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Getting The Deal Through

Global overview

Elizabeth Reid

Bird & Bird

Thursday 30 January 2020

As the curtain closes on 2019, the world turns to face the prospect of another year of geopolitical turmoil across the globe. The forging and breaking of geopolitical alliances no longer takes place behind closed doors; instead, it is visible to all on Twitter. Inter-state conflicts are played out not just by boots-on-the-ground, but through cyberattacks and data theft. The boundaries of acceptable geopolitical conduct are blurred and their definition will not be found in treaties or conventions, but by how far one’s neighbours can be prodded before they hit back. 2019 stands as a stark example of the new art of statecraft. Among all of this, large-scale military conflict remains a very real threat.

Notable flashpoints included escalation of the Sino-American trade war following President Trump’s imposition of tariffs in 2018; as well as the continued enigmatic relationship between North Korea and the United States, which moved quickly from Twitter insults to handshakes at the DMZ then descended just as swiftly back into a war of words with the North Korean Foreign Ministry’s ‘dotard’ remarks. With the continued imposition of economic sanctions, Deputy Foreign Minister Ri Thae Song has suggested that North Korea will resume long-range missile tests. Consistent with the light-hearted yet sinister undertones to the US-Pyongyang relationship, the minister then noted that ‘it is entirely up to the US what Christmas gift it will select’.

Meanwhile, tensions continued to rise between the US and Iran. The tension was played out both diplomatically and on the ground. The US pulled out of the 2015 nuclear agreement and began tightening economic sanctions. May then saw an alleged Iranian attack on oil tankers anchored in the Persian Gulf, and June a torpedo attack on an American oil tanker in the Gulf of Oman. Both the US and Iran have made clear their preparedness and willingness for all-out war.

2018 saw global defence and security procurement spending rise to its highest level since the Cold War and, given the above examples, it is no surprise that this trend continued in 2019. The US and China continue to dominate global defence spending with heavy allocation of their budgets towards large-scale defence procurement. The Stockholm International Peace Research Institute report that the US was, unsurprisingly, still the biggest spender at $649 billion. Still with an appetite for more, on 12 December 2019, the US House of Representatives approved a $738 billion military spending bill which, notably, has given life to Trump’s long-standing ambition for a US Space Force. The bill increases US defence spending by approximately 2.8 per cent (or $20 billion) and is set to prepare the US for battles in the final frontier.

However, 2019 was unique in that it saw states that were previously considered sedentary in the defence sector beginning to funnel money into defence procurement under policies of passive deterrence. The close of 2018 saw a Swedish election campaign with a sharper focus on defence, with all of the main parties campaigning on platforms of strengthening national defence. Finland, likewise (not a member of Nato and sharing an 830-mile border with Russia) has increased its military coordination with the US and Nato. Indeed, the Finnish Ministry of Defence announced on 16 August that its draft budget for 2020 would be €3.16 billion (1.26 per cent of GDP). This represents a €24 million increase compared with its 2019 defence budget.

Australia, too, as a not-too-distant neighbour of China, has upped its defence spending. The 2019-20 defence budget was increased by A$2.3 billion to A$38.7 billion and already A$175.8 billion has been projected for 2022–23. This budget brought with it an increased focus on cybersecurity with the establishment of cyber ‘sprint teams’ and a cybersecurity response fund following a cyberattack on the information technology systems of the Australian parliament in February.

The above geopolitical backdrop means that defence and security procurement inevitably involves the procurement of high-value, technologically complex, mission-critical assets. Technology is now disrupting the defence and security sector on an unprecedented scale, with big data, artificial intelligence and connectivity all bringing new challenges. Hybrid warfare strategies and unconventional domestic threats mean defence and security contractors are having to add new technological capabilities to their traditional offerings. Leveraging of commercial innovation is fundamentally important for any procurement entity. Questions are often asked as to whether defence and security procurement processes are fit for the purpose of acquiring complex technology.

To this end, we are pleased to present the fourth annual edition of Getting the Deal Through – Defence & Security Procurement.

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