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Israel Defence and Security Report Q1 2012
Business Monitor International, Dec 2011, Pages: 103
Business Monitor International's Israel Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Israel's defence and security industry.
While the Arab Spring has raised hopes for a new more democratic and more peaceful Middle East for many in Israel, the overthrow of the country’s erstwhile ally in Egypt and disruption of the region’s balance of power has led to unease over the future of the country’s security situation. In spite of these concerns and a number of high-profile incidents, the number of active conflict points has actually dropped since 2008. Nevertheless, Israel continues to exist in a fragile and dangerous environment with few regional allies and as a result the country’s defence industry will continue to be relied upon in order to maintain everyday life in the country. Because of this experience, Israel is at the forefront of much of the world’s counter-terrorism and surveillance equipment.
Israel is a major importer of surface ships and warplanes. Indigenous production focuses on component manufacture and the country provides other countries with an array of technologically-advanced weapons and detection systems. Close political and economic ties with the US, by far the world’s largest spender in the defence sector, has opened the door to a number of strategic partnerships between US and Israeli companies providing wide access to the US market.
Israeli companies have announced a number of major contract wins in 2011. In May 2011, General Dynamics agreed to buy components for US Army M1A2 Abrams tanks and Stryker armoured personnel carriers from Israeli companies as part of a US$150mn reciprocal procurement agreement with Israel. In exchange, General Dynamics will build the Israeli-designed Leopard armoured personnel carrier for the Israeli Defence Force. In August 2011, it was reported that Rafael Advanced Defence Systems and USbased Raytheon would jointly market Rafael’s Iron Dome rocket interception system in the US. The system is used in by the IDF to intercept rockets fired from the Gaza Strip.
Economic growth in the state had expanded at a healthy rate on the back of higher consumer confidence and a more supportive external environment and this has is seen spending on defence growing too. However, it had dropped to below 6% of GDP and now, by mid-2011, it shows signs of deceleration. BMI maintains its 2011 and 2012 real GDP growth forecasts of 4.8% and 4.5%.
The biggest risk to BMI's GDP forecast is how investors react to the Arab Spring. Investors may take a step back until the future of Israel’s relations with its neighbours, particularly Egypt, Syria and Lebanon, gain further clarity. Investors will particularly be watching the evolving relationship with Egypt, as Egypt’s role in containing Hamas in the Gaza Strip has been essential to Israeli security.
If a newly elected Egyptian government takes a pro-Palestinian position the effect on Israeli security will be pronounced. An uncertain security situation is nothing new for Israeli investors; nevertheless, the country is entering a new era along with the rest of the region and investors’ risk appetite may well be tempered by rising uncertainty.
Politically, BMI's view is that the Israeli coalition government that came to power at the start of 2011 has become more conservative in its domestic policy position and more hawkish in its foreign policy stance. The Arab spring and a series of domestic protests in recent months have raised uncertainties over the security situation in these countries. The Netanyahu government has responded to these events with hardline rhetoric, but also signs of increased engagement.
Israel has vociferously opposed Mahmoud Abbas’ attempt to gain statehood for Palestine at the UN, but at the same time orchestrated one of the most significant prisoner exchange programmes in the history of Israel-Palestine relations that saw the release of Israeli sergeant Gilad Shalit in exchange for the scheduled release of 1,027 imprisoned Palestinians.
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