Tuesday, April 27, 2010

Pakistan links defence export drive with private sector growth

Pakistan is aiming to increase defence exports as part of a campaign to drive the expansion of its private sector and provide much-needed support to state-owned enterprises under increasing pressure from the demands of the 'war on terror', the head of Pakistan's Defence Export Promotion Organisation (DEPO) has told Jane's .

Major General Muhammad Ijaz Hussain Awan, director general of DEPO, said at the Defence Services Asia (DSA) Exhibition and Conference in Kuala Lumpur, Malaysia, on 19 April that defence exports of Pakistan-made equipment had grown to more than USD400 million annually by 2009 and that continued growth is being targeted in Southeast Asia, the Middle East and Africa. According to Jane's analysis, the growth in exports represents a rise of around 300 per cent over the past decade.

"Security-related products such as protection equipment, bullet-proof jackets and bullet-proof vehicles are proving successful in these markets. In the short term these preventive and security-related products are regarded as key for our exports," said Gen Awan.

In the longer term, he said that larger, more advanced platforms - such as the JF-17 combat fighter aircraft that Pakistan has developed with China - will be marketed."The JF-17 is in the initial stages and we will not meet the full requirements of the Pakistan armed forces for another decade. But once we are done and our own needs are fulfilled then we can start looking for exports."

Gen Awan attributed the growth of Pakistan's exports to a number of factors. "The strengths of Pakistan equipment include the international quality of Pakistan equipment, which is ensured by ISO standards. The second is that we have no political strings attached to defence deals: we are not a country that has a political axe to grind.

"We can also assure a supply of back-up spares and service support and we are internationally competitive in terms of providing quality at a cost effective price. Another important factor is that we are not looking for cash flow only: we can have barter trade where we sell something and in turn buy something back instead of taking hard cash and this makes the buyer that [much] more agreeable."

Gen Awan added that while the vast majority of exports are manufactured by state-owned firms - such as Heavy Industries Taxila, Pakistan Ordnance Factories (POF) and Pakistan Aeronautical Complex - the private sector was being encouraged to expand its capabilities through partnerships with companies in Pakistan and abroad to increase exports.The benefit of such a campaign, he stressed, is also aimed at supporting state-owned firms in supplying equipment to Pakistan's armed forces, which are fighting the war on terror.

The need for this support was highlighted in March 2010 when the POF, which specialises in the production of rifles, machine guns, mortars, ammunition and explosives, requested a government grant of USD250 million to modernise its facilities and help meet a growing production backlog.The POF made the recommendation to the National Assembly's Standing Committee on Defence and Defence Production. Lieutenant General Javed Ashraf, chairman of the committee, told Jane's at the time that "outdated manufacturing processes" had so far caused POF to turn away production orders worth around USD500 million.

While Gen Awan would not comment on the condition of the POF, he did emphasise that state-owned defence companies were coming under increasing pressure to fulfil the requirements of the country's armed forces."The war on terror is going on in our neighbourhood and we have a very sizeable army - around 100,000 strong - committed to these operations," he said. "Products are being used too much and [are] far too quickly being wasted in war, and [state-owned companies] are under pressure to produce enough equipment to meet the requirements. Of course, if the private sector can chip in it would reduce this pressure.

"We are capable of sustaining this but to reduce the pressure it is better to get the private sector on board. Of course [state-owned companies] do need resources because 'the richer the better' but these companies were initially funded and organised to sustain the Pakistan armed forces in a conventional and predictable conflict for a limited period, because a conventional war does not continue for years and years and years.

"But this war on terror is a menace that is lingering since 9/11. It is now nearly 10 years and we still don't know when the end will come. This prolonged engagement is a consistent and constant drain on industry resources. To meet this requirement and to keep the factories churning out the equipment you need a high level of resources."

The private sector, said Gen Awan, could provide some of these resources by establishing more partnerships with state-owned firms. "Now we are evolving a policy of first encouraging the private sector to invest in research and technology and meet the requirements of the Pakistan armed forces and then to focus on exports," he said."We are trying to encourage the private sector to form joint ventures and public private partnerships essentially with other Pakistan companies but if some foreign company is interested in coming in we have not closed our doors to anyone."

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