Russia reaps rewards in booming South American defense market

Jan. 1, 2007
Russia’s efforts to market military equipment to Latin America are bearing fruit.

By Annie Turner

NEWTOWN, Conn. - Russia’s efforts to market military equipment to Latin America are bearing fruit. According to Forecast International’s annual survey of the Latin American defense market, while initial market penetration came in the form of helicopter orders from Mexico, Venezuela is now chalking up the biggest sales.

A series of orders for helicopters and assault rifles, among other items, was capped by a July sale of 24 Sukhoi Su-30 fighters, bringing to $3 billion the value of deals signed with Venezuela in less than two years.

The Venezuelans are now expected to place orders for additional helicopters, as well as tactical transport aircraft, submarines, and air-defense systems. However, while high oil prices are funding these procurements, the recent softening of these prices could force Venezuela to reduce the scope of its planned purchases.

The Russians have made inroads in other Latin American countries as well, including Colombia and Uruguay, with Brazil, Chile, and Ecuador potential customers. Argentina may prove a major sales opportunity, now that the Argentinean legislature has approved a military accord signed by the two governments. The Russians are offering an array of products, but the Argentineans are primarily interested in helicopters, transport aircraft, and air-defense systems.

Argentina’s interest is directly tied to a revitalization of the military’s force structure, which follows years of tight funding. The Argentinean military has considerable pent-up re-equipment needs, although spending levels will remain contingent on economic conditions.

Latin America analyst Tom Baranauska said, “The Chilean military has been at the forefront, using windfall copper income acquired via the so-called Copper Law to carry out a thorough re-equipment program that has included the purchase of F-16 fighters, used frigates, and new submarines. Venezuela has now taken over the lead, but other nations are dusting off requirements lists or drawing up new lists.”

Chile and Venezuela’s arms build-up has raised some concerns in neighboring countries. Colombia plans to increase spending on conventional warfare after concentrating for years on counterinsurgency. The Brazilian military appears to be using Venezuela’s military buying spree to prod the national government into action. Indeed, the Air Force’s next-generation fighter requirement now shows signs of being revived after what appeared to be a cancellation. Meanwhile, Bolivia and Peru field dated and inadequate force structures compared to Chile’s, while Paraguay is increasing military spending in the face of Bolivia’s closer ties with Venezuela.

While some might characterize these developments as an arms race, much of the activity still only represents attempts by governments finally to address long pent-up requirements. Because so much of the equipment is obsolete, the scope of the replacement needs is significant. FI’s forecast for overall military spending in the region calls for a moderate rise to $39.9 billion in 2010, after which spending will ease slightly. Of this amount, only about 20 percent is earmarked for procurement of equipment (of all types), but this still represents a sizable market.

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