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Chilean Defense Industry

The Chilean Defense Industry – Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017

Chilean Defense Expenditure ($US billion), 2008-2012.

The Chilean defense industry is expected to grow at a CAGR of 9.84% over the forecast period, from an estimated US$2.7 billion in 2013 to US$4 billion in 2017, after the separation of departments such as Carabineros de Chile and Investigations Police of Chile from the Ministry of Defense in 2012. Border disputes and military modernization initiatives will drive growth in defense expenditure during the forecast period. Due to legislature changes, the benefit from the Copper Reserve Law will stop during the forecast period; through the Copper Reserve Law, 10% of state-owned copper producer Codelco’s annual revenues were transferred in equal proportion to the army, navy, and air force for arms procurement.

The Chilean domestic defense industry is still in its nascent stage, and the country relies on imports from various countries to fulfill its weapons procurement needs. Chilean defense imports by volume ranked thirteenth in the world during 2005–2009, and Chile’s largest import trading partners are currently the US, Spain, Germany, and the Netherlands; the US has emerged as the main import trading partner with a substantial increase in share, from 16% during 2006–2010 to 30% in 2010 alone. Aircraft and ships constituted the majority of Chilean imports during 2005–2010, followed by armored vehicles and missiles.

With an estimated market value of US$2.5 billion in 2012, Chile is one of the largest defense markets in Latin America; however, defense expenditure has declined steeply in 2012 due to the transfer of the Carabineros de Chile and Investigations Police of Chile to the Ministry of Interior and Public Security. Furthermore, due to an aggressive modernization strategy, border disputes, and persistent threats from drug traffickers, its defense expenditure is expected to grow over the forecast period and to reach US$4 billion by 2017. With the removal of heavy funding from the Copper Reserve Law for defense from 2012 onwards, the country’s economic growth is expected to drive the size of the Chilean defense industry. Capital expenditure will see a marginal increase due to the country’s heavy procurement pattern during the review period; the majority of the expenditure will be allocated for the army and navy. The Chilean defense industry is expected to experience a high growth rate over the forecast period, making it one of the fastest-growing defense markets in the world over the next five years.

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Major Points From Table of Contents

3 Market Attractiveness and Emerging Opportunities
3.1. Defense Market Size Historical and Forecast
3.1.1. Chilean defense expenditure is expected to register growth over the forecast period
3.1.2. Border disputes and military modernization to drive defense expenditure
3.2. Analysis of Defense Budget Allocations
3.2.1. Revenue expenditure account for majority of the Chilean defense budget
3.2.2. Defense spending as percentage of GDP expected to increase over the forecast period
3.2.3. Army and navy expenditure account for the majority of the Chilean defense budget
3.2.4. Highest budget allocation to land forces compared to other armed forces
3.2.5. Capital Expenditure in navy spending will increase in forecast period
3.2.6. Other defense expenditures to continue growing over the forecast period
3.3. Homeland Security Market Size and Forecast
3.3.1. Homeland security budget projected to grow over the forecast period
3.3.2. Carabineros de Chile accounted for majority of homeland security expenditure
3.3.3. Drug trafficking and threat from Mapuche community to drive homeland security budget
3.3.4. The Chile considered at ‘some risk’ of terrorist attack
3.3.5. The Chile experienced low terror activity during the review period
3.4. Benchmarking with Key Global Markets
3.4.1. Chilean defense budget expected to register consistent growth over the forecast period
3.4.2. Chilean military expenditure is limited compared to countries with the largest defense expenditure
3.4.3. The country allocates a significant percentage of GDP towards defense expenditure
3.4.4. Chile ranked eighteenth among top arms importing countries for 2007–2011
3.4.5. Chilean arms exports meager compared to top arms exporting countries for 2007–2011
3.5. Market Opportunities: Key Trends and Growth Stimulators
3.5.1. Peacekeeping missions and joint trainings to drive modernization of weapons
3.5.2. Demand for fighter aircraft to increase
3.5.3. The need to protect a long coastline will drive demand for naval vessels
3.5.4. Increased demand for military equipment to counter irregular warfare is expected
3.5.5. Heavy dependence on international trade through the sea route to drive demand for AV-8B Harriers
3.5.6. Vulnerability to natural disasters and sea crime expected to generate demand for unmanned aerial vehicles (UAVs)
3.5.7. Threat of asymmetric warfare to fuel demand for light attack and reconnaissance aircraft

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