70: Sri Lankan Net FDI as a % of GDP, 2002-2011
Figure 71: Sri Lankan International reserves, including Gold (US$ Bn), 2002-2011
Figure 72: Sri Lankan Total Conventional Thermal Electricity Net Generation (Bn KWH), 2001-2010
Figure 73: Sri Lankan Hydroelectricity Net Generation (Bn KWH), 2001-2010
Figure 74: Sri Lankan Nuclear Electricity Net Generation (Bn KWH), 2001-2010
Figure 75: Sri Lankan Total Conventional Thermal Electricity Installed Capacity (Million Kilowatts), 2001-2010
Figure 76: Sri Lankan Total Petroleum Consumption (Thousand Barrels per Day), 2003-2012
Figure 77: Sri Lankan Air transport, freight (Million ton-Km), 2003-2012
Figure 78: Sri Lankan Mining, Manufacturing, Utilities Output(US$ Bn), 2002-2011
Figure 79: Sri Lankan Patents Granted, 2003-2012
Figure 80: Sri Lankan Telephone lines, 2003-2012
Figure 81: Sri Lankan Telephone lines Penetration Rate (per 100 people), 2003-2012

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