The Nigerian Defense Industry - Market Opportunities and Entry Strategies, Analyses and Forecasts to 2016

iCD Research, July 2012, Pages: 103

Product Synopsis

This report is the result of ICD Research/Strategic Defence Intelligence’s extensive market and company research covering the Nigerian defense industry. It provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.

Introduction and Landscape

Why was the report written?

The Nigerian defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2016 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain market share in the Nigerian defense industry.

What is the current market landscape and what is changing?

During the review period, the Nigerian defense budget recorded a CAGR of 19.27%, with expenditure mainly driven by participation in peacekeeping initiatives and operations to stop the smuggling of oil. The defense budget, which stood at 0.8% of GDP in 2011, is expected to increase to 1.3% of GDP by 2016, as the country’s defense expenditure growth is expected to outpace its GDP growth. The defense budget is also expected to increase during the forecast period due to the increased deployment of armed forces in peacekeeping operations and significant threats to its national security. During the review period the country’s capital expenditure allocation stood at an average of 14.53% of the total defense budget, and is expected to decrease to an average of 11.2% over the forecast period due to reduced equipment purchase allocations.

What are the key drivers behind recent market changes?

Nigerian military expenditure is expected to be mainly driven by peacekeeping operations and efforts to stop the smuggling of stolen oil. Nigeria became a member of the UN in 1960 and this involvement in peacekeeping operations will significantly drive the country’s defense expenditure over the forecast period, in particular the procurement of armored vehicles and transport aircraft. Being the largest producer of crude oil and oil exports, the country is threatened by the smuggling of oil, especially in the oil-rich Niger delta region. In March 2011 Nigerian soldiers destroyed nearly 500 illegal oil refineries in the Niger Delta region to stop the smuggling of stolen oil in the country.

What makes this report unique and essential to read?

The Nigerian Defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2016 provides detailed analysis of the current industry size and growth expectations from 2012 to 2016, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

Key Features and Benefits

The report provides detailed analysis of the current industry size and growth expectations from 2012 to 2016, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

The report includes trend analysis of imports and exports, together with their implications and impact on the Nigerian defense industry.

The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.

The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.

The report helps the reader to understand the competitive landscape of the defense industry in Nigeria. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.

Key Market Issues

Corruption acts as an obstacle for market entry.

According to the Corruption Perceptions Index 2010 of Transparency International, Nigeria is classified as a highly corrupt country. Corruption can result in unfair contract awards and has become a major obstacle for foreign companies aiming to supply arms to the Nigerian MoD. There is also widespread corruption in the Nigerian Police Force; embezzlement and mismanagement of the police budget has resulted in only a small portion of the budget being spent on protecting internal security, resulting in an increased internal threat to the country. In January 2008 the Chief of Army Staff, acting for and on behalf of the government of Nigeria, awarded contracts to Esquire Ventures Ltd., Profitel Ltd., Century Communications Ltd., and Jonny-Way Investments Ltd. for the supply of various specialist military items to be used by Nigeria's UN-backed troops, for NGN1,190.7 million (US$10.3 million). Materials valued at NGN660 million (US$5.7 million) were supplied and others worth NGN530.7 million (US$4.6 million) were ready for shipment, but the contractors were paid only NGN175 million (US$1.5 million), leaving the contractors underpaid, despite the country receiving funding for the project from the UN worth several million dollars.

Small defense budget does not attract suppliers.

With a defense budget of US$2.1 billion in 2011, Nigeria invests only 0.9% of its GDP towards defense. During the review period an average of 16.5% of the defense budget was allocated for capital expenditure, representing a relatively low allocation for the purchase of equipment, and high-technology arms and ammunition. As a result, the country’s relatively small defense budget does not attract foreign defense companies, and the prohibition of FDI in the defense sector also acts as a barrier to market entry for foreign suppliers.

Key Highlights

Nigeria’s defense expenditure expected to increase at a CAGR of 22.43% during the forecast period.

Nigerian defense expenditure, estimated to equal US$2.1 billion in 2012, grew at a CAGR of 19.27% during the review period. During the forecast period, the country’s defense expenditure is expected to register a CAGR of 22.43% and to reach US$4.76 billion by 2016. The country’s cumulative defense expenditure over the forecast period is expected to be US$16.38 billion, of which US$14.55 billion is expected to be invested in the personnel and others category, while the remaining US$1.83 billion is expected to be spent on equipment and infrastructure development costs.

Homeland security budget projected to increase during the forecast period.

Nigeria’s homeland security consists of the budgets of the ministry of police affairs, and police formation and command. The country’s homeland security budget, which stood at US$5.9 billion during the review period, is estimated to increase to US$12.0 billion during the forecast period, driven by extremism, drug trafficking, cybercrime and money laundering. In order to counter the threats posed by these criminal activities, Nigeria is expected to invest in surveillance and intelligence technologies such as electronic identification documents, e-passports, automated border crossing systems, and CCTV (closed circuit television) systems. The rate of growth is forecasted to decline to 8.95% by 2016.

Limited defense capability of domestic defense market drives import.

The country’s defense capabilities are limited to the production of small arms and ammunition, and aircraft maintenance and repair services. The domestic defense industry comprises state-owned companies including Defense Industries Corporation (DICON), specializing in the production of small arms and ammunition, and Dornier Aviation Nigeria AIEP Limited (DANA), which provides aircraft maintenance and services. As a result, the country imports defense equipment such as aircraft, missiles, and armored vehicles, which domestic suppliers do not supply. As the country does not spend a significant amount of its defense budget on advanced technology, and research and development, the domestic defense market remains under-developed.

Keywords:

Defense, budget, offset, regulation, capital expenditure, army, navy, air force, homeland, drivers, market opportunities, procurement, entry route, key challenge, announcements, alliances, contract awards, financial analysis, business environment, Military hardware, Air defense systems, Missile defense systems, Naval defense systems, Homeland security, Dornier Aviation Nigeria AIEP Limited, Defence Industries Corporation of Nigeria.

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. Defense expenditure is projected to grow at a CAGR of 22.43% during the forecast period
3.1.2. Peacekeeping operations and efforts to stop smuggling to drive defense expenditure
3.2. Analysis of Defense Budget Allocation
3.2.1. Revenue expenditure accounts for the majority of Nigerian defense budget
3.2.2. Capital expenditure budget expected to decline during the forecast period
3.2.3. Defense budget as a percentage of GDP expected to increase during the forecast period
3.2.4. Per-capita defense expenditure expected to increase during the forecast period
3.2.5. Allocation for the Army accounts for the majority of the defense budget
3.2.6. Budget allocation for the army higher than navy and the air force
3.2.7. Defense budget allocation for the navy expected to be the lowest
3.2.8. Expenditure on the air force to increase during the forecast period
3.2.9. Allocation for other expenses to decline during the forecast period
3.3. Homeland Security Market Size and Forecast
3.3.1. Homeland security budget projected to increase during the forecast period
3.3.2. Extremism, drug trafficking, cybercrime, and money laundering to drive the homeland security market
3.3.3. Nigeria comes under ‘moderately affected category’ by terrorist attack
3.3.4. Nigeria experienced moderate terror activity during the review period
3.4. Benchmarking with Key Global Markets
3.4.1. The country’s defense budget expected to increase during the forecast period
3.4.2. Nigerian military expenditure is limited compared to countries with the largest defense expenditure
3.4.3. The country allocates a lower percentage of GDP to defense
3.5. Market Opportunities: Key Trends and Growth Stimulators
3.5.1. AS332 Super Puma helicopters will provide attractive market opportunities
3.5.2. Offshore patrol vessels and patrol crafts expected to create new market opportunities
3.5.3. Demand for AW109 helicopters to increase
3.5.4. Demand for Oshkosh SandCat Mine-Protected Light Patrol Vehicles (M-LPV) to increase

4 Defense Procurement Market Dynamics
4.1. Import Market Dynamics
4.1.1. Limited defense capability of domestic defense market drives imports
4.1.2. Defense imports expected to increase during the forecast period
4.1.3. China and Italy account for the majority of the country’s defense imports
4.1.4. Aircraft, ships, and armored vehicles are the largest imported military hardware
4.2. Export Market Dynamics
4.2.1. Nigeria does not export arms due to its under-developed domestic arms industry

5 Industry Dynamics
5.1. Five Forces Analysis
5.1.1. Bargaining power of supplier: low to medium
5.1.2. Bargaining power of buyer: medium to high
5.1.3. Barrier to entry: medium
5.1.4. Intensity of rivalry: low
5.1.5. Threat of substitution: low

6 Market Entry Strategy
6.1. Market Regulation
6.1.1. Nigeria does not disclose any offset obligations imposed by the country
6.1.2. FDI in defense sector prohibited by the Nigerian government
6.2. Market Entry Route
6.2.1. Direct selling is the preferred market entry route for foreign OEMs
6.3. Key Challenges
6.3.1. Corruption acts as an obstacle for market entry
6.3.2. Small defense budget does not attract suppliers

7 Competitive Landscape and Strategic Insights
7.1. Competitive Landscape Overview
7.2. Key Domestic Companies
7.2.1. Dornier Aviation Nigeria AIEP Limited: overview
7.2.2. Dornier Aviation Nigeria AIEP Limited: products and services
7.2.3. Defence Industries Corporation of Nigeria: overview
7.2.4. Defence Industries Corporation of Nigeria: products and services
7.2.5. Defence Industries Corporation of Nigeria: recent announcements and strategic initiatives
7.2.6. Defence Industries Corporation of Nigeria: alliances
7.2.7. Defence Industries Corporation of Nigeria: recent contract awards

8 Business Environment and Country Risk
8.1. Demographics and Social Statistics
8.1.1. Population – Female
8.1.2. Population - Male
8.2. Economic Performance
8.2.1. Construction Output, Current Prices, Local Currency
8.2.2. Construction Output, Current Prices, US Dollars
8.2.3. Current Account Balance as Percentage of GDP
8.2.4. Deposit Interest Rate
8.2.5. Debt Service Ratio
8.2.6. Exports of goods and services, current prices
8.2.7. External debt as percentage of GDP (%)
8.2.8. Fiscal Balance as a percentage of GDP
8.2.9. Foreign Direct Investment
8.2.10. GDP at Purchasing Power Parity
8.2.11. GDP, Constant Prices (Local Currency)
8.2.12. GDP, Constant Prices (US$)
8.2.13. GDP, Current Prices (Local Currency)
8.2.14. GDP, Current Prices (US$)
8.2.15. General Government Final Consumption Expenditure
8.2.16. Gross Fixed Capital Formation, Current Prices
8.2.17. Imports of goods and services
8.2.18. Inflation, average consumer prices
8.2.19. Interest Rate (Lending)
8.2.20. Manufacturing Output, Current Prices (Local Currency Bn)
8.2.21. Manufacturing Output, Current Prices (US$ Billions)
8.2.22. US$- Exchange Rate (Annual Average)
8.3. Energy and Utilities
8.3.1. Crude Oil Distillation Capacity
8.3.2. Electricity Installed Capacity
8.3.3. Fossil Fuel Proved Natural Gas Consumption
8.3.4. Fossil Fuels- Proved oil reserves
8.3.5. Hydroelectricity Installed Capacity
8.3.6. Natural Gas Consumption
8.3.7. Natural Gas Production
8.3.8. Net Conventional Thermal Electricity Generation
8.3.9. Net Hydroelectric Power Generation
8.3.10. Petroleum, Consumption
8.3.11. Petroleum, Production
8.4. Minerals
8.4.1. Coal Consumption
8.4.2. Coal Production
8.5. Social and Political Risk
8.5.1. Political Stability Index
8.5.2. Transparency Index

9 Appendix
9.1.1. Contact Us
9.1.2. About SDI
9.1.3. Disclaimer

List of Tables

Table 1: Nigerian Defense Expenditure, 2007–2011
Table 2: Nigerian Defense Expenditure, 2012–2016
Table 3: Nigerian Defense Budget Split between Capital and Revenue Expenditure (%), 2007–2011
Table 4: Nigerian Defense Budget Split between Capital and Revenue Expenditure (%), 2012–2016
Table 5: Nigerian Capital Budget Allocation (US$ million), 2007–2011
Table 6: Nigerian Capital Budget Allocation (US$ billion), 2012–2016
Table 7: Nigerian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2007–2011
Table 8: Nigerian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2012–2016
Table 9: Nigerian Per-Capita Defense Expenditure (US$), 2007–2011
Table 10: Nigerian Per-Capita Defense Expenditure (US$), 2012–2016
Table 11: Nigerian Defense budget Split between Army, Air Force, Navy, and others, 2007–2011
Table 12: Nigerian Defense budget Split between Army, Air Force, Navy, and Others, 2012–2016
Table 13: Nigerian Army Capital and Revenue Expenditure (US$ Million), 2007–2011
Table 14: Nigerian Army Capital and Revenue Expenditure (US$ Million), 2012–2016
Table 15: Nigerian Navy Capital and Revenue Expenditure (US$ Million), 2007–2011
Table 16: Nigerian Navy Capital and Revenue Expenditure (US$ Million), 2012–2016
Table 17: Nigerian Air Force Capital and Revenue Expenditure (US$ Million), 2007–2011
Table 18: Nigerian Air Force Capital and Revenue Expenditure (US$ Million), 2012–2016
Table 19: Nigerian Other Capital and Revenue Expenditure (US$ Million), 2007–2011
Table 20: Nigerian Other Capital and Revenue Expenditure (US$ Million), 2012–2016
Table 21: Nigerian Homeland Security Budget (US$ billion), 2007–2011
Table 22: Nigerian Homeland Security Budget (US$ billion), 2012–2016
Table 23: SDI Terrorism Index
Table 24: Benchmarking with Key Markets – 2007–2011 vs. 2012–2016
Table 25: Dornier Aviation Nigeria AIEP Limited – Main Services
Table 26: Defence Industries Corporation of Nigeria – Main Products
Table 27: Defence Industries Corporation of Nigeria: Alliances
Table 28: Defence Industries Corporation of Nigeria: Recent Contract Awards

List of Figures

Figure 1: Nigerian Defense Expenditure, 2007–2011
Figure 2: Nigerian Defense Expenditure, 2012–2016
Figure 3: Nigerian Defense Budget Split Between Capital and Revenue Expenditure (%), 2007–2011
Figure 4: Nigerian Defense Budget Split Between Capital and Revenue Expenditure (%), 2012–2016
Figure 5: Nigerian Capital Budget Allocation (US$ million), 2007–2011
Figure 6: Nigerian Capital Budget Allocation (US$ billion), 2012–2016
Figure 7: Nigerian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2007–2011
Figure 8: Nigerian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2012–2016
Figure 9: Nigerian Per-Capita Defense Expenditure (US$), 2007–2011
Figure 10: Nigerian Per-Capita Defense Expenditure (US$), 2012–2016
Figure 11: Nigerian Defense budget Split between Army, Air Force, Navy, and others, 2007–2011
Figure 12: Nigerian Defense budget Split between Army, Air Force, Navy, and Others, 2012–2016
Figure 13: Nigerian Army Capital and Revenue Expenditure (US$ Million), 2007–2011
Figure 14: Nigerian Army Capital and Revenue Expenditure (US$ Million), 2012–2016
Figure 15: Nigerian Navy Capital and Revenue Expenditure (US$ Million), 2007–2011
Figure 16: Nigerian Navy Capital and Revenue Expenditure (US$ Million), 2012–2016
Figure 17: Nigerian Air Force Capital and Revenue Expenditure (US$ Million), 2007–2011
Figure 18: Nigerian Air Force Capital and Revenue Expenditure (US$ Million), 2012–2016
Figure 19: Nigerian Other Capital and Revenue Expenditure (US$ Million), 2007–2011
Figure 20: Nigerian Other Capital and Revenue Expenditure (US$ Million), 2012–2016
Figure 21: Nigerian Homeland Security Budget (US$ billion), 2007–2011
Figure 22: Nigerian Homeland Security Budget (US$ billion), 2012–2016
Figure 23: SDI Terrorism Heat Map, 2011
Figure 24: SDI Terrorism Index, 2011
Figure 25: Benchmarking with Key Markets – 2007–2011 vs. 2012–2016
Figure 26: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2011 and 2016
Figure 27: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2011
Figure 28: Nigerian Defense Import Trend, 2007–2011 (TIV values)
Figure 29: Nigerian Defense Imports by Country (US$ Million), 2007–2011
Figure 30: Country-wise Break-up of Nigerian Defense Imports (%), 2007–2011 (TIV values*)
Figure 31: Nigerian Defense Imports by Category (%),2007–2011
Figure 32: Industry Dynamics – Porter’s Five Forces Analysis
Figure 33: Nigerian Population – Female (In Millions), 2008–2017
Figure 34: Nigerian Population – Male (In Millions), 2008–2017
Figure 35: Nigerian Construction Output, Current Prices, Local Currency (In Billions), 2001–2010
Figure 36: Nigerian Construction Output, Current Prices, US Dollars (In Billions), 2001–2010
Figure 37: Nigerian Current Account Balance as Percentage of GDP, 2008–2017
Figure 38: Nigerian Deposit Interest Rate, 2001–2010
Figure 39: Nigerian Debt Service Ratio, 2001–2010
Figure 40: Nigerian Exports of goods and services, current prices (US$ Billion), 2001– 2010
Figure 41: Nigeria External Debt as percentage of GDP (%), 2001–2010
Figure 42: Nigerian Fiscal Balance as a percentage of GDP, 2001–2010
Figure 43: Nigerian Foreign Direct Investment (US$ Billion), 2001–2010
Figure 44: Nigerian GDP at Purchasing Power Parity (US$ Billion), 2006–2015
Figure 45: Nigerian GDP at Constant Prices (Local Currency Billion), 2006–2010
Figure 46: Nigerian GDP at Constant Prices (US$ Billion), 2006–2015
Figure 47: Nigerian GDP at Current Prices (Local Currency Billion), 2006–2015
Figure 48: Nigerian GDP at Current Prices (US$ Billion), 2006–2015
Figure 49: Nigerian General Government Final Consumption Expenditure (US$ Billion), 2001–2010
Figure 50: Nigerian Gross Fixed Capital Formation, Current Prices (US$ Billion), 2001–2010
Figure 51: Nigerian Imports of goods and services (current US$ Billion), 2001–2010
Figure 52: Nigerian Inflation, average consumer prices, 2008–2017
Figure 53: Nigerian Lending Interest rate, 2001–2010
Figure 54: Nigerian Manufacturing Output, Current Prices (Local Currency Billion), 2001–2010
Figure 55: Nigerian Manufacturing Output, Current Prices (US$ Billion), 2001–2010
Figure 56: Nigerian US$- Exchange Rate (Annual Average), 2002–2011
Figure 57: Nigerian Crude Oil Distillation Capacity (Thousand Barrels per Cal Day), 2000–2009
Figure 58: Nigerian Electricity Installed Capacity (Million Kilowatts), 2000–2009
Figure 59: Nigerian Fossil Fuels Proved natural gas reserves (Trillion Cubic Feet), 2002–2011
Figure 60: Nigerian Fossil Fuels Proved natural oil reserves (Billion Barrels), 2002–2011
Figure 61: Nigerian Hydroelectricity Installed Capacity (Million Kilowatts), 2000–2009
Figure 62: Nigerian Natural Gas Consumption (Billion Cubic Feet), 2001–2010
Figure 63: Nigerian Natural Gas Production (Billion Cubic Feet), 2001–2010
Figure 64: Nigerian Net Conventional Thermal Electricity Generation (Billion Kilowatt hours), 2001–2009
Figure 65: Nigerian Net Hydroelectric Power Generation (Billion Kilowatt hours), 2001–2009
Figure 66: Nigerian Petroleum Consumption (Thousand Barrels Per Day), 2002–2011
Figure 67: Nigerian Petroleum Production (Thousand Barrels Per Day), 2002–2011
Figure 68: Nigerian Coal Consumption (Thousand Short Tons), 2001–2010
Figure 69: Nigerian Coal Production (Thousand Short Tons), 2001–2010
Figure 70: Nigerian Political Stability Index, 2002–2010
Figure 71: Nigerian Transparency Index, 2002–2011

- Dornier Aviation Nigeria AIEP Limited
- Defence Industries Corporation of Nigeria.

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