Philippines Defence and Security Report Q1 2013

BMI's Philippines Defence & Security Report Q1 2013 examines the country's strategic position in the Asia Pacific region and the wider world. It provides an overview of the contemporary geopolitical challenges facing the country and the challenges it may face in the future.

The report examines the trends occurring in the country's current and future defence procurement and the order of battle across its armed forces. Its general conclusion is that tensions between the Philippines and China have reached a serious level and that the Association of Southeast Asian Nations (ASEAN) -
which is deeply conflicted over how to handle China - will not be much help to the Philippines as it looks to protect its interests against what it regards as Chinese aggression.

As a result of the security threat from China, the modernisation of the long-neglected Armed Forces of the Philippines (AFP) has become a major political priority for Manila. As well as increasing the 2013 defence budget, the government has earmarked additional procurement funds and has begun investing heavily in new capabilities for its air force and navy. By also engaging in defence diplomacy with a whole range of allies - especially those who are also wary of China - Manila is also making good progress in procuring second-hand military equipment often on very favourable terms.

The United States will be key to this effort, and Manila has signalled that US-Philippine relations are entering a new era by granting US Navy ships permission to start using Subic Bay - a strategically important naval facility from which US forces were evicted 20 years earlier. While US forces will not officially be based at Subic, they are expected to be in the Philippines more frequently and in greater numbers as Manila actively encourages the US pivot to Asia as a hedge against Chinese expansion.

In terms of domestic security, Manila reached a landmark agreement with the Moro Islamic Liberation Front, which it is hoped could bring an end to decades of conflict on the southern island of Mindanao.

The two sides are now embarking on the complex task of establishing a self-governing Muslim Homeland. This process will be difficult constitutionally, and could also be undermined by Muslim groups that do not support the deal. But overall, the conclusion of years of negotiations between Manila and the MILF leadership signifies a very bright moment in the history of the Philippines.

Over the last quarter BMI has revised the following forecasts/views:

- The peace deal with the MILF is discussed in detail, including the implications of the opposition of another separatist group, the MNLF.

- The latest developments in relations between the Philippines and China are also discussed.

Though relations have improved slightly since they hit rock bottom in Q2 2012, talks in September between China's president-in-waiting Xi Jinping and Interior Minster Manuel Roxas failed to break through the impasse surrounding the two countries' conflicting territorial claims.

- In contrast, US-Philippines relations continue to warm. A port call by a US Navy aircraft carrier,
Marine exercises and the decision to re-open Subic Bay to the US military are among the signs that the Philippines has determined to make itself a key enabler in the US's strategic rebalancing to the Asia-Pacific region.

- The Philippines' legislature confirmed the 2013 defence budget of U$2.9bn, an allocation which should enable further procurements. Several surface ships for the navy, and up to 50 aircraft,
including fixed-wing aircraft and helicopters, are in the armed forces' procurement plans. SHOW LESS READ MORE >

Executive Summary 5

SWOT Analysis 7

Philippines Security SWOT 7

Philippines Defence Industry SWOT 8

Philippines Political SWOT 9

Philippines Economic SWOT 10

Philippines Business Environment SWOT 11

Global Political Outlook 12

South East Asia Security Overview 17

The Strategic Outlook For The 2010s 17

Challenges And Threats To Stability And Security 17

Main Islamist Militant Groups In South East Asia 20

Other Regional Threats 24

Sino-US Rivalry In South East Asia 26

The Outlook For South East Asia 27

Security Risk Analysis 29

Asia Pacific Risk Ratings 29
Table: Asia Pacific Regional Security Ratings 29
Table: Asia Pacific State Vulnerability To Terrorism Index 30

Philippines Security Risk Ratings 30

Political Overview 32

Domestic Politics 32

Long-Term Political Outlook 33

Security Overview 36

Internal Security Situation 36

Moro Islamic Liberation Front (MILF) 38

Moro National Liberation Front (MNLF) 40

Abu Sayyaf 40
Table: Philippine Insurgent Groups 42

External Security Situation 42

Piracy 43
Table: Instances of Piracy In South East Asia, 1996-2006 44

The South China Sea 44

Bilateral Military Relations 46

Armed Forces And Government Spending 49

Armed Forces 49

Government Expenditure 50

International Deployments 53

Weapons Of Mass Destruction 54

Market Overview 55

Industry Trends And Developments 56

Arms Trade Overview 57

Industry Forecast Scenario 58

Armed Forces 58
Table: Philippines' Armed Forces, 2000-2008 ('000 personnel) 58
Table: Philippines' Available Manpower For Military Services, 2010-2017 ('000, aged 16-49, unless otherwise stated) 58

Defence Expenditure 59
Table: Philippines' Government Defence Expenditure, 2010-2017 59
Table: Philippines' Defence Expenditure Scenario - Changing % Of GDP, 2010-2017 (US$mn) 60

Defence Trade 61
Table: Philippines' Defence Exports, 2010-2017 (US$mn and % change y-o-y) 61
Table: Philippines' Defence Imports 2010-2017 (US$mn and % change y-o-y) 61
Table: Philippines' Defence Trade Balance, 2010-2017 (US$mn and % change y-o-y) 62

Macroeconomic Outlook 63
Table: Philippines - Economic Activity, 2011-2016 65

Company Profiles 66

Arms Corporation of the Philippines (Armscor) 66

Government Arsenal 67

BMI Methodology 68

How We Generate Our Industry Forecasts 68

Defence Industry 68

Sources 69

Company Profiles
Arms Corporation of the Philippines (Armscor)
Government Arsenal