Mexican defence industry driven by efforts to combat drug trafficking

Press Release   •   Aug 07, 2013 09:48 BST

Expenditure within the Mexican defence industry, which stands at US$6.5 billion in 2013, increased at a compound annual growth rate (CAGR) of 10.1% between 2009 and 2013.

On a cumulative basis, the country is expected to spend an estimated US$42 billion on its armed forces over the next five years. However, the country's overall defence spending is anticipated to register a CAGR of 11.2% through to 2018, registering a value of US$10.28 billion.

Key factors set to drive the growth of military spending within the Mexican defence market include efforts in combating drug trafficking and the acquisition of advanced defence systems.

Mexico has had a small defence industry since before the Revolution. In 1996 the defence industry consisted largely of the production of small arms, ammunition, propellants, and uniforms in government factories.

As part of the modernisation program launched in 1976, the armed forces redirected their efforts toward attaining a degree of self-sufficiency. The General Directorate of Military Industry drew up plans for production of large military systems, in cooperation with foreign arms manufacturers.

The Mexican defence industry is fairly active producing "soft" items: manuals, uniforms, etc. The "Industria Militar" (owned by the government) produces uniforms and other supplies, and small arms, including G3 machine guns. No equipment such as tanks, aircraft, etc., is manufactured and there are no known plans to produce this type of equipment.

Other than the Industria Militar, the US is the largest defence equipment supplier to Mexico. Mexico does, however, buy from many sources as a result of a decentralized purchasing system. It has bought helicopters from

Canada and France, transports from Spain, fixed wing aircraft from Israel, and trainer aircraft from Finland. Other foreign suppliers include Belgium, Brazil, Chile, and Russia.

As the country lacks a formal offset obligation for arms procurement, foreign OEMs aren't incentivized to set up a branch or subsidiary in Mexico and prefer direct sales when entering the industry, which was evidenced by the EADS contract from the Mexican Air Force to provide CN-235-300M Persuader maritime patrol aircraft; likewise, Textron Marine and Land Systems also won an order to deliver six Motor Lifeboats to the Mexican Navy in 2008.

As the Mexican defence industry comprises only state-owned companies, with little specialisation in weapon categories, the resulting lack of advanced defence technology means that foreign weapon suppliers that intend to conduct business in Mexico face infrastructure challenges.

Although foreign suppliers can bring advanced technology to Mexico, this results in technology imports without offset incentives as the defence offset terms are not clearly defined by the Mexican MoD; consequently, foreign suppliers find pursuing a defence opportunity in Mexico challenging.

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