Ukraine war is not all good news for arms industry: SIPRI

Deutsche Welle

Posted at Dec 05 2022 08:31 AM

A turret of burned Russian tank is left abandoned after the Ukrainian army attacked it the previous day near the city of Kharkiv, Ukraine, February 25, 2022. Sergey Kozlov, EPA-EFE/File
A turret of burned Russian tank is left abandoned after the Ukrainian army attacked it the previous day near the city of Kharkiv, Ukraine, February 25, 2022. Sergey Kozlov, EPA-EFE/File

The world's top 100 arms producers continued to increase sales in 2021, but supply chain issues have slowed growth in the sector, according to a new report from the Stockholm International Peace Research Institute (SIPRI).

Shortages caused by the COVID-19 pandemic played a role in stifling growth to 1.9% in 2021 compared to 2020, the report published on Monday noted. SIPRI predicted that the war in Ukraine could cause similar problems for the industry in the near to medium term.

What the report predicted on Ukraine

While both Russia's invasion and Ukraine and the West's response have driven up demand for weapons, they also have left producers facing challenges in sourcing raw materials and components.

SIPRI, an international institute that focuses on research into conflict, armaments, arms control and disarmament, noted that Russia is a major supplier of raw materials used in arms production.

"This could hamper ongoing efforts in the United States and Europe to strengthen their armed forces and to replenish their stockpiles after sending billions of dollars worth of ammunition and other equipment to Ukraine," the report said.

Although Russian companies are increasing production because of the war, the SIPRI report noted that they have had difficulty accessing semiconductors. Companies are also being impacted by war-related sanctions, for instance when it comes to receiving payments.

"Increasing output takes time," said Diego Lopes da Silva, SIPRI senior researcher. "If supply chain disruptions continue, it may take several years for some of the main arms producers to meet the new demand created by the Ukraine war."

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What happened in 2021

The report's principal focus was on industry patterns in 2021, when it found supply chain issues related to the pandemic appeared to slow growth.

"We might have expected even greater growth in arms sales in 2021 without persistent supply chain issues," said Lucie Beraud-Sudreau, director of the SIPRI military expenditure and arms production program. "Both larger and smaller arms companies said that their sales had been affected during the year. Some companies, such as Airbus and General Dynamics, also reported labor shortages."

North America

Companies in the United States dominated the list of top 100 arms suppliers, with 40 of the firms being based there. They also took more than half of sales, $299 billion (€284 billion) out of a global total of $592 billion. Since 2018, the top five companies in the top 100 have been based in the United States.

North America was the only region to see a drop in arms sales compared to 2020. The 0.8% real-terms decline was partly due to high inflation in the US economy during 2021.

Europe

For 2021, 27 of the top 100 arms suppliers were headquartered in Europe. The region saw combined arms sales increase by 4.2% compared to 2020, totaling $123 billion.

While it was a profitable year for shipbuilders, aircraft manufacturers in the region did not fare so well.

"Most of the European companies that specialize in military aerospace reported losses for 2021, which they blamed on supply chain disruptions," said Lorenzo Scarazzato, a researcher with SIPRI. "In contrast, European shipbuilders seem to have been less affected by the pandemic fallout and were able to increase their sales in 2021."

With arms sales of $4.5 billion, Rheinmetall (ranked 31st) remained the largest arms company in Germany. However, its arms sales fell by 1.7% in 2021 due to the pandemic and supply chain disruptions.

A German soldier looks on as he shows how it works at the launching station of NATO's Patriot missile air defense system operated by German army unit Flugabwehrraketengruppe 26 (Air Defense Artillerie) placed at Sliac airbase in Sliac, central Slovakia, 10 May 2022. A Dutch-German air and missile defense forces deployed Patriot system in spring 2022 to reinforce defense capabilities on Eastern NATO border following Russia's military invasion in Ukraine. EPA-EFE/MARTIN DIVISEK
A German soldier looks on as he shows how it works at the launching station of NATO's Patriot missile air defense system operated by German army unit Flugabwehrraketengruppe 26 (Air Defense Artillerie) placed at Sliac airbase in Sliac, central Slovakia, 10 May 2022. A Dutch-German air and missile defense forces deployed Patriot system in spring 2022 to reinforce defense capabilities on Eastern NATO border following Russia's military invasion in Ukraine. EPA-EFE/MARTIN DIVISEK

Asia

Combined arms sales of the 21 companies in Asia and Oceania included in the top 100 reached $136 billion in 2021 — a 5.8% increase over 2020. The eight Chinese arms companies in the listing had total arms sales of $109 billion, a 6.3% increase.

These include China's CSSC, now the biggest military shipbuilder in the world, with arms sales of $11.1 billion, after a merger between two existing companies.

Combined arms sales of the four South Korean companies in the top 100 grew by 3.6% compared with 2020, reaching $7.2 billion. They included a 7.6% rise in sales for the cross-sector conglomerate Hanwha, which is expected to see further growth after a major arms deal with Poland that followed Russia's invasion of Ukraine.

It was the first year in which a Taiwanese firm, NCSIST, which specializes in missiles and military electronics, has appeared on the list — with arms sales of $2 billion.

Russia and the Middle East

Six Russian companies were included in the top 100 for 2021 with sales that totaled $17.8 billion — an increase of 0.4% over 2020. SIPRI noted that, ahead of the Russian invasion of Ukraine, there were signs that stagnation was widespread across the Russian arms industry.

The five companies based in the Middle East generated $15.0 billion in arms sales in 2021. This was a 6.5% increase compared with 2020, the fastest pace of growth of all regions represented in the Top 100.

Edited by: Sean Sinico

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