Brazil has not come under military attack in over 50 years, and traditionally favors negotiation over military force to resolve disputes with other countries. The country allocates 41% of its defense budget towards pension payments and is expected to spend only 8% towards arms procurements during the forecast period. Despite this, Brazil's defense expenditure has grown faster than the majority of the world's largest defense budgets, at a CAGR of 20.59% during the review period, and it is expected to register another fast growth rate in the forecast period, at a CAGR of 16.69%. Brazil has the eleventh-largest defense expenditure in the world in 2010 and, due to its strong economic growth during the forecast period, it is expected to become one of the top ten defense spending nations by 2016 (reference see figure).
Brazil has the highest defense expenditure in Latin America, and contributes 48% of the region's total defense expenditure. Brazil is historically a peaceful country, with a negligible threat from its neighbors and a history of non-involvement in armed conflict. Despite Brazil's peaceful stance, it has the eleventh-largest defense expenditure in the world and was one of the fastest growing defense industries in the world. This is mostly due to its protection of natural resources from illegal mining, deforestation and drug trafficking, as well as its high spending on pensions of former military personnel.
As Brazil's long-term focus is the reduction of its reliance on foreign arms suppliers, it is working towards enhancing its indigenous defense capabilities through technology transfer agreements. Brazil's defense expenditure is expected to grow during the forecast period (2011-2016) due to Brazil's aim to become the leading arms exporter in Latin America. Brazil is also expected to spend more on defense over the forecast period due to its current modernization of outdated defense systems, and the country's desire to protect its natural resources. Due to Brazil's strong economic growth during the forecast period, it is expected to become one of the top ten defense spending nations by 2016.
The country's defense procurements are largely focused on the protection of its internal environment and natural resources from illegal mining, deforestation and drug trafficking. The country is vast and geographically diverse and is home to the Amazon River and Amazon Rainforest. It also has large reserves of natural resources, and has recently discovered substantial oil reserves.
The Brazilian Ministry of Defense aims to decrease its dependence on foreign OEMs (original equipment manufacturers) and enhancing its domestic defense capabilities. As such, it prefers to procure defense technology from foreign OEMs, which is then constructed by domestic defense companies. This provides domestic defense firms with technology and equipment which they can integrate into their existing systems. Brazil aims to become a net exporter of defense equipment, and it benefits from low labor costs and large availability of raw materials.
Brazil's homeland security expenditure and product procurement is expected to increase during the forecast period to improve security for Brazil's hosting of major international sporting events. Millions of spectators expected to attend the 2014 Football World Cup and 2016 Olympic Games, which will take place in Brazil, and will require additional security. The country has begun discussions with Israeli security companies in order to receive security services and technology in airports and transport systems.
Brazil adopts a competitive bidding approach for both domestic and international acquisitions. In addition to compliance with the defense requirements, a bidder must offer the lowest price with the maximum technology transfer to win a defense contract from the country. Any defense deal worth more than US$5 million has an offset obligation equivalent to 100% of the contract value. The main entry strategy for foreign OEMs is through the direct offset route, which entails the transfer of technology to local companies and the manufacture and assembly of systems in Brazil. However, a number of foreign OEMs have established manufacturing bases in Brazil, in order to capitalize on its low labor costs and availability of raw materials. As such, Brazil is considered to be an export hub for Latin America.
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