Defence spending will rise as Covid spurs nationalism, says Saab

The Covid-19 pandemic has unleashed more nationalist feelings worldwide causing countries to increase their military spending, according to the chief executive of Swedish defence group Saab.

Mikael Johansson told the Financial Times that defence spending would continue to rise and predicted that some countries would use their recovery plans to boost military capabilities.

“There is no sign of any less market activity or less demand,” he said. “On the contrary, many countries have the feeling that they need to protect societies. There is a little bit more nationalist sentiment.”

European countries have been increasing military spending ever since Russia annexed Crimea from Ukraine in 2014 with the moves particularly pronounced in the Nordic and Baltic region.

Sweden, home to Saab which produces the Gripen fighter jets, in December approved a 40 per cent increase in the defence budget up to 2025 after warning that the security situation in the Baltic Sea was at it most serious since the Soviet Union collapsed three decades ago.

Johansson stressed that the “pandemic is not over yet” and that the defence industry should see a boost from the recovery plans of some countries.

Saab wants to grow internationally and is looking to countries such as the UK, US and Australia for growth as well as establishing operational bases there.

One of the big challenges for the group during the pandemic has been with its supply chain, mostly due to lockdown closing down production facilities in certain countries. “We had problems all over the place last year,” Johansson conceded.

He said that Saab had made a variety of changes to its supply chain, such as financially supporting suppliers, finding an alternative provider or even bringing production of some parts closer to Saab’s own factories.

“It is a bit of everything. We will have to look at it in a more strategic perspective going forward,” he added, stressing that Saab was also building up “ecosystems” around its international hubs.

Many countries were caught out by product or parts shortages during the pandemic and are now trying to correct that for future emergencies, be it a health crisis, military threat or something else.

Johansson said Saab’s work in improving its supply chain had made the company more prepared for such an event: “It doesn’t have to a pandemic next time round, it could be a region that is affected. We will be more resilient in the supply chain, having more redundancy.”

His comments came as Saab reported first-quarter results where sales, profits and its closely watched free cash flow figures all came in ahead of analysts’ expectations.

Sales rose 13 per cent to SKr9.1bn ($1.1bn) from the same period a year earlier, ahead of the average analyst forecast of about SKr8.5bn, while operating profit increased by 7 per cent to SKr597m ($71m), compared with the analysts’ expectation of about SKr430m.

Shares in the Swedish group closed up 6.4 per cent at SKr247.7 on Friday as investors cheered the news.

Saab is aiming for an underlying profit margin of about 7.4 per cent this year, in line with 2020, but has ambitions of reaching 10 per cent in the long term. Johansson recently announced an internal reorganisation to try to improve efficiency and boost margins.