BMI's Executive Summary

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Despite the bloody conflicts of the 1990s and the sometimes uneasy peace that followed, in 2007 it was clear that the process of Balkan fragmentation had not necessarily run its full course – with important implications for Serbian defence and security. In 2006 Serbia and Montenegro, the remaining rump of what was once Yugoslavia, split into two separate states, a division which took place peacefully. By late 2007 it looked as if the Serbian province of Kosovo, under the control of a UN mission following the war of 1998-99, was on the verge of making a unilateral declaration of independence. Such a move, most likely supported by the US and the EU, would pose a serious dilemma for Serbia. The coalition government would need to decide what to do about the Serb enclave within Albanian-dominated Kosovo, and would come under pressure from nationalist sentiment to make some kind of hardline response. Such a response might include developing tighter links with the Serb Republic within Bosnia. There was a danger of a new 'domino effect' that would heighten ethnic and regional tensions among small Balkan states, each lacking the size or the economies of scale to develop efficient and sustainable defence industries of their own. To add to the mix, the tentative opening of a pathway for eventual Serbian membership of the EU, achieved through the initialling of a Stability and Association Agreement (SAA) in November 2007, might also be at risk in an upsurge of new regional tensions.

Following the fall of Slobodan Milošević and the re-integration of Serbia into the international community, the security situation improved significantly. Nonetheless, continued uncertainty over the status of the province of Kosovo, problems with the ethnic Albanian minority in southern Serbia and trans-national organised crime in the Balkans have all contributed to continued instability.

The Serbian and Montenegrin defence industries were in a state of flux following the union's split in 2006 and the creation of two new republics. They are, however, likely to continue in the same direction as the union prior to the split. The union was keen to reform and modernise its armed forces, and both new states are likely to continue this trend. However, the lack of consensus in the political elite, as well as some reluctance within the military itself, has led to only slow and tentative progress. Under the split, Serbia maintained the membership of international organisations. Montenegro will now work towards adjusting its armed forces to meet NATO standards. The military industrial complex was already struggling to recover lost production capacity and potentially lucrative contracts, after the destruction of recent wars and international arms embargoes – the split is likely to only exasperate the struggle for the medium term. When they find their feet both defence industries will have to attempt to increase competitiveness on the foreign market through the separation of civilian and military programmes, working towards cost-effectiveness.

Competitive Landscape for European Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's European Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: