During the review period (2008-2012), French defense expenditure registered a CAGR of -0.52%, and is valued at US$55.18 billion in 2012. During the forecast period (2013-2017), the country’s defense expenditure is anticipated to grow at a CAGR of 3.3%. However, the French Ministry of Defense has announced that the country is expected to reduce its defense expenditure during 2012–2013, in an effort to reduce the country’s budget deficit. This is expected to lead to a decline in defense expenditure during this period. However, from 2013, defense expenditure is expected to increase at a CAGR of 3.3% to reach US$64.91 billion by 2017 (see graph below for reference).
France imports 30%, of which 20% is procured from other European countries such as Italy and Austria. The country imports advanced technology equipment such as sensors, engines and artillery and engages in technology transfers. Historically, the US was the largest supplier of arms to France; however the country has recently begun to import from European countries such as Italy, Austria and Germany.
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Published: June 2012
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France has no offset obligations for defense imports and follows a restrictive foreign investment policy, which does not allow the foreign acquisition of domestic defense companies without governmental approval. The French foreign direct investment (FDI) policy restricts investment in the defense sector, as prior approval from the French government is required for such an investment. This restrictive foreign investment policy, coupled with a preference for domestically produced defense equipment, ensures that the domestic defense industry is protected from the potential competition of global companies.
France has announced the implementation of defense budget reductions in order to reduce the country’s fiscal deficit. The majority of the defense products manufactured by the domestic defense industry are procured by the government; therefore the proposed reductions will have an adverse impact on the domestic defense industry, which will be forced to venture into foreign defense markets. The foreign defense companies that cater to French defense requirements are challenged by both strict limits on foreign investment policy, and a defense policy that prioritizes domestically manufactured goods.
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