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Tag: military spending

  • Gripen Fighter Jets Deal Nixed by Swiss Voters

    Saab Group was dealt a major blow this week as Swiss voters halted a plan to order the company’s Gripen fighter jets. The deal had been worth an estimated $3.5 billion.

    The deal stems from a February 2013 agreement between the Saab, the Swedish Defence Materiel Administration, and the Swiss Defense Ministry. Under the terms of the deal Saab was to have developed and provided 60 Gripen E fighter jets to Sweden and 22 of the jets to Switzerland. According to Saab, the jets bound for Sweden are still in production and on schedule for delivery in 2018. Saab is also in the process of formalizing a deal to deliver 36 Gripen’s to Brazil.

    A majority of Swiss voters (over 53%) voted against the proposed Gripen deal. According to a Bloomberg report, opposition to the deal hung on estimates that the jets could cost more than $11 billion throughout their period of service. The Swiss Defense Ministry has indicated that it will follow the directive of the vote and cancel the deal.

    “Our focus is helping countries protect their ways of life, which we do by serving the global market with world-leading products, including Gripen,” said Hakan Buskhe, CEO of Saab. “We have seen in Switzerland support for Gripen, including through its evaluation and selection over competitors and in the votations in the Swiss Parliament last year.

    “We respect the process in Switzerland and do not comment on today’s outcome in the referendum. Following selection in 2011, hundreds of business relationships in Switzerland have been created through the Swiss Industrial Participation program, which was created in relation to the Gripen E procurement. These are relationships we look forward to continuing as long as possible,” adds Håkan Buskhe.

    Saab stock fell significantly following the vote, falling as much as 7% according to Bloomberg.

    In addition to the Gripen vote, Swiss voters also rejected a proposed law to set their country’s minimum wage at almost $25. The raise would have given Switzerland the highest minimum wage in the world.

    Image via Saab

  • Defence Budgets to Rise, Shift Toward Middle East

    The global economic downturn that began in 2008 didn’t just affect consumer businesses. The effects of the recession reached all the way to the most sacred of government spending initiatives – military spending. Global defense budgets have been falling since 2009.

    Now, with many economies recovering, defense budgets are back on a rising trajectory. Market research firm IHS today released a report predicting that defense budgets in 2014 will rise year-over-year. The IHS report estimates that global defense spending will hit $1.547 trillion this year, up 0.6% from the $1.538 spent last year.

    The report also shows that much of the increase in defense spending will come (like the consumer tech market) in emerging economic markets. China, Russia, and countries in the Middle East are all set to significantly increase defense spending in the coming years while western nations are predicted to continue seeing defense budget decreases.

    “We have seen a rapid acceleration of defense spending in the Middle East since 2011,” said Fenella McGerty, senior analyst at IHS. “Four of the top five fastest growing defense markets in 2013 were Middle Eastern countries. If we stretch to look at the top 10 fastest growing markets, six of the 10 were in the Middle East. Oman and Saudi Arabia in particular have seen rapid growth of over 30% between 2011 and 2013. Since 2011, Oman’s defense budget has now increased by 115%, from $4.7 billion to $9.2 billion in nominal terms.”

    Image via U.S. Department of Defense

  • Reuters: Pentagon Bookkeepers Wasted $8.5 Trillion

    Earlier this summer, Reuters authors Scot J. Paltrow and Kelly Carr conducted an investigation into the Pentagon’s payroll practices; in their report, the authors alleged that an unbelievable level of dysfunction is causing financial hardships for soldiers. Today, the news does not get any better as Reuters published a second expose, this one even meatier than the first.

    The second part of the Reuters investigation, written by Scot J. Paltrow, claims that every month, soldiers working for the Defense Finance Accounting Service insert bogus payment numbers into their bookkeeping — in an effort to match the military’s books with the Treasury’s.

    The practice is referred to as “plugging,” and one naval officer, Linda Woodford, told Reuters that she spent the last 15 years of her career inserting those fake numbers into the books. “[A] lot of times there were issues of numbers being inaccurate… We didn’t have the detail … for a lot of it,” she said.

    The supervisors of the DFAS, far from disapproving, were actually expected to approve each plug, sometimes thousands of them in a single month. The Treasury would send the books back if the numbers didn’t match.

    Reuters discovered that the practice of plugging is actually standard operating procedure, and that DFAS is hardly the only military accounting firm to be responsible; apparently, Pentagon record keeping is so terrible, that making stuff up to fill in the blanks is just another day at the office.

    The Defense Department’s 2012 budget was $565.8 billion (larger than the next 10 largest military spenders combined). As to whether that money actually reached its intended destination, we will never know.

    “Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date,” Paltrow writes.

    One example of poor supply practices: between 2003 and 2011, the U.S. Army lost $5.8 billion in supplies as it moved equipment between regular units and reserve units.

    Because of the Pentagon’s sheer ineptitude, it is the only government agency that refuses to comply with the law requiring an annual financial audit of every government organization. A sum of money greater than China’s economic output from yesteryear, $8.5 trillion, has been given to the Pentagon since 1996. That amounts to over $25,000 per living person in the United States.

    The story is far from a cheerful anecdote, but if you’re still interested, check out the full report here.

    [Image via YouTube]