Poland is one of the few European Union countries that not only has maintained the level of its defense spending since the beginning of the global financial crisis but even plans to increase it in the coming years. According to the latest government plan, by 2022, the Polish Army will have spent zł.139 billion on modernizing is equipment. So far, the highest amount spent on modernization in any one year has not exceeded zł.8 billion.
PZL Świdnik's AW149 is one of the helicopters being considered by the Polish Army
Courtesy of AugustaWestland
According to Poland’s constitution, the country has to spend at least 1.95 percent of its GDP on defense, but the constitution does not say how much of that sum should be earmarked for buying new equipment and how much on wages, training and other expenses. With the number of Polish troops shrinking in recent years (it fell below 100,000 soldiers in 2012), more money has been freed up to better equip those who remain.
In recent years, the Polish Army has spent between 15 and 25 percent of its annual budget on upgrading equipment – now the share of the budget designated for equipment modernization will be set at around 33 percent. The money has been earmarked for a new missile defense system, new vessels for the navy, new tanks, new training equipment, 70 new helicopters, unmanned aerial vehicles (drones) and new state-of-the-art equipment for ground troops.
Poland desperately needs to invest in upgrading its defense equipment and infrastructure, since most of what the military uses now dates back to the days of the Warsaw Pact. According to the General Staff of the Polish Armed Forces, currently only 22 percent of the military’s machinery can be considered “modern.” That number should increase to 65 percent by 2022.
Many Central European countries which are NATO members will be forced to curb their defense budgets in order to trim public spending. The Czech Republic plans to spend 1.11 percent of its GDP on defense in 2013 (the lowest level since 1993), while Slovakia will spend even less than 1 percent of its GDP this year on its military. Romania raised its defense budget by 1 percent last year, but in 2010 it slashed it by a staggering 13 percent.
“Many governments believe that their countries are sufficiently protected by NATO membership, so they decided to reduce defense spending and use these funds to counter the effects of the economic crisis,” professor Marek Jabłonowski, a political scientist from the University of Warsaw, was quoted by Defensenews.com as saying.
Poland, however, will increase its spending and with billions at stake, defense companies from all over the world are trying to get a piece of the pie.
Poland ground troops should get new equipment soon
Courtesy of Polski Holding Obronny
That might not be so easy however, as Poland’s defense ministry has clearly stated that the bulk of the contracts will go to Polish companies or foreign firms working with Polish partners. Contracts will also go to foreign entities that offer technology transfers or place production in Poland. The Defense Ministry expects that Polish companies will take up to 80 percent of future contracts (compared to 50 percent currently).
Foreign products, domestic production
In a recently opened tender for 70 helicopters, worth €2-2.5 billion, two out of the three bidders already have Polish subsidiaries. Sikorsky Aircraft Corporation owns PZL Mielec and makes its flagship Black Hawk model in the latter’s factories. The second firm in the running is AugustaWestland, which owns PZL Świdnik and wants to sell helicopters made in Poland and co-designed by Polish engineers. The only company without a Polish-based subsidiary, Pan-European EADS, has declared that if it wins the tender it will produce its helicopters in Łódź.
Polish Defense Minister Tomasz Siemoniak has already announced that Poland will favor companies that can carry out the projects here and which use Polish components and technology.
“The ministry obviously can’t demand that only Polish companies can place bids, but can stipulate, for example, that the equipment has to be serviced within 24-hours, or that spare parts have to be built in Poland,” said Sławomir Kułakowski, president of the Polish Chamber of National Defence Manufacturers.
“This way foreign companies will be forced to place some of the production here. We have to remember that the ministry gets its funds from the companies’ taxes, among other sources, so it’s logical for the state to encourage them to invest in Poland. It’s a matter of national interest,” he added.
The bulk of future tenders is expected to go to Polski Holding Obronny (PHO, formerly Bumar), a huge Polish military consortium that encompasses 40 different companies. Still, the state-owned company is looking to expand its portfolio and is in merger talks with armaments producer Huta Stalowa Wola. The decision on the possible merger of the two companies will be announced by the end of September. Deputy Treasury Minister Rafał Baniak said that his ministry, which holds controlling stakes in both companies, believes the merger is the best solution.
Still, PHO is unable to bid in every tender since it doesn’t have such a wide portfolio of products. Mr Kułakowski expects that the earmarked zł.139 billion will be split in three ways. One part will go to state-owned companies like PHO, another to other private Polish companies, while the last portion will go to foreign entities with investments in the country. It’s still too early to say exactly how the money will be divided between the three groups, he said.
It is worth remembering that the zł.139 billion figure is still just an estimate. The final amount of defense spending on modernization through 2022 depends on Poland’s economy. Since the Defense Ministry’s budget is nearly 2 percent of the country’s GDP, if the economy continues its current slow growth, the actual level of expenditure could end up being much lower.
But that hasn’t discouraged weapons producers, who hope that the next decade will see a huge boost for the sector. “Even though the [zł.139 billion] figure is an estimate, it gives companies some point of reference. There is a plan and these funds will be allocated. ... Companies can plan their investments accordingly, invest in R&D, knowing that the money is out there,” said Mr Kułakowski.
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