Angry societies – focus on security and defense

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  • Newly elected governments are likely to increase security and defense spending on the back of recent terrorist attacks, increased geopolitical tensions and natural catastrophes.

  • We expect higher spending in defense, critical infrastructure and crime prevention. Furthermore, cybersecurity is becoming crucial.

The middle class attaches great importance to safety and security. In light of events such as terrorist attacks, refugee crises, natural catastrophes and increased geopolitical tensions, we believe that incoming governments with a strong mandate to restore confidence of the middle class will increasingly invest in security and defense.

Defense spending on the rise

Revenues of global defense companies are forecast to grow by 3.2% in 2017, according to a report from Deloitte, driven by US defense, which has returned to growth. On the back of increased geopolitical tensions, countries such as China, Russia or South Korea have increased their defense budget, and some NATO member countries are under pressure to lift their defense spending closer to the 2% of real GDP target stipulated by NATO. With geopolitical tensions further on the rise, we expect growth in defense spending to continue.

More investment in civil security and critical infrastructure protection

Recent terrorist attacks have strengthened the view that more investments in civil security are necessary to protect public areas such as city squares or stadiums. Investments in access control, surveillance and communication systems, explosives detection or manned-guarding services are likely to see good growth. An important trigger for investments are tougher safety regulations. As an example, according to an EU regulation from 2011, airport baggage screening systems must be upgraded by 2020 to protect from a new generation of threats. With progress in IT (Big Data, Artificial Intelligence), products are becoming more intelligent and connected.

For example, the NVIDIA Metropolis platform can turn anonymized video into a valuable tool and provide facial recognition, vehicle recognition or pattern tracking. While such technologies foster discussion about a potential violation of privacy, it appears that more people are supporting such measures in an era of heightened uncertainty. Further, critical infrastructure such as nuclear power plants, telecom infrastructure or water supply should be better protected given its tremendous importance. While the bulk of investment is for physical security, network security is becoming more important.

Cybersecurity growing more important

According to Symantec, cyberattacks for subversive purposes became a new form of high-profile targeted attack in 2016. As a result, they have gained importance on a political level, with US President Trump calling cybersecurity “an immediate and top priority.” Spending on information security products reached USD 122.5 bn in 2016, according to Statista, and should grow by 10% annually over the next five years. Spending is driven by the deployment of billions of unprotected or little protected Internet of Things (IoT) devices and some 70 million different pieces of malware in global circulation. With an emphasis on improving vital infrastructure, we therefore expect to see an increase in federal spending on security, which should benefit cybersecurity companies.

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