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Pakistan looks to aviation in ambitious defence export push

LiveMint logoLiveMint 03-03-2017 Ismail Dilawar

Karachi: Nuclear-armed Pakistan is seeking to ramp up defence exports amid simmering regional tensions and a surge in the global arms trade.

Pakistan expects to increase defence exports more than 10-fold to $1 billion within the next two years, targeting sales to countries such as Egypt, Turkey and Nigeria. Azerbaijan on Wednesday agreed to buy arms from Pakistan.

The target is “very ambitious” and focused on selling aircraft, defence production minister Rana Tanveer Hussain said in an interview in Karachi. Pakistan’s sales drive comes amid a rising trade deficit and heightened tensions with India, its larger neighbour. Pakistan exported about $63 million of arms between 2014 and 2016, Muhammad Zakir Jafri, the joint secretary at the ministry of defence production, said in a separate phone interview.

A late entry in a market dominated by the US, Russia and China, Pakistan’s aspirations are reliant on private sector buy in to an industry that has, so far, been tightly held by military-run factories. It already manufactures the Super Mushshak training aircraft as well as the JF-17 Thunder fighter jet, but will need to deepen ties with countries such as Turkey and Saudi Arabia to significantly expand its reach.

Closely-guarded secret

Details on defence exports are closely guarded and Pakistan’s statistics bureau doesn’t include the data when measuring the nation’s trade, which showed a deficit of $2.96 billion in January, widening 75% from a year earlier.

More than 20 major public and over 100 private sector firms are engaged in manufacturing defence-related products in Pakistan, according to the website of Defence Export Promotion Organisation.

While major defence products are manufactured by the armed forces-run Pakistan Ordinance Factories, Pakistan Aeronautical Complex, Heavy Industries Taxila, National Radio Telecommunication Corporation and Karachi Shipyard & Engineering Works, the private sector firms produce small supportive equipment only. None of them, according to DEPO website, are manufacturing large items like aircraft.

The introduction of regulatory and taxation incentives would lift the economy by encouraging the private sector to invest in defence manufacturing, said Khurram Schehzad, chief commercial officer at JS Global Capital Ltd.

“Public Private Partnership can be a workable option in increasing the private sector’s capacity to support the government’s export targets,” Schehzad said. “All this requires is a much stronger economic muscle, that is, continuously improving fiscals driven by higher direct income taxes and a deep cut on non-productive spending.”

In the past, Pakistan had focused on exporting small low-value items, but it had upgraded its defence manufacturing to high-value products like such as Al-Khalid tanks and fighter jets, said Muzzammil Aslam, chief executive officer of Invest & Finance Securities Ltd. in Karachi.

“This fetches you a lot of money and really brightens Pakistan’s prospects as a defence exporter.” Even so, analysts like Aslam are doubtful the country can achieve the government’s export target in two years. “I don’t think $1 billion is feasible.”

Fraction of trade

Pakistan only sells a fraction of the $64 billion in worldwide defence trade. The US continued to dominate major arms exports, according to the Stockholm International Peace Research Institute, accounting for 33% of all major arms exports from 2012–16. Russia was the world’s second-largest exporter, accounting for 23%, while China rose to the third largest exporter, overtaking Germany, France and the UK.

“Our defence products have made their mark in many countries of the world,” Pakistan’s Prime Minister Nawaz Sharif told an annual multinational defence expo in the commercial city of Karachi in November. “However, there are still many opportunities for further growth and exploration of new markets.”

Meeting the export target will hinge on the completion of deals with Turkey, Nigeria and Senegal for the sale of Super Mushshak training aircraft and JF-17 Thunder fighter jets, said Pakistan Minister Hussain. Egypt may be a potential $10 million market for Pakistani weapons, Ministry of Defence Production’s Jafri said, while other major markets include Saudi Arabia, Tajikistan, Uzbekistan, Iraq and Sri Lanka.

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