__________________________________________________________________________________________________________________ Published by the Research and Special Studies Division, National Defense College of the Philippines For inquiries, please call 8911-6001 local 4591/4558 * www.ndcp.edu.ph 1 Opportunities and Challenges facing Philippine Defense Industrial Development Erick Nielson C Javier Introduction For decades, successive Philippine administrations have attempted to spur the growth of Philippine defense industries to achieve self-reliance in defense equipment, only to be stifled by various issues affecting the entire defense enterprise. The lack of political will, limited financial resources, technological deficiencies and tedious bureaucracy were identified in the available literature as the underlying reasons why previous attempts to develop the Philippine defense industries have not advanced. 1 There is also a dearth of studies examining such a topic from a political-economy and macro-economic lens. This paper seeks to fill in such a research gap. It hopes to provide answers to the following questions: • What were the past attempts to implement a Self-Reliant Defense Posture in the Philippines, what happened, and why did it not materialize? • Is there space in the global or regional defense markets for the Philippine defense industry? If so, which niches? • What subsectors/industries can be feasibly supported using private-sector investment or private-public partnerships, if at all? • What are the prospects for a Philippine defense market to generate demand sufficient to support the defense industry, especially in an immediate environment post-COVID-19? This paper is divided into four sections. The first section provides an overview of the global defense industrial market, its structure, and recent developments. The second section will elucidate the previous and current Philippine efforts to create a defense industry. The third section will tackle the issues and challenges hounding the Philippine defense industrial development, namely, a stagnant domestic demand, gaps in Philippine understanding of defense economics regarding complex weapons, and an overreliance on real estate-based and private sector-driven solutions. The last section will consider the prospects for growth and identify some policy recommendations toward crafting a more coherent defense industrial policy and strategy. There is no coherent definition of “defense industry” in Philippine official documents. The 2018 National Security Strategy’s Annex B identified several “strategic industries” considered vital for national security and economic development, but such a term included industries which have no direct link to defense, such as agriculture, banking, tourism and services. 2 For purposes of this paper, “defense industry” refers to the economic sector responsible for development, production and maintenance of weapons systems and components of these systems. Related to this, the defense industrial base sector is the “industrial complex that enables research and development, as well as design, production, delivery, and maintenance of military weapons systems, subsystems, and NDCP Executive Policy Brief A PUBLICATION SERIES ON NATIONAL SECURITY ISSUES 21 JULY 2021 BY THE NATIONAL DEFENSE COLLEGE OF THE PHILIPPINES No. 2021-06