Market Report, "Serbia Defence & Security Report 2016", published

From: Fast Market Research, Inc.
Published: Tue Mar 01 2016

Serbian defence spending will remain modest in 2016, amid the government's ongoing fiscal consolidation programme. Despite the armed forces' requirements to replace much of its ageing equipment - particularly in the aerospace segment - new procurement will therefore be limited. However, military expenditure will increase gradually in coming years as economic conditions improve, reflecting persistent security risks stemming from unresolved disputes with neighbouring countries, separatists and ultra-nationalist groups - as well as Belgrade's aim to strengthen Serbia's contribution to international peacekeeping missions. Serbian defence manufacturers, most of which specialise in the ground segment, will , due to the lack of domestic demand for their products , remain export-focused. Although we expect the local defence industry to expand design and production capabilities in cooperation with foreign companies over the next decade, Serbian purchases of technologically advanced equipment such as fighter jets will still need to come from abroad, as such items take years and significant amounts of funding to develop.

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The Serbian government is continuing its fiscal consolidation programme into 2016, and consequently, we do not expect significant growth in the defence budget this year, despite the SAF's long-standing requirements to replace ageing equipment. We forecast Serbian defence spending to come in at USD809.5 in 2016 - a minimal increase from the estimated USD808.5 in 2015.

Serbia signed a new agreement with Kosovo in August 2015, described as a 'landmark' breakthrough in negotiations by EU officials. However, we expect deep-rooted national sentiment on both sides to obstruct the implementation of the deal on the ground for the foreseeable future. Belgrade's refusal to recognise Kosovo's independence will remain a key obstacle to Serbian EU membership, and the risk of conflict between the two sides - although unlikely - will remain the most prominent threat to Serbia's security environment over the next five years.

Serbia is considering SAF participation in EU battle groups. In October 2015, SAF Chief of Staff General Ljubisa Dikovic reportedly stated that Serbia may contribute to the Greece-led EU HELBROC battle group, which also includes Bulgaria, Cyprus and Romania.

Serbia's Yugoimport displayed a range of new defence products at the Partner 2015 exhibition in Belgrade, including the Sova light attack/trainer aircraft; the BR-VZ 128mm M15 air-to-surface unguided rocket; the Premax 39 fast patrol boat; the PR-15 ground surveillance radar; and the ALAS-C missile, jointly developed with the UAE's EARTH. The defence ministry announced in Q315 that both the LRSVM Morava multiple rocket launcher and the Lazar II 8x8 multipurpose armoured vehicle would be entering serial production in 2016.

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