Arms makers’ shares jump as global defence spending rises

By Sudeep Sonawane
Surat, August 8, 2022

The 166-day Ukraine-Russia War that started February 24 entered its sixth month in the last week of July. The hostilities have benefited the world’s top weapons and defence systems makers. Profits and shares of several arms makers have increased in the last five months and 15 days as demand for supplies increased among active and latent belligerents.
French aerospace and defence company Thales’ share has jumped 35.84 percent from €80 on February 3 to € 126.25 on August 2. In the same period, British arms maker BAE Systems share price increased by 40pc from £572.60 to £802.12 (as on August 3) while Lockheed Martin’s share increased 38.61pc from $389.70 to $428.78. Arlington, Virginia based US unmanned aerial vehicles maker AeroVironment’s share rose 62.23pc from $56.24 to $91.24.
World military spending continued to grow before the Ukraine conflict. In 2021 arms buying touched an all-time high of $2.1 trillion. This was the seventh consecutive year that spending increased, according to the Stockholm International Peace Research Institute (SIPRI).
The Swedish research institute says the United States, China, India, the United Kingdom, and Russia were the top five largest defence spenders in 2021. Together the five countries accounted for 62pc of global defence spending.
In a report published earlier by the institute, Senior Researcher at SIPRI’s Military Expenditure and Arms Production Programme, Dr Diego Lopes da Silva, says, “Even amid the economic fallout of the Covid-19 pandemic, world military spending hit record levels. There was a slowdown in the rate of real-terms growth due to inflation. In nominal terms military spending grew by 6.1pc.”
The US continues to lead in spending and defence research in its pursuit of preserving its technological superiority over rivals. The US military spent $801 billion in 2021, 1.4pc less then it spent in 2020. The US military burden decreased slightly from 3.7pc of GDP in 2020 to 3.5pc in 2021. Its funding for military research and development rose by 24pc between 2012 and 2021, while arms procurement funding dropped 6.4pc over the same period. In 2021 spending on both decreased.
A distant second in defence spending, China marked $293 billion for its military in 2021, an increase of 4.7 per cent compared with 2020, according to the SIPRI report. A catalyst to China’s defence spending lies in its ambitions in the South China Sea.
This in turn increased military spending of Japan and Australia. Japan added $7.0 billion to military spending to its 2021 budget. This increased its spending by 7.3pc to $54.1 billion, the highest annual increase since 1972. Australian military spending too increased in 2021 by 4pc to reach $31.8 billion. The three-way defence pact between Australia, UK and US will deliver eight nuclear-powered submarines to the Aussies, estimated at cost of $128 billion.
Oil and gas revenues fuelled Russia’s global aspirations and its military spending that rose 2.9pc in 2021 to $65.9 billion. This hike coincided with its troop deployment along the Ukrainian border. The consecutive rise in Russia’s military spending reached 4.1pc of its GDP in 2021. The growing war bill and sanctions clamped on it will tell a grim story in Russia’s year-end fiscal statement this year.
Besides the army, air force, navy, and intelligence agencies increasing defence-spending of a country at war, several other sectors gain from a war’s beneficial ripple effects. Though the circumstances of new job opportunities, trade and business deals are not pleasant. Rebuilding peoples’ lives and a country’s destroyed airports, bridges, public and private buildings, dams, factories, roads, and railways are unhappy tasks that drain finances and resources.
This week’s trans-Pacific sabre-rattling and diplomatic stand-off between the US and China following US House Speaker Nancy Pelosi and her congressional delegation’s visit to Taiwan has riled Beijing and sent global stock markets plummeting. Multinational arms makers will not complain about the diplomatic war of words in South China Sea while ordinary citizens will continue quiver rising commodity prices and uncertainty.

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