Published on Feb 20, 2015 in  The Edge Review

This week Malaysia hosts the Langkawi International Maritime and Aerospace Exhibition, timed to coincide with the 9th ASEAN Defence Ministers Meeting.

It may not sound exhilarating, but it means big business for Southeast Asia’s defence industry. This biennial exhibition has been around since 1991, and the 2013 edition saw Malaysian companies secure US$4.3 billion of contracts.

This year is expected to reach even higher levels.

Defence spending in Asia is soaring. According to the Stockholm International Peace Research Institute database, which tracks military expenditures, East Asia recorded its highest ever spending of defence in 2013 at US$318 billion.

Southeast Asia also hit a record with US$38 billion; it is now the second-largest defence import market worldwide.

ASEAN-nation defence budget allocations over the last year show continued increases in what can be described as a spending arms race and may add up to US$45 billion by 2016.

Former Indonesian President Susilo Bambang Yudhoyono increased the 2015 defence budget to US$8.1 billion.

The Thai military junta similarly ratcheted up military expenditure to US$6.1 billion last August.

In 2013, Southeast Asia spent an average of US$359 per capita on defence. Excluding Singapore’s hefty US$1,797 per person, the region still averages US$178. That exceeds spending on education and health and speaks for itself in terms of spending priorities.

For a region without open conflict and relatively minimal traditional security concerns, this record spending on military hardware raises questions. There are two dominant explanations. The first is that no one wants to be left behind, provoking a tit-for-tat buying contest. A second is that the security environment has worsened with a more assertive China, especially its involvement in the South China Sea.

But the real driver for defence spending is domestic, not regional. Southeast Asia’s militaries have faced serious pressures as part of the global trend to modernise, to become more capable and technologically savvy.

The traditional security threats have moved from land to water and the skies, contributing to the buildup of neglected navies and air fleets, with the armed forces themselves recognising how outdated their hardware and institutions are.

The political role of militaries in the region is also shifting. We are witnessing two conflicting trends. The first is the impact of militaries withdrawing from domestic politics.

This has often come with significant pay-offs in terms of equipment and spending, as military spending since 1999 in Indonesia shows. It also involves investments in the professional training of personnel to change the norms and practices within the armed forces. Displacing a military politically costs money.

The second trend is exactly the opposite, the return of the military into power. Thai military spending after the 2006 coup shows this trend. It is not a coincidence that when a military controls the government, it ends up diverting public spending into defence.

The third domestic driver of spending, and arguably the most important, involves profits. Defence spending is one of the most lucrative non-transparent areas for publicsector spending.

Secretive and hidden, military expenditures regularly do not get the same level of oversight. In many cases contracts are determined by contacts and lobbying rather than open bidding.

Military spending has long been a concern for corruption. The list of alleged scandals extend from questions surrounding the purchase of Scorpene submarines in Malaysia to the 2011 pabaon scandal of pay-offs to military officers in the Philippines that led to the suicide of former Armed Forces Chief of Staff Angelo Reyes. The lack of public accountability makes this sector attractive for quick, large gains.

At the same time, regional governments strongly support this sector. From the 1970s Malaysia was among the first to nurture a local defence industry, using public spending and providing support in the form of the Malaysian Industry Council for Defence Enforcement and Security.

The Langkawi exhibition is a part of this effort. The aim was to build up local businesses that could contribute to the inputs and services in the defence sector, from arms and parts to maintenance. The defence sector also became an important avenue for patronage.

In Malaysia, for example, an estimated 30 per cent of spending was allocated to domestic defence companies. Governments are vested in making sure the local industries expand.

Sadly, most of these companies are not competitive without government support. There is an ambition to develop local defence sectors.

A new model of contract allocation has evolved from the example set by Turkey of “defence offset” deals, whereby the contract mandates sharing the technology.

This was evident in the allocation to France’s Thales SA for Indonesia’s air defence system and Singapore’s purchase of Germany’s ThyssenKrupp Marine systems.

This shows promise, but still involves heavy dependence on government interventions. There is a long way to go before most local defence sectors can stand on their own.

There is also a serious disconnect between the funds being allocated for traditional security and the rising non-traditional security threats in the region. Arguably today’s most serious security threats in Southeast Asia involve terrorism, climate change and health risks, issues largely ignored in the defence industry build-up.

As the exhibition unfolds, with contracts signed, deals secured and successes lauded, the potential costs of spending this money on the region’s development and security as a whole are being ignored.