Malaysian defense expenditure increased at a CAGR of 6.37% during the review period and valued US$4.96 billion

Malaysian defense expenditure increased at a CAGR of 6.37% during the review period and valued US$4.96 billion in 2013. The focus of the Malaysian government will be on the modernization of its armed forces, participation in peacekeeping operations, and counter terrorism activities.The Malaysian government fulfills most of its defense needs by importing military equipment from the foreign countries such as Russia, Germany, France, and Spain. The overall exports of the country during the period 2008-2012 were negligible, resulting in poor inflow of foreign investment. During the forecast period, the defense exports of the country are expected to remain low as a result of less joint development and collaboration programs, which is expected to remain the key challenge for the Malaysian defense industry during the forecast period.
The Malaysian defense budget, which is estimated at US$4.9 billion for 2013, is lower than the majority of Malaysia's neighbors, with the Philippines being one of the few countries with a lower defense budget, and this relatively small defense budget frequently deters investors from venturing into the country. Moreover, the Malaysian government has made offsets mandatory for all defense procurements exceeding US$13 million, and in an attempt to encourage domestic defense development, the Malaysian government awards additional significance to direct offsets; however, due to the lack of sufficient investment and a shortage of skilled Malaysian labor, foreign OEMs are unable to transfer sophisticated technology to domestic defense companies. The combination of the factors outlined above reduces the attractiveness of the Malaysian defense industry for foreign OEMs.
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