Military Business and Pakistan's Industrialization
There has been a great deal of criticism of Pakistani military's role in the industry and the economy of Pakistan since the release of Dr. Ayesha Siddiqa Agha's book "The Military Inc: Inside Pakistan's Military Economy" last year. The book describes in some detail the size and the activities of what Dr. Agha calls "MILBUS", the military business in Pakistan. MILBUS, according to the author, includes banks, insurance, cereals, fertilizer, cement, hospitals and clinics, radio and TV, schools, universities and institutes, etc.
In her strongest criticism of Pakistan's military, the author argues that Pakistani military is a giant which has strong political control, economic control, and a very dominant social presence; a military that has over 7% share of the GDP, which controls one-third of heavy manufacturing in the country, which controls 6-7% private sector assets. It has a huge economic presence. It is a constant story of uneven development, between different organizations and institutions.
While some commentators have challenged Dr. Agha's data and her allegations about the dominance of Pakistan's military in the country's business and economy, this post is designed to question why is it bad for Pakistan's military to play an important role in the nation's business.
To explore the possibility of the Pakistani military playing a much bigger positive role in rapid industrialization and globalization of Pakistani economy, let us take a look the role the Chinese People's Liberation Army (PLA) has played in China's phenomenal economic progress and its emergence as a new superpower in the last few decades.
China's PLA began its manufacturing role for the defense sector that picked up steam after the Sino-Soviet tensions during Mao's time. Manufacturing purely military products, such as arms, ammunition, as well as electronics, plastics and metals for military applications, these so-called "third-line" factories were built in remote mountain regions, far away from transportation routes and power sources. The factories bought supplies at subsidized costs from other factories, manufactured the weaponry and related products -- generally low-tech and low-quality -- and then sold them to the military at subsidized prices.
With the change of leadership after Mao's death in 1976, the new government encouraged the military plants to begin exploring civilian uses for their products and to engage in the broader liberalization of the economy. The most nimble managers were free to exploit new markets for their goods. During the early 1980s, the PLA's share of the national budget declined, spurring it to look to other sources for cash, especially hard currency. The higher organizational levels of the PLA created trading companies like China Xinxing, China Poly and China Songhai to take advantage of the opening of China's economy to the international market, according to British analyst Gary Busch.
They formed banks, holding companies and international trading companies like Everbright to market these goods worldwide. Now the PLA runs farms, factories, mines, hotels, paging and telephone companies and airlines, as well as major trading companies.
Busch says the number of military-run businesses exploded during the boom of the late 1980s. The "third line" factories opened branches in the coastal areas, earning increasingly higher profits from the manufacture and export of civilian goods. Even the lowest levels of the PLA set up production units. In fact the PLA had a largely captive audience of Chinese who had never really had the chance to acquire personal goods produced in China before. In addition to their international arms sales, their production of consumer goods for the domestic market soared.
Since the 1980s, many of the PLA companies have now become part of the global economy. According research done by David Welker for Multinational Monitor, in pursuit of hard currency, many of the companies have listed themselves on capital markets in Hong Kong and elsewhere, opened representative offices in overseas markets, solicited foreign companies for joint ventures and partnerships in China and emphasized exports. The so-called red chips, companies listed on the Hong Kong exchange but which are in fact mainland Chinese firms, are the hottest stocks on the market. Hong Kong is the PLA's favored stock exchange because of its loose disclosure guidelines. China Poly Group has two listed companies: Continental Mariner Company Ltd. and Poly Investments Holdings Ltd. Both Continental Mariner and Poly Investments have a large number of subsidiary companies in mainland China, Hong Kong and tax havens like Liberia, the British Virgin Islands and Panama. China Carrie's listed company in Hong Kong is Hongkong Macau Holdings Ltd. China Carrie also owns HMH China Investments Ltd. on the Toronto Stock Exchange and HMH Gold Mining on the Australian Stock Exchange. 999 Enterprise Group, another company controlled by the PLA General Logistics Department, operates Sanjiu Pharmaceuticals Group, the largest pharmaceuticals manufacturer in China. 999 recently listed on the Hong Kong exchange.
Smaller military enterprises, like the Songliao Automobile Company owned by the PLA Shenyang Military Region, have also listed in the domestic Chinese markets.
China Poly Group is a commercial arm of the Chinese People's Liberation Army (PLA) General Staff Department. The PLA General Logistics Department operates China Xinxing. The PLA General Political Department owns and operates China Carrie. The Northern Army Group runs NORINCO and the PLA Navy runs China Songhai.
Some of these international Chinese companies with PLA connections are very rich and powerful. Some have entered into very controversial projects. A good example is the Hutchison-Whampoa, Hutchison Port Holding (HPH), according to Busch. HPH is a huge, multibillion-dollar company which has set up operations in ports all around the world. From Panama to the Philippines, an arm of Hutchison-Whampoa, Hutchison Port Holding (HPH), has become the world's largest seaport operator, embedding itself in strategic seaports all across the globe. In fact now Hutchison holds the exclusive contract to operate the Panama Canal.
Hutchison-Whampoa has spread everywhere. It has a base in Tanzania where it runs Tanzania International Terminal Services Ltd. In the Western Hemisphere it has seaport services in Buenos Aires, Argentina; Freeport, the Bahamas; Veracruz, Mexico; and at both ends of the Panama Canal. HPH's latest acquisition involved taking over eight Philippine ports. New ports in Mexico, Argentina, Saudi Arabia, Pakistan, Tanzania and Thailand make Hutchision-Whampoa the world's largest private port operator with 23 cargo berths, bringing its worldwide total of ports to a staggering 136.
Other ports include Jakarta, Indonesia; Karachi, Pakistan; India (where the company runs the cellular phone services); Burma; China; and Malaysia. There are port operations in Britain at Harwich, Felixstowe (Britain's largest port), and Thames port, and in the Netherlands at Rotterdam. The company is bidding to set up in South Korea's largest port, Pusan, and is already in Kwangyang, another South Korean port.
Retired PLA officers also continue to support China's transformation to a powerful first world economy by founding such companies as Huawei, the Chinese router giant challenging Cisco's dominance.
Since the early 1990s, there has been an ongoing effort to spin off the PLA's commercial enterprises into private companies managed by former PLA officers, and to reform military procurement from a system in which the PLA directly controls its sources of supply to a contracting system more akin to those of Western countries. The separation of the PLA from its commercial interests is now believed to be largely complete. But the stamp of the PLA influence continues on most large enterprises in the form of retired PLA personnel managing these businesses.
The Chinese have pursued liberalizing their economy without political liberalization, in the same way other East Asians did. Such a strategy has allowed them to pursue rapid economic growth while forcefully controlling chaos on the streets, as the PLA did at Tienanmen square in 1989. At the same time, the Chinese PLA businesses have sparked a great industrial revolution that has transformed the nation's economy, accelerated its human development, greatly enriched China and lifted hundreds of millions of people out of poverty. Just as it has in other East Asian nations, it can be expected that political liberalization and democracy will follow the rapid wave of industrialization and human development in China.
Even in the richest democracy like the United States, the military has played a significant role in funding research, development and manufacturing industries to support America's military-industrial complex and its space program. In spite of some of the well-deserved criticisms of the the world's biggest military-industrial and space complex in America, no one can deny that a lot of innovation and job creation and economic expansion has flowed from it for the American society at large.
India, another member of the emerging powers now called "BRIC", has failed to use a period of high economic growth to lift tens of millions of people out of poverty, falling far short of China’s record in protecting its population from the ravages of chronic hunger, United Nations officials said recently. Last year, British Development Minister Alexander contrasted the rapid growth in China with India's economic success - highlighting government figures that showed the number of poor people had dropped in the one-party communist state by 70% since 1990 but had risen in the world's biggest democracy by 5%.
Pakistan's record in alleviating poverty and increasing human development is not much better than India's. But Pakistani military has shown that it is capable of building and operating a wide variety of businesses profitably, ranging from heavy weapons manufacturing to industrial and consumer goods, construction and finance. The country now boasts a powerful industrial, technological and research base developing and manufacturing for its armed forces and exporting a wide variety of small and large weapons ranging from modern fighter jets, battle tanks, armored vehicles, frigates and submarines to unmanned aerial vehicles and high tech firearms and personal grenade launchers for urban combat. Comparing with the Chinese PLA, it is also clear that Pakistan's military currently has a very small footprint in industrial and economic development and globalization of the nation's economy. It is now recognized that without PLA's crucial role, it would have been very difficult for the Chinese to build the modern industrial base and attract massive foreign direct investments to become the factory of the world. It is also clear that, as a powerful and stable institution, Pakistani military can and should take inspiration from the PLA to play a much bigger role in Pakistan's economic development and rapid industrialization to help increase the nation's prosperity and lift millions out of poverty, as China's PLA has done.
Pakistan's military should take a leaf from the Chinese PLA playbook. It should do what is necessary to strengthen the nation's industry, economy and national security, regardless of any critics, including Ayesha Siddiqa Agha and her myriad fans. This is the best way forward to a well-educated, industrialized, prosperous and democratic Pakistan in the future.
Here's a video report about Pakistan's weapons development:
Related Links:
Chinese Military-Industrial Complex Goes Global
Chinese Military-Commercial Complex
Pakistan Industrialization Strategy 2007
Pakistan's Defense Production Goes High Tech
Dr. Ayesha Siddiqa Agha on Pakistan Military Inc.
Military Inc: A Deflective and Derogatory Book
Chuck Yeager on Pakistan Air Force
Comments
You have great work in you blog.
Keep it up
August 22, 2008 - While Indian defense industry has had little success with indigenous design and development of weapons system (Arjun, LCA) its record with license production has been equally dismal (Hawk trainers, Su-30MKI fighters and T-90S tanks).
It is amazing how after years of 'license production' of weapon systems like Gnats, MiG variants, Jaguars, Vijayanta tanks our defense industry has failed to come up with a product of its own that our defense forces are ready to buy.
Russian newspaper Kommersant, reporting on a deal between India and Rosoboronexport for the license production of Smerch multiple launch rocket system mocks Indian capabilities saying:
"India has had little success with military equipment production, and has had problems producing Russian Su-30MKI fighter jets and T-90S tanks, English Hawk training jets and French Scorpene submarines."
Rosoboronexport, is facilitating the manufacture of the Smerch multiple rocket system both in India and China and the news report hints at the radically different approaches adopted by the two countries towards assisted production.
China first developed an unlicensed analog to Smerch called the A-100 in the 90s. However, they were unable to indigenously develop solid-fuel rocket motor matching those of the Smerch system. So their current deal with Rosoboronexport for Smerch focuses only on the transfer of solid propellant rocket motor technology through Perm Powder Mill.
The Indian deal on the other hand simply entails license production in India. My hunch is it entails no transfer of critical technology.
The Russians will come here set up the plant for us and supply the critical manufacturing machinery. Indian labor and technical management will run the plant which will simply assemble the system. Critical components and the solid propellant rocket motor fuel will still come from Perm Powder Mill. However, bureaucrats in New Delhi and the nation as a whole will be happy. The Smerch system will be proudly paraded on Rajpath every republic day as an indigenous weapon system.
A decade or so down the line, Smerch will get outdated and India will negotiate a new deal with Russia for the license production of a new multiple rocket system for the Indian Army.
http://kuku.sawf.org/Articles/52667.aspx
Q. One of the most high-profile acquisition programs of your predecessor’s tenure was the next-generation submarine. Can you expand on reports of a Chinese submarine design being selected, and comment on whether the HDW Type-214 may still see service with Pakistan as a replacement for the Agosta-70s?
A. Submarines all along have been our main strength and at the heart of our naval strategy of offensive sea denial. Over the years, the strength of our submarines has dwindled due to aging. Our primary consideration is to acquire modern and potent submarines. All options, including submarines of the West, as well as China, are under deliberation, though no decision has been taken as yet.
Q. Long-standing plans include the expansion of the shipbuilding industry but also to diversify construction locations away from Karachi to places like Gwadar and Ormara. Where do these plans stand?
A. Our long-term plan is to have two major shipbuilding and repair yards at Port Bin Qasim in the east and Gwadar in the west. In addition, we have a strategic plan to develop this rich but hitherto untapped segment of our maritime sector. To realize the same, we have a high-level shipbuilding task force formed under the aegis of [the Ministry of Defence Production].
Q. How do you plan to replace the P-3C Orions destroyed by terrorists last year? And what else can we expect from the Navy’s maritime patrol aircraft procurement efforts? Have you examined any Chinese options, such as the H-6K or Y-8Q? And is any thought being given to replacing your elderly Westland Sea King helicopters yet?
A. Despite the loss of two P-3Cs during the unfortunate attack on [Pakistan Naval Station] Mehran last year, our maritime surveillance capability remains intact and we can well manage our operational requirements. Nevertheless, we have initiated the process for the replacement of the destroyed aircraft from the U.S. and remain hopeful of a positive outcome. You must appreciate that the P-3C is designed for long-range surveillance. Deploying this aircraft continuously for routine surveillance in peacetime is not only uneconomical, it actually amounts to its underutilization. We are thus maintaining smaller and cheaper maritime patrol aircraft — i.e., FK-27S —which fulfills our day-to-day operational needs. Apart from that, we are considering a range of other surveillance aircraft, including Chinese options.
With regard to our Sea King helos, we have signed the Mid Life Upgrade Program, under which a new and modern avionics suite and sensors will be fitted onboard, making them a more potent and capable aerial platform.
Q. The effectiveness of the small number of Exocet-equipped anti-ship strike Mirage-5 aircraft is now surely questionable. What do you intend to replace them with? And is there a case for having these Pakistan Air Force aircraft under naval control?
A. PAF Mirage aircraft equipped with missiles are effective [anti-shipping strike] platforms. The PN and PAF have put in place an efficient mechanism for their optimum deployment, which is why we don’t feel the need to place them under PN control. There are plans to replace the systems which become obsolete or are no longer operationally effective.
Q. Later this decade, you will face an Indian nuclear-powered, nuclear-armed ballistic submarine that threatens the current strategic balance in South Asia. How do you intend to respond?
A. The strategic dimension of India’s naval buildup is a cause of concern not only for us but for the entire Indian Ocean region. I feel nuclearization of the Indian Ocean does not augur well for peace and stability in the region. We are mindful of this development and taking necessary measures to restore the strategic balance.
http://www.defensenews.com/apps/pbcs.dll/article?AID=2012302200008
KARACHI - Pakistan’s gas requirements are growing hastily, while the domestic gas production is not growing at the same pace. Primary energy consumption in Pakistan has grown by almost 80pc over the past 15 years, from 34 million tons oil equivalent (TOEs) in 1994/95 to 60 million TOEs in 2010/11 and has supported an average GDP growth rate in the country of about 4.5pc per annum.
Consumer Rights Commission of Pakistan (CRCP) in collaboration with Citizens’ Voice Project hold policy dialogues on “Role of Government and Regulators in the Gas Sector of Pakistan” with parliamentarians, policy makers, regulators and civil society organisations here on Wednesday.
CRCP recommended Effective Governance & Regulation for development of Gas Policy in dialogue.
The present natural Gas crisis clearly indicates that overall governance of the gas sector needs improvement. The growing energy shortages have made life difficult for Pakistanis across the board. The quality of life of citizens has deteriorated.
Dialogue reported that economic growth rates have been stunted, and industry and agriculture have suffered. The Government of Pakistan has not yet recognising magnitude of crisis and its effect on the people and the economy. Government has to take emergency measures to address, manage and reduce the impact of crisis. The reasons for present crisis in gas sector have both technical and governance aspects.
The dialogues have given comprehensive insight into the current situation of transparency, public participation and accountability processes in gas sector of Pakistan. The intervention is likely to result in enhanced understanding of the sect oral issues for the stakeholders.
Most important of all, it is expected to inform the policy makers and especially the public representatives about the governance situation of the sector and shall persuade them to take positive actions for sectoral improvement. In Pakistan, industrial and fertilizer sectors are getting gas on subsidised rates, while the CNG stations were being subjected to an exorbitantly high tariff regime, neglecting the general public’s interest. The gas consumers’ woes could not be resolved unless Pakistan had an autonomous regulator free of political interference. Besides, the problems could not be resolved without improving people’s access to information, putting in place a system of strict penalties on consumers involved in gas pilferage and non-payment of gas bills
http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/31-Jan-2013/primary-energy-consumption-grows-by-almost-80pc-in-15-years
Magistead reported that Xinhua has for the first time talked about China as a global economic power with global interests and it needs a blue water navy to protect a tremendous number of sea-lanes.
http://www.theworld.org/2013/05/pentagon-china-military/
http://thediplomat.com/flashpoints-blog/2013/09/30/why-turkeys-buying-chinese-missile-systems/
Lower cost, technology transfer, diversification. #Turkey's rationale similar to #Pakistan's.#defensedeals
http://www.riazhaq.com/2009/03/pakistans-growing-defense-industry.html
Myth 1: The allocation for defence is the single largest component in our budget. Not true. The single largest allocation in Budget 2013-14 went to the Public Sector Development Programme (PSDP). The second largest allocation in Budget 2013-14 went to servicing the national debt. The third largest government expenditure, including off the budget allocations, are the losses at public-sector enterprises (PSEs). Yes, the fourth largest government expenditure goes into defence.
Myth 2: The defence budget eats up a large percentage of the total outlay. Not true. In Budget 2013-14, a total of 15.74 percent of the total outlay was allocated for defence. PSDP and debt servicing were 30 percent each. What that means is that more than 84 percent of all government expenditures are non-defence related.
Myth 3: The defence budget has been increasing at an increasing rate. Not true. In 2001-02, we spent 4.6 percent of our GDP on defence. In 2013-14, twelve years later, our defence spending has gone down to 2.7 percent of GDP.
Myth 4: We end up spending a very high percentage of our GDP on defence. Not true. There are at least four dozen countries that spend a higher percentage of their GDP on defence.
They include: India, Egypt, Sri Lanka, the United States, the United Kingdom, South Korea, France, Eritrea, Oman, Saudi Arabia, Israel, Jordan, Liberia, Brunei, Syria, Kuwait, Yemen, Angola, Singapore, Greece, Iran, Bahrain, Djibouti, Morocco, Chile, Lebanon, Russia, Colombia, Zimbabwe, Turkey, Georgia, Guinea-Bissau, Ethiopia, Namibia, Guinea, Turkmenistan, Kyrgyzstan, Algeria, Serbia and Montenegro, Armenia, Botswana, Ukraine, Uganda, Ecuador, Bulgaria, Lesotho and Sudan.
Myth 5: The Pakistan Army consumes the bulk of the defence budget. Not true. In the 1970s, the Pakistan Army’s share in the defence budget had shot up to 80 percent. In 2012-13, the Pakistan Army’s share in the defence budget stood at 48 percent.
Now some facts:
Fact 1: The Pakistan Army’s budget as a percentage of our national budget now hovers around eight percent.
Fact 2: Losses incurred at public-sector enterprises can pay for 100 percent of our defence budget.
Fact 3: Pakistan’s armed forces are the sixth largest but our expenses per soldier are the lowest. America spends nearly $400,000 per soldier, India $25,000 and Pakistan $10,000.
Fact 4: Of all the armies in the world, Pak Army has received the highest number of UN medals. Of all the armies in the world, Pak Army is the largest contributor of troops to the UN peacekeeping missions.
Mark Twain once remarked, “Get your facts first, and then you can distort them as much as you please.”
http://www.thenews.com.pk/Todays-News-9-246627-Defence-budget
Construction of an international standard highway was both challenging as well as enormous. Pakistan Army's Corps of Engineers, therefore, raised a special organisation named Frontier Works Organization (FWO) to undertake this virtually impossible task on 31st October 1966 to construct the Karakoram Highway (KKH). Resultantly, the founding of FWO owes its birth to one of the most significant and challenging project undertaken by Pakistan. The breathtaking task of chiseling across the mighty mountain ranges of Karakoram was accepted as a challenge with zeal and determination by the engineers of FWO. The project was unprecedented in the history of Pakistan and required tremendous technical skill in various fields like geology survey, concrete/masonry works and their designing, use of explosives, development of drilling and blasting techniques, besides administrative and logistic problems of a large work force of 15000 personnel spread over an inhospitable and harsh terrain for over 800km. The KKH being the highest road on earth has been acknowledged as 8th wonder of the World. Government of Pakistan, realizing the potential of FWO prior to the completion of KKH project, decided to retain FWO as a permanent organisation and expanded its sphere of activities throughout Pakistan.
FWO succeeded in its challenge and completed the exceptional task of KKH construction in 1978 after tremendous sacrifices. More than 1000 workers including 200 from our sincere friend China laid down their lives with over 1000 sustaining disabling injuries in their quest to achieve this national objective.
During the last half century, FWO has earned the reputation of Country's most prestigious, multidimensional and professional construction organisation which is committed to meeting the strategic needs of the Pakistan in versatile construction fields. FWO plays a pivotal role in socio-economic development and nation building through its unmatched contribution to infrastructure development. Over the years, FWO has been able to ensure performance par excellence despite time, budget and space constraints. The organisation is state of the art construction leader in civil as well as military spheres. Judicious utilisation of resources and adherence to modern construction practices is the hall mark of FWO. Taking a leap from its core competency of roads construction, FWO has excelled into large number of multifaceted infrastructure development projects.
This new paradigm shift has enabled FWO to serve the nation with utmost versatility and commitment. Today the domain of FWO projects range from blazing plateaus of Balochistan to lush green dales of Swat and Chitral; from the deserts of Sindh to snowcapped summits of Siachin.
FWO has a knack for accepting challenges and converting ideas into reality no matter how meagre are the resources. FWO has on its credit several initiatives which have contributed significantly in strengthening national communication infrastructure. FWO is also the pioneers and leader in Built-Operate-Transfer (BOT) regime in Pakistan. Lahore-Faisalabad road (LAFCO) is one such example. FWO has also been given the responsibility of constructing motorway between Karachi and Hyderabad (M-9) on similar BOT methodology.
Keeping up with its traditions of developing the far frontiers, FWO is active in building massive road network in Balochistan (around 900kms) which will bring prosperity in the region. Linkage of Gwadar further up North will provide Pakistan with tremendous potential for commercial activities through development of CPEC. ...
http://www.thenews.com.pk/print/125354-FWO-National-pride-of-Pakistan
http://gulfnews.com/opinion/thinkers/modernising-pakistan-through-china-1.1870853
Reality check long overdue
While Pakistan’s civil institutions responsible for public work increasingly show a dismal performance, the Pakistan army continues to remain responsible for a variety of construction-related mega projects in otherwise inaccessible areas.
This follows more than five decades of experience by the army in undertaking challenging assignments including the Karakorum Highway or KKH, the road built with Chinese assistance, which links China’s Xinjiang province with Pakistan’s northern Gilgit-Baltistan province and onwards to the country’s plains. At the outset with the CPEC too, the army’s promise to provide a full security cover for Chinese workers in Pakistan, marked the critical element that buttoned up this project.
In the long term, Pakistan’s ruling politicians may have a valid point in seeking to lead the CPEC initiative. And yet, that ambition needs to be built with a long overdue reality check. The country’s civilian authorities need to embark on an internal reform plan first rather than seek to block the army from assuming a lead role in the execution of the CPEC.
Such a plan must be built upon three equally vital aspects. First, there needs to be a complete political consensus over the geographic layout of the CPEC and its associated projects. Signs of infighting between different political groups have in fact harmed the view of Pakistani politicians, reinforcing their image as a short-sighted warring bunch rather than a mature and politically responsible community.
Second, it’s vital to put safeguards in place for a radical improvement in the performance of key civil institutions, enabling them to take greater responsibility for the execution and eventual management of CPEC related projects. The total work cut out under this initiative will likely continue till the end of the next decade if not beyond. This creates a sufficient time frame for the army to first take charge of this valuable initiative and hand over responsibilities for its eventual management to Pakistan’s civilian infrastructure following a set of robust reforms.
Finally, it’s important for Pakistan’s ruling politicians to consider different types of fallouts from antagonising the armed forces, all in the name of promoting democracy. In the case of the CPEC, some politicians have eagerly pushed for exclusive civilian control on this project as a step towards strengthening Pakistan’s democratic evolution. Yet their initiative will only be an exercise in futility until such time that they reconcile themselves with Pakistan’s fundamental realities.
For now, General Raheel Sharif and the Pakistan army exclusively remain the main guarantors for the success of what is set to transform Pakistan as never before.
The Indian defence services could teach the country’s top private retailers a thing or two about making money.
A chain of 3,900 stores of the Indian defence ministry’s canteen stores department (CSD) earned Rs236 crore ($35 million) in profit in financial year 2014-15, according to a report in the Economic Times on Aug.17, based on a reply to a right to information query.
For the same period, the Kishore Biyani-owned Future Retail, which runs supermarket chains such as Big Bazaar and eZone, reported a profit of Rs153 crore; the corresponding figure for Reliance Retail was Rs159 crore.
The CSD stores typically work on operating margins as low as 1%—this figure can vary anywhere between 8% and 18% for a private retailer. These canteens function on a not-for-profit basis, but their volumes are huge. In 2014-15, their turnover stood at Rs13,709 crore, according to the report, trailing that of Reliance Retail at Rs17,640 crore but ahead of Future Retail’s Rs11,149.87 crore.
A big reason to the CSD stores’ better profitability is lower overhead costs.
“CSD does not have to bear two expenses that are major operational costs for retailers—real estate and advertising,” explains Devangshu Dutta, CEO of Third Eyesight, a New-Delhi based consulting firm. That’s because they are located within easy reach of defence staff, typically inside cantonments and not in commercial locations such as markets or malls.
“Staffing and training costs are lower than private retailers since the management workforce is partially shared with the standing armed forces. CSD also has a focused, sometimes captive, audience which it doesn’t really have to fight for,” Dutta said.
The Egyptian army has more on its hands than running armoured cars over people in Tahrir Square. It also runs about 10% of the economy. Military-backed companies produce cement, olive oil and household appliances as well as arms. They also provide pest control, catering and even child care. The army owns large chunks of Egypt's most precious commodity, land, particularly on the Red Sea coast. It also leans on private companies to provide powerful retirees with jobs.
The Egyptians have plenty of brothers-in-arms-and-boardrooms. Pakistan's top brass are even more enterprising. Ayesha Siddiqa, the author of “Military Inc: Inside Pakistan's Military Economy”, calculates that the army controls a $15 billion empire, with hundreds of companies making everything from fertiliser to breakfast cereals. In China the People's Liberation Army took Deng Xiaoping's aphorism that “to get rich is glorious” as a direct order. At one point in the late 1980s it was running nearly 20,000 firms. Military men in Thailand and Indonesia have a long tradition of padding their pay with profitable enterprises. Zimbabwe's army has recently formed joint ventures with Chinese partners in farming and mining. Even in democratic India the army runs about a hundred commercial golf courses.
But the most enthusiastic practitioners of khaki capitalism are the Iranians. The Revolutionary Guard runs more than 300 companies in agriculture, industry, transport, foodstuffs and even tourism. (The slogans practically write themselves: “Visit Iran and we won't storm your embassy!”) The Guard has been snapping up companies “privatised” by the government, and exploits its control of border crossings to dominate Iran's black market.
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There are also sound military reasons for getting armies out of business. They should get better value for money if they buy supplies on the open market instead of making them themselves. More important, as the Chinese recognise, they are more likely to become modern and professional defenders of the nation if they are not distracted by moneymaking.
That said, the armed forces can provide superb training for future business leaders: some 10% of the bosses of America's 500 biggest companies are former military officers. They are also a great incubator of entrepreneurs—and not just shady ones like Milo Minderbinder. A striking proportion of Israel's high-tech entrepreneurs went into business with friends they made in the Israeli Defence Forces. The founders of China's Huawei, one of the world's most successful makers of telecoms equipment, also met in the army. Many soldiers in Egypt and elsewhere clearly enjoy the challenge of running businesses. But they would do a better job of it if they took off their uniforms first.
http://www.economist.com/node/21540985
"Frustrated with the slow progress on a sprawling, $46bn infrastructure project stretching from China to south Asia, Beijing is seeking to give Pakistan’s army a lead role.... progress has stalled as the two sides work out how to turn the proposals into concrete projects, said Victor Gao, a former Chinese foreign ministry official, with some blaming Pakistan’s competing ministries"..... “Pakistani politicians have squabbled over the route for the CPEC and this may have made people nervous in Beijing,” said a Pakistan government official. “Pakistan is a noisy place politically while the Chinese are not used to harsh disagreements, especially over such a vital project.”
The Pakistan military has thousands of civil, mechanical and electrical engineers with decades of experience in building large infrastructure projects and analysts say the army is well placed to supervise the corridor, according to the Financial Times.
In fact, Pakistan Army's Frontier Works Organization (FWO) is building significant parts of the China-Pakistan Economic Corridor (CPEC). A July 2015 announcement is an illustration of what Frontier Works Organization is doing to advance CPEC:
“The Frontier Works Organization (FWO) has built roads with 502 kilometers length on the western alignment of China Pakistan Economic Corridor (CPEC) to link Gwadar with other parts of the country. The FWO took up the challenge to extend the benefits of Gwadar port to rest of the country by building roads in rugged mountainous terrain and highly inaccessible areas. The gigantic task was undertaken on the directives of Chief of Army Staff General Raheel Sharif."
http://www.riazhaq.com/2016/11/pakistan-army-chief-backer-guarantor-of.html
The Pakistan Aeronautical Complex (PAC) has outlined ambitious plans to support its development of a fifth-generation fighter aircraft (FGFA) - otherwise known in Pakistan as Project AZM.
The PAC enterprise, which is owned and run by the Pakistan Air Force (PAF), has established a new office - the Aviation Research, Indigenization & Development (AvRID) unit - to lead the FGFA programme, it confirmed.
The development programme is supported through Pakistan's development of a new aerospace complex - named 'Aviation City' - that was launched in 2017 to support Project AZM and other national military aerospace requirements.
"The office of DG [Director General] AvRID has been established to transform into reality the [PAF's] air staff vision… with the long-term goal of developing our own fifth generation fighter aircraft (FGFA)," PAC said on its website.
"[The] development of [the] FGFA would be a major national programme that would entail a massive amount of work, not all of which may possibly be carried out within PAC or even within Pakistan.
"Such large-scale development requires synergetic efforts from a number of industrial (public and private) and academic organisations to fulfill the enormous task," it added.
In order to "manage an engineering development programme of this magnitude", effective technical, engineering, and project management processes need to be established, PAC said.
PAC also outlined several specialist project teams that it will establish in collaboration with other national agencies as part of the Aviation City initiative.
These include an engineering management and support office, an Aviation Design Institute, a Mission Electronics Design Institute, an Aero Structures Design Institute, an Advanced Technologies Centre, and a Flight Test Centre.
PAC states that AvRID will collaborate with and leverage the capabilities of these various Aviation City agencies in undertaking Project AZM. "This [will] put together components of industry and academia to build a high-end research centre to enhance indigenisation capability.
The UNDP’s Wignaraja noted that this creates a paradox where those responsible for doling out the privileges were also those who were receiving them.
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The biggest beneficiary of the privileges – which may take the form of tax breaks, cheap input prices, higher output prices or preferential access to capital, land and services – was found to be the country’s corporate sector, which accrued an estimated $4.7bn in privileges, the report says.
The second and third-highest recipients of privileges were found to be the country’s richest 1 percent, who collectively own 9 percent of the country’s overall income, and the feudal land-owning class, which constitutes 1.1 percent of the population but owns 22 percent of all arable farmland.
Both classes have strong representation in the Pakistani Parliament, with most major political parties’ candidates’ drawn from either the feudal landowning class or the country’s business-owning elite.
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Economic privileges accorded to Pakistan’s elite groups, including the corporate sector, feudal landlords, the political class and the country’s powerful military, add up to an estimated $17.4bn, or roughly 6 percent of the country’s economy, a new United Nations report has found.
Released last week, the UN Development Programme’s (UNDP) National Human Development Report (NHDR) for Pakistan focuses on issues of inequality in the South Asian country of 220 million people.
The report uses the prism of “Power, People and Policy” to examine the stark income and economic opportunity disparities in the developing country.
“Powerful groups use their privilege to capture more than their fair share, people perpetuate structural discrimination through prejudice against others based on social characteristics, and policies are often unsuccessful at addressing the resulting inequity, or may even contribute to it,” says the report.
Kanni Wignaraja, assistant secretary-general and regional chief of the UNDP has been on a two-week “virtual tour” of Pakistan to discuss the report’s findings, holding talks with Prime Minister Imran Khan and other top members of his cabinet, including the ministers of foreign affairs and planning.
She says Pakistani leaders have taken the findings of the report “right on” and pledged to focus on prescriptive action.
“[In our remarks in meetings] we focused right in on where […] the shadows are, and what is it that actually diverts from a reform agenda in a country,” she told Al Jazeera in an exclusive interview.
“My hope is that there is strong intent to review things like the current tax and subsidy policies, to look at land and capital access.”
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The country’s powerful military, which has directly ruled Pakistan for roughly half of its 74-year history, was found to receive $1.7bn in privileges, mainly in the form of preferential access to land, capital and infrastructure, as well as tax exemptions.
The report noted, however, that Pakistan’s military is also “the largest conglomerate of business entities in Pakistan, besides being the country’s biggest urban real estate developer and manager, with wide-ranging involvement in the construction of public projects”.
“These things are not neatly separate entities,” said Wignaraja. “You do see some of… these are overlapping so you almost get a double privilege by the military. The minute in a country the military is a part of big business, it obviously doubles the issue and the problem.”
In a country like Pakistan, where the military continues to hold power over many aspects of governance, she warned that it would take “almost a social movement” to displace structures of power that were so entrenched.
https://www.france24.com/en/live-news/20220403-us-defense-contractors-see-longer-term-benefits-from-war-in-ukraine
New York (AFP) – US arms manufacturers are not cashing in directly from the thousands of missiles, drones and other weapons being sent to Ukraine, but they do stand to profit big-time over the long run by supplying countries eager to boost their defenses against Russia.
Like other Western countries, the United States has turned to its own stocks to furnish Ukraine with shoulder-fired Stinger and Javelin missiles, for instance. These weapons from Lockheed-Martin and Raytheon Technologies were paid for some time ago.
So these companies' first quarter results, due to be released in coming weeks, should not be especially fatter because of the rush to arm Ukraine as it fights off the Russian invasion.
But those US military weapons stockpiles being tapped for Kyiv will need to be replenished.
The Pentagon plans to use $3.5 billion earmarked for this purpose in a spending bill approved in mid-March, a Defense Department spokesman told AFP.
The Javelin anti-tank missile is made by a joint venture between Lockheed and Raytheon. The latter's Stinger anti-aircraft missile had ceased to be produced until the Pentagon ordered $340 million of them last summer.
"We are exploring options to more quickly replenish US inventories and backfill depleted stocks of allies and partners," the spokesman said.
"It will take time to revive the industrial base -- at the prime and at sub-tier suppliers -- to enable production to resume," he added.
The profits that the companies make from these missiles, known for being simple to use, will not exactly be staggering, defense industry experts told AFP.
"If 1,000 Stingers and 1,000 Javelins get shipped to Eastern Europe each month for the next year, which is not unlikely given the current pace, in our view, we think it would equate to $1 billion to $2 billion in revenue for both program manufacturers, which is material," said Colin Scarola of CFRA, an investment research firm.
Raytheon's and Lockheed's revenue figures last year dwarf that amount, however: $64 billion and $67 billion, respectively.
"Raytheon probably made more money off selling a Patriot missile system to Saudi Arabia than they will from making Stinger missiles," said Jordan Cohen, an arms sales specialist at the Cato Institute.
"They're only going to put so much effort into producing those weapons that are not that valuable," Cohen told AFP.
Lockheed, Raytheon and another arms manufacturer, Northrop Grumman, did not respond to AFP requests for comment.
General Dynamics said it has not raised its financial outlook since January, while Boeing just said it is up to governments to decide how to spend money earmarked for defense.
Corporate empire has potential to be globally competitive
By Uzair Younus
https://asia.nikkei.com/Opinion/Pakistan-s-military-run-enterprises-need-upgrade-to-revive-economy
It is time to accept that rather than trying to cut this empire down to size, it may be more fruitful to develop Military Inc. 2.0: a corporate empire that is globally competitive.
Pakistan's military began playing a role in the economy soon after independence. The construction of the 805-km cross-border Karakoram Highway in the Himalayas was a major inflection point. The Frontier Works Organization was formed then with the mission to construct the highway on the Pakistani side.
Today, military-run organizations have their tentacles spread across the entire economy, with the military-owned Fauji Foundation being one of the largest conglomerates in the country. The government has exempted both the Army Welfare Trust and the Fauji Foundation from income taxes, giving them an edge over privately owned companies.
The military also operates housing developments across the country, with the Defence Housing Authority (DHA) a dominant force in the country's real estate sector. While the initial aim was to develop homes for serving and retired military personnel, DHA has since evolved into a multibillion-dollar entity with a presence in all major cities.
The military's economic footprint, however, is indicative of broader economic issues plaguing Pakistan. For decades, Pakistan's civilian and military elites have extracted wealth by engaging in highly protected, low-productivity sectors. As a result, Pakistani businesses are both globally uncompetitive and provide shoddy services to domestic consumers.
An example is the DHA project in Karachi, built on land reclaimed from the Arabian Sea. The predominant role enjoyed by the military meant that development of the DHA site occurred without proper access to proper stormwater drainage, resulting in multimillion-dollar homes, paid for in cash, routinely being flooded during monsoon rains.
Political volatility and instability have further compounded the problems, leading to an anemic rate of foreign direct investment, particularly in export-oriented sectors. The result: recurring balance of payments crises that require bailouts.
To emerge from this crisis, Pakistan's military must learn from its strategic ally China. While the Chinese regime also began with military-run organizations developing public infrastructure, over the decades, it has developed companies that have a more global outlook.
In addition, China focused on improving quality by leveraging technology while also investing in global best practices. This ensured that the country built globally competitive businesses that enhanced China's technological reach, such as telecommunications group Huawei Technologies.
Pakistan's military would do well to mimic China's strategy to become globally connected, competitive and innovative.
Such a reconfiguration may solve Pakistan's macroeconomic challenges and recurring external crises, as the military is finding it difficult to muster resources required to compete with an India that is growing at a faster pace and rapidly modernizing its military. This is tilting the balance of power in the region toward India, creating national security risks for Pakistan.
Critics will argue that reorienting the military's corporate empire will only worsen the challenges facing Pakistan's floundering democracy. This concern is valid, but Pakistan's growing economic challenges mean that it is time to prioritize sustainable growth and socioeconomic development.
Changing the military's corporate approach is likely to create the space for broader economic reforms that are urgently needed to end Pakistan's protracted economic decline.
Corporate empire has potential to be globally competitive
By Uzair Younus
https://asia.nikkei.com/Opinion/Pakistan-s-military-run-enterprises-need-upgrade-to-revive-economy
Pakistan's military would do well to mimic China's strategy to become globally connected, competitive and innovative.
Such a reconfiguration may solve Pakistan's macroeconomic challenges and recurring external crises, as the military is finding it difficult to muster resources required to compete with an India that is growing at a faster pace and rapidly modernizing its military. This is tilting the balance of power in the region toward India, creating national security risks for Pakistan.
Critics will argue that reorienting the military's corporate empire will only worsen the challenges facing Pakistan's floundering democracy. This concern is valid, but Pakistan's growing economic challenges mean that it is time to prioritize sustainable growth and socioeconomic development.
Changing the military's corporate approach is likely to create the space for broader economic reforms that are urgently needed to end Pakistan's protracted economic decline.
The experience of the last few years shows that there is, at least in the near term, no political party capable of challenging and dislodging the military from its dominant role.
The next best alternative is to leverage the military's economic empire to transform the country's economy. But the question is: Do Pakistan's generals have it in them to reform in a way that generates wealth for their country?
With millions of younger Pakistanis joining the workforce and failing to find jobs, the time for a different approach is now.
@MuneebASikander
1/2 Pak Flood hit rural economy
Work produces things of value and transforms physical world in ways to make life better and survival possible.
But without organised and purposeful productive action, i.e., work, not possible for most people asis at the base of economic order
https://twitter.com/MuneebASikander/status/1572606162939289601?s=20&t=hDUZH4AawwsjZEdasU77jw
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2/2 Flood hit rural areas
Agrarian to agriculture/livestock based or limited workshop industry. Limited Agri TFP + 15.4 million at poverty risk
1. Need for agri TFP improvement
2., Need to diversify economic base by Proto-industrialization,
https://www.stlouisfed.org/publications/regional-economist/second-quarter-2021/how-jump-start-industrialization-sub-saharan-africa
https://twitter.com/MuneebASikander/status/1572606221076819970?s=20&t=hDUZH4AawwsjZEdasU77jw
How to Jump-Start Industrialization in Sub-Saharan Africa
May 27, 2021
By Yi Wen , Iris Arbogast
https://www.stlouisfed.org/publications/regional-economist/second-quarter-2021/how-jump-start-industrialization-sub-saharan-africa
KEY TAKEAWAYS
Most sub-Saharan nations have such low per capita incomes that it would take decades of double-digit growth to attain U.S. living standards.
Nations that industrialize successfully often begin with small-scale efforts and progress to mass-producing heavy industrial goods.
African countries could follow this development pattern with government-provided infrastructure and other support.
When considering income disparities across nations, the differences often can be striking, particularly for nations in the sub-Saharan region of Africa. Per capita income in many poor countries like these is 30 to 50 times smaller than in the U.S. In sub-Saharan Africa, 38 of 48 countries had gross national income (GNI) per capita levels below $2,300 in 2019, while GNI per capita was $65,850 in the U.S., according to data from the World Bank’s World Development Indicators database.
Generations of economists have studied economic development and given policy suggestions to officials in poor countries in Africa and elsewhere, but the disparities remain. To catch up to U.S. living standards, they would need to grow at about 11% per year for 40 to 50 years—an almost impossible standard that only China has come close to achieving in recent history.
The New Stage Theory of Development
The commonality between successful Asian countries’ industrialization (such as China’s rapid rise in the past 40 years) and successful European nations’ industrialization (such as the British Industrial Revolution in the 18th* and 19th centuries) is that these economies all went through three key stages during their industrialization, according to the New Stage Theory of Development (NST):1
Proto-industrialization, which features massive numbers of workshops in rural areas with small-scale production of basic consumer goods for long-distance trade
A first industrial revolution, which features mass production of labor-intensive, light consumer goods for domestic and international markets
A second industrial revolution, which features mass production of capital-intensive, heavy industrial goods
The first stage is very important but has been largely ignored by development economists. During this initial stage, rural farmers or poor households in urban areas use their free time to manufacture simple products and engage in long-distance trade. This raises their income and nurtures the formation of an increasingly unified market and primitive production networks, while developing entrepreneurship and labor skills. 2
During the second stage, large-scale factory systems become prevalent for light industries such as textiles, processed food, toys and furniture. This mass-production stage is labor-intensive, export oriented and benefits from poor countries’ comparative advantage in cheap labor. Mass production in the second stage is profitable only because proto-industrialization has created a large enough market and distribution networks for consumer goods.
Finally, the expansion of light industry in the second stage facilitates the formation of a large enough market for heavy industrial goods—such as means of transportation, energy, steel and heavy equipment. This is not only because the income of workers needs to be high enough to purchase big-ticket items such as automobiles, but because mass production of heavy industrial goods is profitable only after the second stage creates a mass-production chain to support their demand. 3
May 27, 2021
By Yi Wen , Iris Arbogast
https://www.stlouisfed.org/publications/regional-economist/second-quarter-2021/how-jump-start-industrialization-sub-saharan-africa
In some newly emerging Asian economies, such as Vietnam and Bangladesh, about 30% of rural households were participating in nonfarm wage employment in the early- to mid-2000s (29% in 2002 in Vietnam and 35% in 2005 in Bangladesh). Rates of nonfarm wage employment in poor African countries, such as Ethiopia, Ghana, Malawi and Nigeria, remain between 5% and 18%.
In 2019, the GNI per capita in Bangladesh and Vietnam was $1,940 and $2,590, respectively. GNI per capita was $850 in Ethiopia, $2,220 in Ghana, $380 in Malawi and $2,030 in Nigeria. Although GNI per capita in Nigeria and Ghana is relatively high for the region, these economies are more dependent on income from oil and other natural resources than Bangladesh and Vietnam, according to data from the World Bank’s Development Indicators.
On the other hand, when China engaged in full-fledged proto-industrialization in the 1980s and kick-started its first industrial revolution around the early 1990s, the number of village workers as a fraction of the total rural labor force increased greatly. These workers went from 9% of the labor force in 1978 to 23% by 1988, and then increased to 30% by 2000.5
The Chinese experience in recent decades and the British industrial revolution in the 17th and 18th centuries imply that proto-industries must reach 40% to 50% of total agricultural value added—or about 25% to 30% of total rural labor force in their employment share—to spark a full-fledged first industrial revolution, or to render mass production of light consumer goods profitable and internationally competitive. 6
Based on this criterion, Vietnam and Bangladesh should possess the market conditions for supporting mass-production technologies in light industries like textiles. Indeed, these two countries are currently the largest clothing exporters after China, according to data from the World Trade Organization. But countries such as Ethiopia, Ghana, Malawi and Nigeria do not appear ready to support mass-production technologies in light industries, since their textile and clothing exports are very low.
Policy Implications for Africa
Based on the New Stage Theory of Development, we have a few policy suggestions for countries where rural manufacturing is not yet prevalent. Policymakers should provide every means possible to enhance proto-industrialization, which will help their countries embark on a healthy path of economic development.
The goal is to absorb as many rural households as possible into small-scale manufacturing workshops to increase their income and create a primitive supply chain and a disciplined labor force. This is one of the critical steps for nurturing a mass market to support full-fledged mass-production in light industries.
Governments should provide the necessary infrastructure and social capital to allow farmers to organize themselves into firms and send their goods to distant markets. Part of the income earned could be used to support government initiatives such as building local roads and canals, which reduce transportation costs and are a better use of resources than large projects like high-speed trains—which are better suited to the second industrial revolution stage.
Successfully creating proto-industrial supply chains, commercial distribution networks and competition between proto-industrial firms would eventually help give rise to large firms that mass produce light industrial goods such as textiles. A nation can also be more likely to attract large foreign firms that outsource their labor-intensive manufacturing industries by using subsidization policies such as providing ports, roads and free land as incentives.
* This article has been updated to correct the start of British industrialization.