The Space Sector in Transition
2013 will see the first decline in government spending for space following 12 years of consecutive growth. Space expenditures worldwide have flattened at around $70 billion since 2009 and we expect them to decrease due to fiscal policies exerting continuous pressure on public finances; improvement is not foreseen before 2015.
The global picture does not look all bad, however, and many opportunities remain open in the international space market. According to our new report, “Government Space Markets World Prospects to 2022,” government spending on space experienced a peak in 2012 with $72.9 billion, a non-negligible increase compared with 2011, which can be attributed to the increased activity of countries such as Russia, China, India and new world or regional leaders that compensated for budget uncertainties affecting North America and Europe.
Looking backward, four periods can be identified for government space expenditures worldwide.
There was a growth phase in the 1980s with the combined large investment from the U.S. and the Soviet Union in their space programs and the development of the European and Japanese space programs. Between 1980 and the early 1990s, global space budgets increased from roughly $10 billion to $40 billion.
A stagnation phase followed in the 1990s with the collapse of the Soviet Union’s space program, the significant reduction of investments from the U.S. Department of Defense (a 40 percent cut in five years) and flat spending in Europe. China and India emerged as new players and started to structure their space programs. This period saw the boom of the commercial satellite market driven by satellite communications and broadcasting motivating most satellite industry players to focus on commercial opportunities.
Next was a global expansion phase in the 2000s where the sector experienced a unique combination of positive factors driving public investment in space to $70 billion at the end of the decade. Historical players recommitted funding in their space programs, especially the United States, which quadrupled its military space budget between 1995 and 2009. The period also benefitted from the dynamics brought by the emergence of new space powers such as China and India, regional leaders such as Brazil and South Korea, and space nations just starting to build capabilities. The development of space programs in an increasing number of countries has been a major achievement of the past decade, as space became a worthwhile investment for governments willing to acquire independent assets to help their national social, economic and technological development as well as contributing to their national defense and security programs.
The current decade should mark a transition phase as most historical players reduce their effort due to budget crisis or cycles in their space programs, and new leading and emerging space nations sustain their investments. The space sector is experiencing profound structural transformation and a few indicators help to size current changes.
- In 2003, the top three civil space programs (U.S., Europe, Japan) accounted for 90 percent of the world’s civil space expenditures. In 2012, their share accounted for only 64 percent, illustrating the decentralization of space investment worldwide.
- Fifty-seven countries had a reported space program in 2012, a continuously growing number; there were 42 countries in 2006 and 26 in 2001.
- Asia will surpass Europe as the second-largest region for public space spending as early as this year, proving its strong dynamism driven by new world and regional leaders. The Central Asia/Commonwealth of Independent States region is anticipated to become the third-largest starting next year, supported by the Russian government’s commitment to its national space program.
- Asian countries will dominate satellite launches planned for the next 10 years, accounting for 34 percent of total launches. More than half of these satellites will be for Earth observation.
What we observe here is not unique to the space sector. In its “Science, Technology and Industry Outlook 2012,” the Organisation for Economic Co-operation and Development (OECD) noted that “emerging countries in Asia, including Korea and China, have used the opportunity to demonstrate their strengths in innovation. They continue to outperform developed countries, relying on structural strengths that helped them face the crisis.” This is a situation largely comparable to space. In another report last year, the OECD forecasted that China will surpass the eurozone as the world’s second-largest economy in 2013, and the United States in 2016. India will surpass Japan next year as well.
The emergence of new world and regional leaders and the growing interest from many new countries in space technologies and applications together present new opportunities for institutional and industry cooperation. This is very good news for the space sector. It is more than export control restriction; the size of the U.S. government market did not motivate contractors to compete on foreign commercial opportunities. Industry players facing shrinking domestic opportunities now look to expand on the international market, change their internal processes and innovate to be more competitive.
Market mutations, innovation in a period of crisis, changes in business models, emergence of new players — these factors will all likely contribute to the reshaping of the space industry at national and international levels. By the end of the decade, global government space spending should recover growth with a cleaner public finance environment, a new procurement cycle and research and development in historical leading space nations, and a new investment phase from new world/regional leaders and nascent programs. By that time, the international landscape will be radically different from what it was 10 years ago.
Steve Bochinger is the chief operating officer of Euroconsult and editor-in-chief of the research report “Government Space Markets, World Prospects to 2022.” He has led and contributed to a number of consulting missions for public institutions, military agencies, space agencies, industry companies and satellite operators in the space and satellite communications markets.