Defense
The Pakistani Defense Industry –
Market Opportunities, Entry
Strategies, Analyses and Forecasts
to 2016
Reference code: DF0066MR
Published: January 2012
www.icd-research.com
Table of Contents
TABLE OF CONTENTS
1 Introduction ......................................................................................................................... 12
1.1 What is this Report About? ..........................................................................................................12
1.2 Definitions .....................................................................................................................................12
1.3 Summary Methodology .................................................................................................................14
1.4 ICD Research Terrorism Index .....................................................................................................15
1.5 About ICD Research......................................................................................................................15
1.6 About Strategic Defense Intelligence ..........................................................................................15
2 Executive Summary ............................................................................................................ 16
3 Market Attractiveness and Emerging Opportunities ........................................................ 18
3.1 Defense Market Size Historical and Forecast..............................................................................19
3.1.1 Pakistani annual defense expenditure to reach US$11.4 billion by 2016............................................... 19
3.1.2 Hostile neighbouring disputes, internal instability and the ‘war on terror’ expected to drive defense
expenditure ..................................................................................................................................................... 21
3.2 Analysis of Defense Budget Allocation .......................................................................................22
3.2.1 Capital expenditure share expected to be maintained at an average of 28% over the forecast period ... 22
3.2.2 Army receives the largest share of the defense budget to prevent internal instability ............................ 24
3.2.3 The country’s defense expenditure as a percentage of GDP declined during the review period ............ 25
3.3 Homeland Security Market Size and Forecast ............................................................................27
3.3.1 Pakistan is at a significant risk from external and internal threats ......................................................... 27
3.3.2 PCCF and PSS expected to drive homeland security expenditure ........................................................ 28
3.4 Benchmarking with Key Global Markets .....................................................................................29
3.4.1 Pakistani defense expenditure expected to increase at a CAGR of 9.54% over the forecast period ...... 29
3.4.2 Pakistan ranks thirty-fifth in global defense spend ................................................................................ 31
3.4.3 Pakistan’s defense expenditure expected to reach 3.3% of GDP by 2016 ............................................ 32
3.4.4 Pakistan is one of the most terror prone countries in the world ............................................................. 33
3.5 Market Opportunities: Key Trends and Drivers ..........................................................................36
3.5.1 Indigenous submarine development set to drive naval defense procurements ...................................... 36
3.5.2 Development of indigenous UAV and aerial refuelling aircraft, and refurbishment of existing systems
expected to drive air force defense procurement .............................................................................................. 36
3.5.3 Demand for various types of helicopters to increase to counter terrorism ............................................. 36
4 Defense Procurement Market Dynamics ........................................................................... 37
4.1 Import Market Dynamics ...............................................................................................................38
4.1.1 Counterinsurgency and territorial dispute with India expected to increase defense imports ................... 38
4.1.2 US and China were the leading suppliers of arms to Pakistan during the review period ........................ 38
4.2 Export Market Dynamics ..............................................................................................................40
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4.2.1 DEPO expected to increase defense exports ....................................................................................... 40
5 Industry Dynamics .............................................................................................................. 41
5.1 Five Forces Analysis.....................................................................................................................41
5.1.1 Bargaining power of supplier: low ........................................................................................................ 42
5.1.2 Bargaining power of buyer: high........................................................................................................... 42
5.1.3 Barrier to entry: medium to high ........................................................................................................... 42
5.1.4 Intensity of rivalry: low to medium ........................................................................................................ 42
5.1.5 Threat of substitution: medium ............................................................................................................. 42
6 Market Entry Strategy ......................................................................................................... 43
6.1 Market Regulation .........................................................................................................................43
6.1.1 Defense procurements to follow the public procurement policy ............................................................. 43
6.2 Market Entry Route .......................................................................................................................44
6.2.1 Foreign firms enter the Pakistani defense industry through JVs or government-to-government deals.... 44
6.3 Key Challenges .............................................................................................................................45
6.3.1 Bureaucracy and lack of transparency in Pakistani defense ................................................................. 45
6.3.2 Unstable political system coupled with internal instability discourages foreign participation................... 45
7 Competitive Landscape and Strategic Insights ................................................................ 46
7.1 Competitive Landscape Overview ...............................................................................................46
7.1.1 Foreign suppliers manufacture defense systems overseas and deliver to Pakistan ............................... 46
7.1.2 Growing domestic defense industry is predominantly state run............................................................. 46
7.2 Key Foreign Companies ...............................................................................................................47
7.2.1 Boeing: overview ................................................................................................................................. 47
7.2.2 Boeing: products and services ............................................................................................................. 47
7.2.3 Boeing: recent announcements and strategic initiatives ....................................................................... 47
7.2.4 Boeing: alliances ................................................................................................................................. 47
7.2.5 Boeing: recent contract wins ................................................................................................................ 48
7.2.6 Boeing: financial analysis..................................................................................................................... 48
7.2.7 Howaldtswerke-Deutsche Werft: overview ........................................................................................... 49
7.2.8 Howaldtswerke-Deutsche Werft: products and services ....................................................................... 49
7.2.9 Howaldtswerke-Deutsche Werft: recent announcements and strategic initiatives.................................. 49
7.2.10 Howaldtswerke-Deutsche Werft: alliances............................................................................................ 49
7.2.11 Howaldtswerke-Deutsche Werft: recent contracts wins ........................................................................ 49
7.2.12 Howaldtswerke-Deutsche Werft: financial analysis ............................................................................... 49
7.2.13 Raytheon: overview ............................................................................................................................. 50
7.2.14 Raytheon: products and services ......................................................................................................... 50
7.2.15 Raytheon: recent announcements and strategic initiatives ................................................................... 50
7.2.16 Raytheon: alliances ............................................................................................................................. 50
7.2.17 Raytheon: recent contract wins ............................................................................................................ 50
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7.2.18 Raytheon: financial analysis................................................................................................................. 50
7.2.19 Lockheed Martin: overview .................................................................................................................. 51
7.2.20 Lockheed Martin: products and services .............................................................................................. 51
7.2.21 Lockheed Martin: recent announcements and strategic initiatives......................................................... 51
7.2.22 Lockheed Martin: alliances................................................................................................................... 52
7.2.23 Lockheed Martin: recent contract wins ................................................................................................. 52
7.2.24 Lockheed Martin: financial analysis ...................................................................................................... 52
7.3 Key Domestic Companies ............................................................................................................53
7.3.1 Karachi Shipyard & Engineering Works: overview ................................................................................ 53
7.3.2 Karachi Shipyard & Engineering Works: products and services ............................................................ 53
7.3.3 Karachi Shipyard & Engineering Works: recent announcements and strategic initiatives ...................... 54
7.3.4 Karachi Shipyard & Engineering Works: alliances ................................................................................ 55
7.3.5 Karachi Shipyard & Engineering Works: recent contract wins ............................................................... 55
7.3.6 Karachi Shipyard & Engineering Works: financial analysis ................................................................... 55
7.3.7 National Defense Complex: overview................................................................................................... 56
7.3.8 National Defense Complex: products and services............................................................................... 56
7.3.9 National Defense Complex: recent announcements and strategic initiatives ......................................... 56
7.3.10 National Defense Complex: alliances ................................................................................................... 56
7.3.11 National Defense Complex: recent contract wins.................................................................................. 56
7.3.12 National Defense Complex: financial analysis ...................................................................................... 56
7.3.13 National Engineering and Scientific Commission: overview .................................................................. 57
7.3.14 National Engineering and Scientific Commission: products and services .............................................. 57
7.3.15 National Engineering and Scientific Commission: recent announcements and strategic initiatives ........ 57
7.3.16 National Engineering and Scientific Commission: alliances .................................................................. 57
7.3.17 National Engineering and Scientific Commission: recent contract wins ................................................. 57
7.3.18 National Engineering and Scientific Commission: financial analysis...................................................... 57
7.3.19 Pakistan Aeronautical Complex: overview ............................................................................................ 58
7.3.20 Pakistan Aeronautical Complex: products and services ........................................................................ 58
7.3.21 Pakistan Aeronautical Complex: recent announcements and strategic initiatives .................................. 58
7.3.22 Pakistan Aeronautical Complex: alliances ............................................................................................ 58
7.3.23 Pakistan Aeronautical Complex: recent contract wins........................................................................... 58
7.3.24 Pakistan Aeronautical Complex: financial analysis ............................................................................... 58
7.3.25 Pakistan Ordnance Factories: overview ............................................................................................... 59
7.3.26 Pakistan Ordnance Factories: products and services ........................................................................... 59
7.3.27 Pakistan Ordnance Factories: recent announcements and strategic initiatives...................................... 60
7.3.28 Pakistan Ordnance Factories: alliances ............................................................................................... 60
7.3.29 Pakistan Ordnance Factories: recent contract wins .............................................................................. 61
7.3.30 Pakistan Ordnance Factories: financial analysis ................................................................................... 61
7.3.31 Military Vehicle Research & Development Establishment: overview ..................................................... 62
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7.3.32 Military Vehicle Research & Development Establishment: products and services ................................. 62
7.3.33 Military Vehicle Research & Development Establishment: recent announcements and strategic
initiatives ......................................................................................................................................................... 62
7.3.34 Military Vehicle Research & Development Establishment: alliances...................................................... 62
7.3.35 Military Vehicle Research & Development Establishment: recent contract wins .................................... 62
7.3.36 Military Vehicle Research & Development Establishment: financial analysis ......................................... 62
7.3.37 National Radio Telecommunication Corporation: overview ................................................................... 63
7.3.38 National Radio Telecommunication Corporation: products and services ............................................... 63
7.3.39 National Radio Telecommunication Corporation: recent announcements and strategic initiatives ......... 63
7.3.40 National Radio Telecommunication Corporation: alliances ................................................................... 64
7.3.41 National Radio Telecommunication Corporation: recent contract wins .................................................. 64
7.3.42 National Radio Telecommunication Corporation: financial analysis ...................................................... 64
7.3.43 Pakistan Space and Upper Atmosphere Research Commission: overview ........................................... 65
7.3.44 Pakistan Space and Upper Atmosphere Research Commission: products and services ....................... 65
7.3.45 Pakistan Space and Upper Atmosphere Research Commission: recent announcements and strategic
initiatives ......................................................................................................................................................... 66
7.3.46 Pakistan Space and Upper Atmosphere Research Commission: alliances ........................................... 66
7.3.47 Pakistan Space and Upper Atmosphere Research Commission: recent contract wins .......................... 67
7.3.48 Pakistan Space and Upper Atmosphere Research Commission: financial analysis............................... 67
7.3.49 Air Weapons Complex: overview ......................................................................................................... 68
7.3.50 Air Weapons Complex: products and services ..................................................................................... 68
7.3.51 Air Weapons Complex: recent announcements and strategic initiatives ................................................ 69
7.3.52 Air Weapons Complex: alliances.......................................................................................................... 69
7.3.53 Air Weapons Complex: recent contract wins ........................................................................................ 69
7.3.54 Air Weapons Complex: financial analysis ............................................................................................. 69
7.3.55 Daudsons Armory: overview ................................................................................................................ 70
7.3.56 Daudsons Armory: products and services ............................................................................................ 70
7.3.57 Daudsons Armory: recent announcements and strategic initiatives ...................................................... 71
7.3.58 Daudsons Armory: alliances ................................................................................................................ 71
7.3.59 Daudsons Armory: recent contract wins ............................................................................................... 71
7.3.60 Daudsons Armory: financial analysis.................................................................................................... 71
7.3.61 Directorate General Munitions Production (DGMP): overview............................................................... 72
7.3.62 Directorate General Munitions Production (DGMP): products and services........................................... 72
7.3.63 Directorate General Munitions Production (DGMP): recent announcements and strategic initiatives ..... 72
7.3.64 Directorate General Munitions Production (DGMP): alliances ............................................................... 73
7.3.65 Directorate General Munitions Production (DGMP): recent contract wins ............................................. 73
7.3.66 Directorate General Munitions Production (DGMP): financial analysis .................................................. 73
7.3.67 Heavy Industries Taxila: overview ........................................................................................................ 74
7.3.68 Heavy Industries Taxila: products and services .................................................................................... 74
7.3.69 Heavy Industries Taxila: recent announcements and strategic initiatives .............................................. 75
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7.3.70 Heavy Industries Taxila: alliances ........................................................................................................ 76
7.3.71 Heavy Industries Taxila: recent contract wins ....................................................................................... 76
7.3.72 Heavy Industries Taxila: financial analysis ........................................................................................... 76
7.3.73 The Heavy Mechanical Complex: overview .......................................................................................... 77
7.3.74 The Heavy Mechanical Complex: products and services ...................................................................... 77
7.3.75 The Heavy Mechanical Complex: recent announcements and strategic initiatives ................................ 77
7.3.76 The Heavy Mechanical Complex: alliances .......................................................................................... 77
7.3.77 The Heavy Mechanical Complex: recent contract wins ......................................................................... 78
7.3.78 The Heavy Mechanical Complex: financial analysis ............................................................................. 78
7.3.79 SATUMA: overview.............................................................................................................................. 79
7.3.80 SATUMA: products and services ......................................................................................................... 79
7.3.81 SATUMA: recent announcements and strategic initiatives .................................................................... 79
7.3.82 SATUMA: alliances .............................................................................................................................. 79
7.3.83 SATUMA: recent contract wins ............................................................................................................ 79
7.3.84 SATUMA: financial analysis ................................................................................................................. 79
8 Business Environment and Country Risk ......................................................................... 80
8.1 Business Confidence ....................................................................................................................80
8.1.1 Market Capitalization Trend – Karachi Stock Exchange, Pakistan ........................................................ 80
8.1.2 FDI Inflows by Industry ........................................................................................................................ 81
8.1.3 Deployment of Credit by Sector ........................................................................................................... 82
8.2 Economic Performance ................................................................................................................83
8.2.1 GDP at Constant Prices ....................................................................................................................... 83
8.2.2 GDP per Capita at Constant Prices ...................................................................................................... 84
8.2.3 GDP at Current Prices ......................................................................................................................... 85
8.2.4 GDP Per Capita at Current Prices ........................................................................................................ 86
8.2.5 GDP Split by Key Segments ................................................................................................................ 87
8.2.6 Agriculture – Agriculture Net Output Value at Current Prices (Local Currency) ..................................... 88
8.2.7 Agriculture – Agriculture Net Output Value at Current Prices (US Dollar) .............................................. 89
8.2.8 Agriculture – Agriculture Net Output at Current Prices as Percentage of GDP ...................................... 90
8.2.9 Manufacturing – Manufacturing Net Output at Current Prices (Local Currency) .................................... 91
8.2.10 Manufacturing – Manufacturing Net Output at Current Prices (US Dollar) ............................................. 92
8.2.11 Manufacturing – Manufacturing Net Output-Current Prices as Percentage of GDP ............................... 93
8.2.12 Manufacturing – Mining, Manufacturing and Utilities at Current Prices (Local Currency) ....................... 94
8.2.13 Manufacturing – Mining, Manufacturing and Utilities at Current Prices (US Dollars) .............................. 95
8.2.14 Manufacturing – Mining, Manufacturing and Utilities at Current Prices as Percentage of GDP .............. 96
8.2.15 Construction – Construction Net Output at Current Prices (Local Currency) ......................................... 97
8.2.16 Construction – Construction Net Output at Current Prices .................................................................... 98
8.2.17 Construction – Construction Net Output-Current Prices as a percentage of GDP ................................. 99
8.2.18 Industry – Crude Steel Production...................................................................................................... 100
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8.2.19 Industry - Crude Oil Consumption ...................................................................................................... 101
8.2.20 Inflation Rate ..................................................................................................................................... 102
8.2.21 Fiscal Deficit as a Percentage of GDP ............................................................................................... 103
8.2.22 Exports as a Percentage of GDP ....................................................................................................... 104
8.2.23 Imports as a Percentage of GDP ....................................................................................................... 105
8.2.24 Exports Growth .................................................................................................................................. 106
8.2.25 Imports Growth .................................................................................................................................. 107
8.2.26 External Debt as Percentage of GDP ................................................................................................. 108
8.2.27 Exchange Rate US$–PKR (Annual Average) ..................................................................................... 109
8.2.28 Exchange Rate US$-PKR (End of Fiscal)........................................................................................... 110
8.2.29 Debt Service Ratio............................................................................................................................. 111
8.3 Infrastructure Quality and Availability ....................................................................................... 112
8.3.1 Transport – Passenger Vehicle Production Volume............................................................................ 112
8.3.2 Transport – Commercial Vehicle Production Volume.......................................................................... 113
8.3.3 Transport – Automotive Components Export Trend ............................................................................ 114
8.3.4 Transport – Automotive Products Import Trend .................................................................................. 115
8.3.5 Transport – Passenger Car Penetration ............................................................................................. 116
8.3.6 Utilities – Total Installed Capacity for Electricity Generation................................................................ 117
8.3.7 Utilities – Installed Capacity for Conventional Thermal Electricity Generation ..................................... 118
8.3.8 Utilities – Electricity Production .......................................................................................................... 119
8.3.9 Utilities – Installed Capacity for Hydro-electricity Generation .............................................................. 120
8.3.10 Utilities – Installed Capacity for Renewable Electricity Generation ...................................................... 121
8.3.11 Utilities – Electric Power Consumption ............................................................................................... 122
8.3.12 Healthcare – Healthcare Expenditure................................................................................................. 123
8.3.13 Healthcare – Healthcare Expenditure as percentage GDP ................................................................. 124
8.3.14 Healthcare – Healthcare Expenditure Per Capita ............................................................................... 125
8.3.15 Technology – R&D Expenditure as a percentage of GDP ................................................................... 126
8.3.16 Communication – Total Internet Subscribers ...................................................................................... 127
8.3.17 Communication – Broadband Internet Subscribers............................................................................. 128
8.3.18 Communication – Mobile Phone Penetration Rate ............................................................................. 129
8.4 Labor Force .................................................................................................................................130
8.4.1 Labor Force ....................................................................................................................................... 130
8.4.2 Unemployment Rate .......................................................................................................................... 131
8.5 Demographics ............................................................................................................................. 132
8.5.1 Annual Disposable Income ................................................................................................................ 132
8.5.2 Annual Per Capita Disposable Income ............................................................................................... 133
8.5.3 Annual Consumer Expenditure on Food............................................................................................. 134
8.5.4 Annual Per Capita Consumer Expenditure on Food ........................................................................... 135
8.5.5 Urban and Rural Population ............................................................................................................... 136
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8.5.6 Females as a Percentage of the Population ....................................................................................... 137
8.5.7 Males as a Percentage of the Population ........................................................................................... 138
8.5.8 Mean Age of Population..................................................................................................................... 139
8.5.9 Median Age of Population .................................................................................................................. 140
8.5.10 Population Density............................................................................................................................. 141
8.5.11 Age Distribution – Total Population .................................................................................................... 142
8.5.12 Age Distribution-Male Population ....................................................................................................... 142
8.5.13 Age Distribution-Female Population ................................................................................................... 143
8.5.14 No. of Households ............................................................................................................................. 144
8.6 Political and Social Risk .............................................................................................................145
8.6.1 Political Stability................................................................................................................................. 145
8.6.2 Terrorism Index ................................................................................................................................. 145
8.6.3 Transparency Index ........................................................................................................................... 146
9 Appendix ............................................................................................................................ 147
9.1 Contact Us ...................................................................................................................................147
9.2 About ICD Research....................................................................................................................147
9.3 Disclaimer ....................................................................................................................................147
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List of Figures
LIST OF FIGURES
Figure 1: Pakistani Defense Expenditure (US$ billion), 2007–2011 ........................................................................................................................... 19
Figure 2: Pakistani Defense Expenditure (US$ billion), 2012–2016 ........................................................................................................................... 20
Figure 3: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2007–2011......................................................................... 22
Figure 4: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2012–2016........................................................................ 23
Figure 5: Pakistani Defense Budget Allocation Between Services (%), 2011 ............................................................................................................ 24
Figure 6: Pakistani Defense Expenditure as a Percentage of GDP, 2007–2011 ....................................................................................................... 25
Figure 7: Pakistani Defense Expenditure as a Percentage of GDP, 2012–2016 ....................................................................................................... 26
Figure 8: ICD Research Terrorism Heat Map ............................................................................................................................................................... 27
Figure 9: Benchmarking with Key Markets – 2007–2011 vs 2012–2016 .................................................................................................................. 30
Figure 10: Defense Expenditure of the Largest Military Spenders in the World (US$ Billion), 2011 and 2016 ........................................... 31
Figure 11: Countries with the Largest Defense Expenditure as a Percentage of GDP (%), 2011 ............................................................................. 32
Figure 12: ICD Research Terrorism Index* .................................................................................................................................................................. 33
Figure 13: Pakistani Imports by Supplier and Equipment Type (%), 2005–2010 ....................................................................................................... 39
Figure 14: Pakistani Exports by Supplier and Equipment Type (%), 2005–2010 ....................................................................................................... 40
Figure 15: Industry Dynamics – Porter’s Five Forces Analysis ................................................................................................................................... 41
Figure 16: Karachi Stock Exchange Market Capitalization, 2003 – 2009 ................................................................................................................... 80
Figure 17: Pakistani FDI Inflows by Industry (US$ million), 2003–2009 ..................................................................................................................... 81
Figure 18: Pakistani Deployment of Credit by Industry (US$ million), 2003–2009 ..................................................................................................... 82
Figure 19: Pakistani GDP Value at Constant Prices, 2003–2015 ............................................................................................................................... 83
Figure 20: Pakistani GDP Per Capita at Constant Prices, 2003–2015 ....................................................................................................................... 84
Figure 21: Pakistani GDP at Current Prices, 2003–2015 ............................................................................................................................................ 85
Figure 22: Pakistani GDP Per Capita at Current Prices, 2003–2015 .......................................................................................................................... 86
Figure 23: Pakistani GDP Split by Key Sectors 2003 Vs 2009 .................................................................................................................................... 87
Figure 24: Pakistani Agriculture Net Output Value at Current Prices (Local Currency), 2003–2015 ......................................................................... 88
Figure 25: Pakistani Agriculture Net Output Value at Current Prices (US$ billion), 2003–2015 ................................................................................ 89
Figure 26: Pakistani Agriculture Net Output at Current Prices as a Percentage of GDP, 2003–2015....................................................................... 90
Figure 27: Pakistani Manufacturing Net Output at Current Prices (Local Currency), 2003–2015.............................................................................. 91
Figure 28: Pakistani Manufacturing Net Output at Current Prices (US$), 2003–2015 ............................................................................................... 92
Figure 29: Pakistani Manufacturing Net Output at Current Prices as a Percentage of GDP, 2003–2015 ........................................................... 93
Figure 30: Pakistani Mining, Manufacturing and Utilities Net Output at Current Prices (Local Currency), 2003–2015 ............................................ 94
Figure 31: Pakistani Mining, Manufacturing and Utilities Net Output at Current Prices (US$), 2003–2015 .............................................................. 95
Figure 32: Pakistani Mining, Manufacturing, Utilities Net Output at Current Prices as a Percentage of GDP, 2003–2015 ...................................... 96
Figure 33: Pakistani Construction Net Output at Current Prices (Local Currency), 2003–2015 ................................................................................ 97
Figure 34: Pakistani Construction Net Output at Current Prices (US$ bn), 2003–2015 ............................................................................................. 98
Figure 35: Pakistani Construction Net Output, at Current Prices as a percentage of GDP, 2003–2015...................................................... 99
Figure 36: Pakistani Crude Steel Production, 2003–2015 ......................................................................................................................................... 100
Figure 37: Pakistani Crude Oil Consumption, 2003–2015 ......................................................................................................................................... 101
Figure 38: Pakistani Inflation Rate, 2003–2015 ......................................................................................................................................................... 102
Figure 39: Pakistani Fiscal Deficit as a percentage of GDP, 2003–2015 ................................................................................................................. 103
Figure 40: Pakistani Exports as a Percentage of GDP, 2003–2015 ......................................................................................................................... 104
Figure 41: Pakistani Imports as a Percentage of GDP, 2003–2015 .......................................................................................................................... 105
Figure 42: Pakistani Exports Growth, 2003–2015 ...................................................................................................................................................... 106
Figure 43: Pakistani Imports Growth, 2003–2015 ...................................................................................................................................................... 107
Figure 44: Pakistani External Debt as a Percentage of GDP, 2003–2009................................................................................................................ 108
Figure 45: Pakistani Exchange Rate US$–PKR (Annual Average), 2003–2009 ...................................................................................................... 109
Figure 46: Pakistani Exchange Rate (End of Fiscal), 2003–2009 ............................................................................................................................. 110
Figure 47: Pakistani Debt Service Ratio, 2003–2009 ................................................................................................................................................ 111
Figure 48: Pakistani Passenger Vehicle Production, 2003–2015.............................................................................................................................. 112
Figure 49: Pakistani Commercial Vehicle Production, 2003–2015............................................................................................................................ 113
Figure 50: Pakistani Automotive Components Exports, 2003–2015 ......................................................................................................................... 114
Figure 51: Pakistani Automotive Components Imports, 2003–2015 ......................................................................................................................... 115
Figure 52: Pakistani Passenger Car Penetration (per 1000 people), 2003–2015 .................................................................................................... 116
Figure 53: Pakistani Total Installed Capacity for Electricity Generation, 2003–2015 ............................................................................................... 117
Figure 54: Pakistani Installed Capacity for Conventional Thermal Electricity Generation, 2003–2015 .......................................................... 118
Figure 55: Pakistani Electricity Production, 2003–2015 ............................................................................................................................................. 119
Figure 56: Pakistani Installed Capacity for Hydro-electricity Generation, 2003–2015 .............................................................................................. 120
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List of Figures
Figure 57: Pakistani Installed Capacity for Renewable Electricity Generation, 2003–2015 ..................................................................................... 121
Figure 58: Pakistani Electric Power Consumption, 2003–2015 ................................................................................................................................. 122
Figure 59: Pakistani Healthcare Expenditure, 2003–2015......................................................................................................................................... 123
Figure 60: Pakistani Healthcare Expenditure as a Percentage of GDP, 2003–2015 ............................................................................................... 124
Figure 61: Pakistani Per Capita Healthcare Expenditure, 2003–2015 ...................................................................................................................... 125
Figure 62: Pakistani R&D Expenditure as a Percentage of GDP, 2003–2015 ......................................................................................................... 126
Figure 63: Pakistani Internet Subscribers, 2003–2015 .............................................................................................................................................. 127
Figure 64: Pakistani Broadband Internet Subscribers, 2003–2015 ........................................................................................................................... 128
Figure 65: Pakistani Mobile Phone Penetration (per 100 people), 2003–2015 ........................................................................................................ 129
Figure 66: Pakistani Size of Labor Force (in 15–59 age group), 2003–2015 ........................................................................................................... 130
Figure 67: Pakistani Unemployment Rate, 2003–2015 ............................................................................................................................................. 131
Figure 68: Pakistani Annual Disposable Income, 2003–2015 ................................................................................................................................... 132
Figure 69: Pakistani Annual Per Capita Disposable Income, 2003–2015 ................................................................................................................. 133
Figure 70: Pakistani Consumer Expenditure on Food, 2003–2015 ........................................................................................................................... 134
Figure 71: Pakistani Annual Per Capita Consumer Expenditure on Food, 2003–2015 ............................................................................................ 135
Figure 72: Pakistani Urban and Rural Population, 2003–2015.................................................................................................................................. 136
Figure 73: Pakistani Females as a Percentage of the Population, 2003–2015 ........................................................................................................ 137
Figure 74: Pakistani Males as a percentage of the Population, 2003–2015 ............................................................................................................. 138
Figure 75: Pakistani Mean Age of Population, 2003–2015 ........................................................................................................................................ 139
Figure 76: Pakistani Median Age of Population, 2003–2015 ..................................................................................................................................... 140
Figure 77: Pakistani Population Density, 2003–2015 ................................................................................................................................................ 141
Figure 78: Pakistani Population Distribution by Age, 2003–2015.............................................................................................................................. 142
Figure 79: Pakistani Male Population Distribution by Age, 2003–2015..................................................................................................................... 142
Figure 80: Pakistani Female Population Distribution by Age, 2003–2015 ................................................................................................................ 143
Figure 81: Number of Households in Pakistan, 2003–2015 ...................................................................................................................................... 144
Figure 82: Global Terrorism Heat Map ....................................................................................................................................................................... 145
Figure 83: Pakistani Transparency Index, 2003–2009 .............................................................................................................................................. 146
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List of Tables
LIST OF TABLES
Table 1: Pakistani Defense Expenditure (US$ billion), 2007–2011 ............................................................................................................................. 19
Table 2: Pakistani Defense Expenditure (US$ billion), 2012–2016 ............................................................................................................................. 20
Table 3: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2007–2011 .......................................................................... 22
Table 4: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2012–2016 ......................................................................... 23
Table 5: Pakistani Defense Expenditure as a Percentage of GDP, 2007–2011 ......................................................................................................... 25
Table 6: Pakistani Defense Expenditure as a Percentage of GDP, 2012–2016 ......................................................................................................... 26
Table 7: Benchmarking with Key Markets – 2007–2011 vs 2012–2016 ................................................................................................................... 29
Table 8: ICD Research Terrorism Index ....................................................................................................................................................................... 34
Table 9: Key Foreign Companies and Operations in the Pakistani Defense Industry ................................................................................................ 46
Table 10: Boeing – Product Focus................................................................................................................................................................................ 47
Table 11: Boeing – Recent Contract Wins ................................................................................................................................................................... 48
Table 12: Howaldtswerke-Deutsche Werft – Product Focus ....................................................................................................................................... 49
Table 13: Howaldtswerke-Deutsche Werft – Recent Contract Wins ........................................................................................................................... 49
Table 14: Raytheon – Product Focus ........................................................................................................................................................................... 50
Table 15: Raytheon – Recent Contract Wins ............................................................................................................................................................... 50
Table 16: Lockheed Martin – Product Focus ................................................................................................................................................................ 51
Table 17: Lockheed Martin – Recent Contract Wins.................................................................................................................................................... 52
Table 18: Karachi Shipyard & Engineering Works – Product Focus ........................................................................................................................... 53
Table 19: National Defense Complex – Product Focus ............................................................................................................................................... 56
Table 20: National Engineering and Scientific Commission – Product Focus ............................................................................................................ 57
Table 21: Pakistan Aeronautical Complex – Product Focus ........................................................................................................................................ 58
Table 22: Pakistan Ordnance Factories – Product Focus ........................................................................................................................................... 59
Table 23: Pakistan Ordnance Factories – Recent Contract Wins ............................................................................................................................... 61
Table 24: Military Vehicle Research & Development Establishment – Product Focus ............................................................................................... 62
Table 25: National Radio Telecommunication Corporation – Product Focus ............................................................................................................. 63
Table 26: Pakistan Space and Upper Atmosphere Research Commission – Product Focus .................................................................................... 65
Table 27: Pakistan Space and Upper Atmosphere Research Commission – recent contract wins ........................................................................... 67
Table 28: Air Weapons Complex – product focus ........................................................................................................................................................ 68
Table 29: Air Weapons Complex – alliances ................................................................................................................................................................ 69
Table 30: Daudsons Armory – product focus ............................................................................................................................................................... 70
Table 31: Directorate General Munitions Production (DGMP) – product focus .......................................................................................................... 72
Table 32: Directorate General Munitions Production (DGMP) – recent contract wins ............................................................................................... 73
Table 33: Heavy Industries Taxila – product focus ...................................................................................................................................................... 74
Table 34: Heavy Industries Taxila – alliances .............................................................................................................................................................. 76
Table 35: Heavy Industries Taxila – recent contract wins............................................................................................................................................ 76
Table 36: The Heavy Mechanical Complex – product focus ....................................................................................................................................... 77
Table 37: The Heavy Mechanical Complex – alliances ............................................................................................................................................... 77
Table 38: SATUMA – product focus ............................................................................................................................................................................. 79
Table 39: SATUMA – recent contract wins................................................................................................................................................................... 79
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Introduction
1 Introduction
1.1 What is this Report About?
This report offers insights into the market opportunities and entry strategies adopted by foreign original
equipment manufacturers (OMEs) to gain a market share in the Pakistani defense industry. In particular, it
offers in-depth analysis of the following:
Market opportunity and attractiveness: detailed analysis of the current industry size and growth
expectations over 2012–2016, including highlights of the key growth stimulators. It also benchmarks
the industry against key global markets and provides detailed understanding of emerging
opportunities in specific areas
Procurement dynamics: trend analysis of imports and exports, together with their implications and
impact on the Pakistani defense industry.
Industry structure: five forces analysis to identify various power centers in the industry and how
these are expected to develop in the future.
Market entry strategy: analysis of possible ways to enter the market, together with detailed
descriptions of how existing companies have entered the market, including key contracts, alliances,
and strategic initiatives.
Competitive landscape and strategic insights: analysis of the competitive landscape of the
defense industry in Pakistan. It provides an overview of key defense companies (both domestic and
foreign), together with insights such as key alliances, strategic initiatives, and a brief financial
analysis.
Business environment and country risk: a range of drivers at country level, assessing business
environment and country risk. It covers historical and forecast values for a range of indicators,
evaluating business confidence, economic performance, infrastructure quality and availability, labor
force, demographics, and political and social risk.
1.2 Definitions
For the purposes of this report, the following timeframes apply:
Review Period: 2007–2011
Forecast Period: 2012–2016
The following are definitions of military expenditure:
Revenue expenditure includes troop training, institutional education, construction and maintenance
of various undertakings. It also covers the salaries, allowances, pensions, transportation, food,
insurance, welfare benefits and miscellaneous expenditures pertaining to all unit allowances for
training, contingency and other grants for officers, non–commissioned officers, enlisted men and
contracted civilians.
Capital expenditure (capex) covers research and development (R&D), procurement, maintenance,
transportation and storage of weaponry and other equipment. It also includes aircraft expenditure
and aero engines, heavy and medium vehicles, naval equipment and land, construction, plants and
machinery expenditure.
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Introduction
The following are definitions of defense categories:
Military hardware refers to the broad range of machinery, systems, equipment and weapons used
by defense forces.
Air defense systems are defined as all measures designed to nullify or reduce the effectiveness of
hostile air action. They include ground and air-based weapon systems, associated sensor systems,
command and control arrangements, and passive measures. This may be to protect naval, ground
and air forces wherever they are positioned, but does not include missile defense systems.
Missile defense systems are systems, weapons, or technologies involved in the detection,
tracking, interception and destruction of attacking missiles.
Naval defense systems are used to protect sea lanes, ferry troops, or attack other navies, ports, or
shore installations. They include surface ships, amphibious ships, submarines, and seaborne
aviation.
Homeland security (HLS) involves the protection of a country’s civilians and critical infrastructure
from natural or man-made disaster. Its margins extend to border and maritime patrol, customs
checks in ports and airports, search and rescue operations, disaster recovery, combating terrorism
and cyber attacks.
The following are miscellaneous definitions:
Indirect offsets involve both barter and counter trade deals, investment in the buying country, or the
transfer of technology unrelated to the weapons being sold.
Direct offsets is defined as an arrangement wherein the purchaser receives work or technology
directly related to the weapons sale, typically by producing the weapon system or its components
under license.
Multipliers are additional credits assigned over and above the market value provided to offsets for a
technology, product or service being offered.
Command, control and communications and intelligence system (C3I) refers to an information
system employed by a military’s top command to direct its forces. This system provides the military
with information on various parameters associated with executing a strategy during a military
exercise. The parameters include reconnaissance and surveillance, troop positions, inventory levels
and weather conditions. The communication system enables the transfer of images and videos
captured by surveillance systems and data and voice between the command and control center. In
addition, the system aids in joint operations between the army, navy and air force.
Maintenance, repair and overhaul (MRO) involves the servicing of a defense system with the
objective of restoring it to a state where it can perform its intended function. It could be routine
maintenance, replacement of faulty spare parts or checking the entire system to ensure smooth
functioning.
Airborne early warning and control systems (AEW&C) are airborne radar systems used by the
military to detect the movement of aircraft in its airspace. Used at high altitudes, they are utilized in
both defensive and offensive air operations and have the ability to help distinguish between civilian
and military aircraft.
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Introduction
1.3 Summary Methodology
ICD Research’s dedicated research and analysis teams consist of experienced professionals with a
background in industry research and consulting in the defense sector. The following research methodology is
followed for all databases and reports
1) Secondary Research
The research process begins with exhaustive secondary research to source reliable qualitative and
quantitative information related to the defense market. The secondary research sources that are typically
referred to include, but are not limited to:
Industry associations
National government documents and statistical databases
Company websites, annual reports, financial reports, broker reports, investor presentations
Industry trade journals and other literature
Internal and external proprietary databases
News articles, press releases and webcasts specific to the companies operating in the market
2) Primary Research
ICD Research conducts hundreds of primary interviews a year with industry participants and commentators
in order to validate its data and analysis. A typical research interview fulfils the following functions:
Provides first-hand information on market size, market trends, growth trends, competitive landscape
and future outlook
Helps to validate and strengthen secondary research findings.
Further develops the analysis team’s expertise and market understanding.
Primary research involves e-mail interactions, telephonic interviews and face-to-face interviews for
each market category, and sub-category across geographies.
The participants who typically take part in such a process include, but are not limited to:
Industry participants: CEOs, VPs, business development managers, market intelligence managers
and national sales managers.
External experts: investment bankers, valuation experts, research analysts and key opinion leaders
specializing in defense markets
3) Conventions
Currency conversions are performed on the basis of average annual conversion rate format
calculations.
All the values in tables, with the exception of compounded annual growth rate (CAGR) and
compounded annual rate of change (CARC) are displayed to one decimal place; therefore, growth
rates may appear inconsistent with absolute values due to this rounding method.
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Introduction
1.4 ICD Research Terrorism Index
The ICD Research Terrorism Index classifies countries across the world into one of the following categories
based on the risk of terrorism:
Worst affected
Highly affected
Moderately affected
Some risk
Low risk
It takes into account the total number of terrorist incidents, the total number of people affected by these
attacks, and the presence of foreign terrorist organizations in a country. Based on these parameters, the
terrorism index is developed using a weighted average scorecard.
1.5 About ICD Research
ICD Research is a full-service market research agency and premium business information provider,
specializing in industry analysis in a broad set of B2B and B2C markets. Our products and services help
companies make better decisions, win business and position themselves more effectively.
ICD Research’s areas of expertise include online research, qualitative and quantitative research, industry
analysis, custom approaches and actionable insights. ICD Research has access to over 500 in-house
analysts and journalists, and a global media presence in over 30 professional markets, enabling us to
conduct unique and insightful research via our trusted business communities.
1.6 About Strategic Defense Intelligence (www.strategicdefenceintelligence.com)
This report is one of a series that is available to subscribers of our premium research platform — Strategic
Defence Intelligence. Strategic Defence Intelligence provides a stream of continuously updated customer
and competitor intelligence as well as detailed research reports providing an unrivalled source of global
information on the latest developments in the defense industry.
Strategic Defence Intelligence's unique monitoring platform tracks global defense activity for over 2,500
companies and 65 product categories in real-time in a highly structured manner - giving a comprehensive
and easily-searchable picture of all defense industry activity. The site features: daily updated analysis,
comment and news; company and customer profiles; defense spending, tenders and contracts; product and
technology intelligence; a research and analysis database giving you access to industry and competitor
reports to inform your business and market planning as well as fully customizable tools, including instant
personalized report generation and custom alerts.
For a free demonstration please contact us at sales@strategicdefenceintelligence.com
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Executive Summary
2 Executive Summary
Pakistan is expected to spend US$40.4 billion on defense over the forecast period to minimize
internal instability and bolster its defense capabilities
The Pakistani defense industry, which valued US$5.8 billion in 2011, is expected to grow at a CAGR of
11.5% over the forecast period, to value US$9.9 billion by 2016. Indeed, the increased internal instability
of the country following the onset of its participation in the international military campaign against
terrorism, which is widely referred to as the ‘war on terror’, will continue to drive Pakistani defense
expenditure over the next five years. Moreover, the nation’s long-standing territorial dispute with
neighboring India means that the Pakistani defense strategy will largely correspond with the Indian’s
spending and development programs. Furthermore, Pakistan is expected to allocate more than 3% of its
GDP on defense expenditure over the forecast period, despite its relatively small economy. However,
while the country received an additional US$7.4 billion of military aid from the US for its contributions
towards the ‘war on terror’ during the review period, it is expected to receive an increased package of
US$7.6 billion over the forecast period.
Pakistan has been subjected to more than 5,000 terrorist attacks in the past five years, which have not
only resulted in the death of many civilians, but have also adversely affected the country’s economy as
several foreign companies have ceased operations and new ones are reluctant to establish new
business. Consequently, the US has established a Pakistan counter-insurgency fund valuing US$1.2
billion annually which is effect from 2011 onwards, to provide the Pakistani Armed Forces (PAF) with
counter-insurgency training and related defense systems.
Over the forecast period Pakistan is expected to make procurements in areas such as submarines and
submarine technology, drones for attack-grade unmanned aerial vehicles (UAVs), surveillance
equipment and satellites for ground monitoring, fighter jets and associated support systems, air-to-air
missile systems, attack helicopters and engines for the development of aerial refueling aircraft.
Pakistan is the fourth-largest importer of arms in Asia and procures the majority of its arms from
the US and China
Pakistan’s domestic defense industry is able to fulfill the majority of the national requirements for low
and mid-market technology defense systems, but is largely unable to supply technologically advanced
defense systems. As a result, Pakistan was the fourth-largest importer of arms in Asia during the review
period, behind China, India and South Korea. The country has strong relations with both the US and
China, and these nations cater to the majority of Pakistan’s defense requirements. While the US has
been the major arms supplier to Pakistan for the past five years, China was the largest supplier in 2009
due to a large procurement of fighter jets and submarine technology. Pakistan also imports diesel
engines for submarines from Germany, early warning systems from Russia and air propulsion systems
for submarines in Sweden.
However, the Pakistani export market is set to grow over the forecast period, as the country begins to
develop high quality indigenous defense systems. The country has also established a defense export
promotion board to promote the export of systems such as battle tanks, advanced aircraft trainers,
UAVs, surface-to-air and anti-tank missile systems.
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Executive Summary
Foreign firms enter the defense market through joint ventures (JVs) or government-to-
government sales
Historically, US defense firms have entered the Pakistani defense industry through government initiated
foreign military sales. Furthermore, Pakistan promotes the joint development of defense systems, which
has resulted in a number of JVs with Chinese and German companies in areas such as submarines,
trainer aircraft, fighter jets and UAVs.
Unstable political and social systems, coupled with a lack of transparency in spending, are the
key challenges for foreign OEMs
As a result of the lack of a structured defense budgeting policy until 2008, the Pakistani defense industry
has experienced widespread corruption in the use of allocated funds. Indeed, although defense
procurements are supposed to be made through competitive bidding, this rule is not strictly enforced,
which leads to a lack of transparency in the awarding of defense deals. Furthermore, while efforts have
been made to streamline the defense budget, Pakistan does not disclose the amount allocated for
capital expenditure or the portion of US military aid assigned for expenses. Historically, domestic military
industrial complexes have been subjected to the severe mismanagement of budgeted funds, which has
impeded the growth of the domestic defense industry.
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Market Attractiveness and Emerging Opportunities
3 Market Attractiveness and Emerging Opportunities
Pakistan is a major non-NATO ally of the US and a significant collaborator with China in the area of
defense development. The annual increases in the Pakistani defense budget are largely due to the
country’s long-standing territorial dispute with neighboring India and the internal instability caused by
radical terrorist groups. Furthermore, the country receives substantial military aid from the US for its
participation in the ‘war on terror’, which is used to procure advanced fighter jets and missile systems.
Therefore, over the forecast period, opportunities are expected to emerge in the development of
submarines, indigenous early warning and UAV systems.
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Market Attractiveness and Emerging Opportunities
3.1 Defense Market Size Historical and Forecast
3.1.1 Pakistani annual defense expenditure to reach US$11.4 billion by 2016
During the review period, the total defense expenditure of Pakistan increased at a CAGR of 7.18% to
value US$7.5 billion in 2011, including US$1.7 billion of US military aid. As a result, the country was the
fourth-largest importer of arms in Asia during the review period excluding procurements made with US
military aid. Furthermore, defense expenditure is expected to record a CAGR of 9.54% over the forecast
period, to value US$11.4 billion by 2016, and a total value of US$48 billion over the forecast period.
The following table and figure show Pakistani defense expenditure during the review period:
Table 1: Pakistani Defense Expenditure (US$ billion), 2007–2011
Year US$ Billion % Growth
2007 5.7 5%
2008 5.8 3%
2009 6.3 8%
2010 6.5 3%
2011 7.5 15%
CAGR 2007–2011 7.18%
Source: Ministry of Defense and ICD Research analysis © ICD Research
Figure 1: Pakistani Defense Expenditure (US$ billion), 2007–2011
16%
Defense Expenditure Growth Rate (%)
8.50
14%
Defense Budget (US$ Billion)
7.50
12%
6.50
10%
5.50
8%
4.50
3.50 6%
2.50 4%
1.50 2%
0.50 0%
2007 2008 2009 2010 2011
Total Defense Budget of the country with US aid in US$ billion Growth
Source: Ministry of Defense and ICD Research analysis © ICD Research
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Market Attractiveness and Emerging Opportunities
The following table and figure show Pakistani projected defense expenditure over the forecast period:
Table 2: Pakistani Defense Expenditure (US$ billion), 2012–2016
Year US$ Billion % Growth
2012 7.9 6%
2013 8.7 9%
2014 9.5 10%
2015 10.4 10%
2016 11.4 10%
CAGR 2012–2016 9.54%
Source: Ministry of Defense and ICD Research analysis © ICD Research
Figure 2: Pakistani Defense Expenditure (US$ billion), 2012–2016
12.50 12%
Defense Expenditure Growth Rate (%)
11.50
Defense Budget (US$ Billion)
10.50 10%
9.50
8.50 8%
7.50
6.50 6%
5.50
4.50 4%
3.50
2.50 2%
1.50
0.50 0%
2012 2013 2014 2015 2016
Total Defense Budget of the country with US aid in US$ billion Growth
Source: Ministry of Defense and ICD Research analysis / © ICD Research
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Market Attractiveness and Emerging Opportunities
3.1.2 Hostile neighbouring disputes, internal instability and the ‘war on terror’ expected to drive
defense expenditure
Pakistan and India have a history of territorial disputes and three armed conflicts have occurred in the
past 60 years. Consequently, the two countries often strive to remain equal in all areas of defense,
which is one of the main influences governing the Pakistani defense budget. In addition, tension
between Pakistan and radical organizations from Afghanistan that disagree with Pakistan’s military and
political relations with the US, and domestic groups from the North-West Frontier Province (NWFP) and
Federally Administered Tribal Areas (FATA), which border Afghanistan, have intensified attacks on both
the government and civilians, causing severe internal instability. During the review period Pakistan has
been subjected to over 5,000 terrorist attacks, which affected as many as 55,000 civilians. As a result,
the Pakistani government has increased expenditure on border surveillance, maritime patrol and the
development of indigenous UAVs and early warning systems.
Indeed, following the 9/11 attacks on the US, Pakistan has allowed the US military to establish a military
base within its borders to carry out its anti-terrorist activities. Moreover, the country has been the highest
recipient of military aid from the US since the 9/11 attacks, receiving a total of US$11 billion during
2002–2009 for the purchase of advanced fighter jets and missile systems. However, as Pakistan still
struggles to maintain its defense budget in the light of political and social unrest, and natural disasters,
China has been providing Pakistan with low-interest military loans in order to co-develop defense
systems.
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Market Attractiveness and Emerging Opportunities
3.2 Analysis of Defense Budget Allocation
3.2.1 Capital expenditure share expected to be maintained at an average of 28% over the forecast
period
Without a structured defense procurement program until 2008, capital expenditure accounted for an
average of 28% of Pakistan’s total defense expenditure during the review period, which included the
acquisition of defense systems, the expansion of domestic defense firms and the R&D of indigenous
defense systems. Over the forecast period, it is expected that the capital and revenue expenditure share
will not vary significantly.
The following table and chart displays the Pakistani defense budget share of capital and revenue
expenditure during the review period:
Table 3: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2007–2011
Year Capital expenditure share (%) Revenue expenditure share (%)
2007 28% 72%
2008 28% 72%
2009 29% 71%
2010 27% 73%
2011 28% 72%
Source: ICD Research analysis © ICD Research
Figure 3: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2007–2011
100%
90%
80%
Defense Budget Split (%)
70%
60%
50%
40%
30%
20%
10%
0%
2007 2008 2009 2010 2011
Capital expenditure (%) Revenue expenditure (%)
Source: ICD Research analysis © ICD Research
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Market Attractiveness and Emerging Opportunities
The following table and chart displays the Pakistani defense budget as a share of capital and revenue
expenditure over the forecast period:
Table 4: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2012–2016
Year Capital expenditure share (%) Revenue expenditure share (%)
2012 28% 72%
2013 28% 72%
2014 28% 72%
2015 28% 72%
2016 28% 72%
Source: ICD Research analysis © ICD Research
Figure 4: Pakistani Defense Budget Split Between Capital and Revenue Expenditure, 2012–2016
,
100%
90%
80%
Defense Budget Split (%)
70%
60%
50%
40%
30%
20%
10%
0%
2012 2013 2014 2015 2016
Capital expenditure (%) Revenue expenditure (%)
Source: ICD Research analysis / © ICD Research
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Market Attractiveness and Emerging Opportunities
3.2.2 Army receives the largest share of the defense budget to prevent internal instability
In 2011, the army received 48% of the Pakistani defense budget, due to the urgent need to equip its
personnel in the event of attacks from militant forces. Indeed, since 2008, the army has procured 26
new Bell 412EP transport and attack helicopters from the US and Mi-17 medium-lift transport helicopters
from Russia. Pakistan also bought 40 Bell 407 and Fennec light helicopters from the US and
Eurocopter. Furthermore, during the review period, the army procured excess AH-1 Cobra attack
helicopters from the US to assist with anti-terrorist support operations in the NWFP and upgraded its
entire fleet with AH-1Z King Cobra avionics and new weapon systems, such as the TOW-2 and Hellfire
missiles. In addition, the army is expected to procure 30 next generation attack helicopters over the
forecast period in order to enhance its attack aviation systems the Eurocopter Tiger, South African AH-2
Rooivalk and Boeing AH-64D Apache Longbow models are all being evaluated.
Although the navy and air force only received a combined share of 33% of the total defense budget in
2011, Pakistan also allocates a significant portion of its military assistance from the US and China on
the procurement of aircraft and submarines.
The following chart shows Pakistani defense budget allocation by services:
Figure 5: Pakistani Defense Budget Allocation Between Services (%), 2011
Defense Budget Allocation: US$5.8 bn
Others
23%
Army
44%
Navy
10%
Airforce
23%
©ICD Research
Source: Ministry of Finance, Pakistan and ICD Research analysis
Note: The defense budget allocation in the chart does not include US military aid
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Market Attractiveness and Emerging Opportunities
3.2.3 The country’s defense expenditure as a percentage of GDP declined during the review period
As a percentage of GDP, Pakistan’s defense expenditure declined from 3.2% in 2007 to 3.0% in 2011,
as the Pakistani government was forced to reduce its allocation for defense because of the effects of
internal instability on the economy. However, Pakistan was able to compensate for this fall and continue
to fund defense procurements with the US$3 billion of military aid it received from the US during 2005–
2010. Over the forecast period, Pakistan is expected to allocate more than 3% of its GDP for defense,
supported by the recovery of its economy and increases in US military aid, including a rise from US$1.5
billion in 2010 to US$1.7 billion in 2011.
The following table and chart shows the trend of Pakistani defense expenditure as a percentage of GDP
during the review period:
Table 5: Pakistani Defense Expenditure as a Percentage of GDP, 2007–2011
Year Defense expenditure as a percentage of GDP
2007 3.18%
2008 2.69%
2009 2.86%
2010 2.83%
2011 2.84%
Source: Ministry of Defense and ICD Research analysis © ICD Research
Figure 6: Pakistani Defense Expenditure as a Percentage of GDP, 2007–2011
3.30%
Defense Expenditure as% of GDP
3.20%
3.10%
3.00%
2.90%
2.80%
2.70%
2.60%
2.50%
2.40%
2007 2008 2009 2010 2011
Source: Ministry of Defense and ICD Research analysis © ICD Research
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Market Attractiveness and Emerging Opportunities
The following table and chart shows Pakistani defense expenditure as a percentage of GDP over the
forecast period:
Table 6: Pakistani Defense Expenditure as a Percentage of GDP, 2012–2016
Year Defense expenditure as a percentage of GDP
2012 2.75%
2013 2.88%
2014 3.02%
2015 3.15%
2016 3.27%
Source: Ministry of Defense and ICD Research analysis © ICD Research
Figure 7: Pakistani Defense Expenditure as a Percentage of GDP, 2012–2016
3.40%
Defense Expenditure as% of GDP
3.30%
3.20%
3.10%
3.00%
2.90%
2.80%
2.70%
2.60%
2.50%
2.40%
2012 2013 2014 2015 2016
Source: Ministry of Defense and ICD Research analysis © ICD Research
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Market Attractiveness and Emerging Opportunities
3.3 Homeland Security Market Size and Forecast
3.3.1 Pakistan is at a significant risk from external and internal threats
As a result of its territorial dispute with neighboring India, and resistance from radical groups occupying
the NWFP and FATA regions, Pakistan spends a significant portion of its defense budget on border
patrol. Furthermore, the country is also at high risk of internal attacks on religious and civilian areas by
militants that oppose Pakistan’s relations with the US.
Consequently, Pakistan has established a National Counter Terrorism Authority (NACTA) in 2010, which
will be responsible for the formulation of policies to protect its homeland against terrorist attacks. The
primary areas of focus are the improvement of civilian defense, border and maritime security, and the
provision of surveillance in the western tribal areas in order to prevent militant insurgency.
Due to these factors, Pakistan falls under the ‘worst affected’ category in the ICD Research Terrorism
Index, which indicates a high level of terrorist activity. Indeed, the country has been subjected to more
than 5,000 terrorist attacks in the past five years, which resulted in the death of many civilians and
damaged the economy as many foreign companies closed operations in Pakistan, and potential firms
became reluctant to conduct business in the country.
The following figure shows the heat map based on the ICD Research Terrorism Index, which displays
threat level faced by countries across the world:
Figure 8: ICD Research Terrorism Heat Map
Pakistan
Worst affected Highly affected Moderately affected Some risk Low risk
Source: ICD Research Terrorism Index © ICD Research
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Market Attractiveness and Emerging Opportunities
3.3.2 PCCF and PSS expected to drive homeland security expenditure
In 2009, the US announced the approval of a Pakistan Counterinsurgency Capabilities Fund (PCCF), in
which the US will commit a minimum of US$700 million annually to help the country to counter extremist
groups and support economic needs. The fund is expected to increase to US$1.2 billion annually from
2011, in order to additionally train and equip the PAF to more effectively defend against militants along
its western border with Afghanistan. The program, which is overseen by the US defense secretary, will
also enable the armed forces to procure patrol helicopters, communication systems and night vision
goggles, and help Pakistan to establish border coordination centers to share intelligence on insurgency.
Pakistan also allows the US to use its attack grade UAVs to monitor and attack militant posts in the tribal
regions of North-West Frontier Province (NWFP) and Federally Administered Tribal Areas (FATA).
Similarly, the anti-terrorism agency, NACTA, seeks to improve shared intelligence on terrorism between
the provinces and the Federation of Pakistan. To do so, Pakistan and Afghanistan have established a
shared surveillance program intended to monitor and improve the security of the Pakistan–Afghanistan
border. The program is centered on the establishment of a joint Persistent Surveillance System (PSS),
which consists of an unarmed aerostat with mounted imaging equipment. Pakistan is also set to procure
CCTVs and six L-88 Aerostat Systems from the US in order to monitor the Line of Control it shares with
India in the Jammu and Kashmir region.
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Market Attractiveness and Emerging Opportunities
3.4 Benchmarking with Key Global Markets
3.4.1 Pakistani defense expenditure expected to increase at a CAGR of 9.54% over the forecast
period
While the defense expenditure of Pakistan increased at a CAGR of 7.18% during the review period,
expenditure is set to grow at an increased CAGR of 9.54% over the forecast period, due to Pakistan’s
territorial dispute with India and increasing military aid from the US.
The figure below benchmarks the growth of Pakistani defense budget with key global markets:
Table 7: Benchmarking with Key Markets – 2007–2011 vs 2012–2016
Country CAGR 2007–2011 CAGR 2012–2016 Budget in 2011
(US$ Billion)
US 6% 4% 708
China 18% 10% 92
Russia 10% 20% 51
Japan 10% 3% 60
France 2% 3% 59
UK 2% -3% 60
Saudi Arabia 8% 5% 48
Germany 3% 0% 44
Brazil 13% 20% 33
India 13% 13% 37
Italy -2% 4% 27
South Korea 2% 8% 29
Israel 2% 5% 13
Pakistan 7% 10% 8
Source: National Defense Agencies and ICD Research analysis © ICD Research
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Market Attractiveness and Emerging Opportunities
Figure 9: Benchmarking with Key Markets – 2007–2011 vs 2012–2016
25.00%
Russia
20.00%
Defense expenditure -
Brazil
CAGR 2012–2016
15.00% India
China
10.00% South Korea
Pakistan
5.00% France US Japan
Italy
Israel Saudi Arabia
0.00% Germany
-10% -5% 0% 5% 10% 15% 20% 25%
-5.00% UK
-10.00%
Defense expenditure - CAGR 2007-2011
Note: Bubble size represents 2011 defense expenditure (US$ billion)
Source: ICD Research analysis / / © ICD Research
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Market Attractiveness and Emerging Opportunities
3.4.2 Pakistan ranks thirty-fifth in global defense spend
Despite its relatively small GDP, in 2011, Pakistan ranked thirty-fifth in the world in terms of the
countries with the largest defense expenditures due to the military aid it receives from the US.
The following chart shows Pakistan’s defense market size in comparison to the largest military spenders
in the world:
Figure 10: Defense Expenditure of the Largest Military Spenders in the World (US$ Billion),
2011 and 2016
US 688
708
China 147
92
Russia 126
51
Japan 70
60
India 68
37
France 67
59
Saudi… 62
48
UK 48
60
Germany 44
44
Italy 27
27
Pakistan 11
8
0 100 200 300 400 500 600 700 800
2016 2011 Figures in US$ billion
Source: ICD Research analysis ©ICD Research
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Market Attractiveness and Emerging Opportunities
3.4.3 Pakistan’s defense expenditure expected to reach 3.3% of GDP by 2016
In 2011, Pakistan allocated 2.8% of its GDP for defense related activity, which is higher than its
neighbors India and China. Despite its relatively small economy, this figure is expected to increase to
3.3% by 2016, due to the need for increased spending on anti terror activities.
The chart below shows the defense expenditure of largest military spenders as a percentage of GDP:
Figure 11: Countries with the Largest Defense Expenditure as a Percentage of GDP (%), 2011
Italy 0.9%
Brazil 1.3%
China 1.3%
India 2.0%
Australia 2.1%
France 2.1%
UK 2.4%
South Korea 2.5%
Russia 2.7%
Pakistan 2.8%
United States 4.7%
Israel 5.4%
Saudi Arabia 8.6%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Source: ICD Research analysis ©ICD Research
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Market Attractiveness and Emerging Opportunities
3.4.4 Pakistan is one of the most terror prone countries in the world
According to the ICD Research Terrorism Index Iraq, Pakistan, Afghanistan, Somalia and India are the
country’s most affected by terrorism.
The terrorism index is calculated on the basis of the following factors:
The number of terror attacks that the country has faced from 2006 onwards
The total number of people victimized
The existence of foreign terrorist organization/s operating in a particular country
With a terrorism index score of 9.5 in 2011, Pakistan ranks second in the world for countries most at risk
of terrorism. Indeed, Pakistan faces threats from radical groups that disagree with its political and military
relations with the US. As a result, Pakistan has suffered over 5,000 terrorist attacks on public places and
religious institutions in the last five years. Despite the launch of a major military offensive against militant
strongholds in 2009, insurgents continue to attack Pakistan and its inhabitants.
Figure 12: ICD Research Terrorism Index*
Saudi Arabia 0.2
Iran 1.2
Gaza Strip 1.4
Lebanon 1.4
Philippines 1.6
Congo, Democratic Republic 1.6
Israel 1.7
Sudan 1.8
Colombia 1.9
Thailand 2.3
Nepal 3.0
Somalia 4.4
India 5.1
Afghanistan 9.4
Pakistan 9.5
Iraq 32.2
0 5 10 15 20 25 30 35
ICD Research Terrorism Index Score
*Index score classification: >4 - Worst affected, between 4 and 1 - Highly affected, between 1 and 0.5 - moderately affected,
between 0.5 and 0.1 - some risk, and <0.1 - Low risk
Source: ICD Research Terrorism Database ©ICD Research
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Market Attractiveness and Emerging Opportunities
The table below shows the ICD Research Terrorism Index score of the world’s top 50 terror-prone
countries:
Table 8: ICD Research Terrorism Index
Rank Country Terrorism Score
1 Iraq 32.2
2 Pakistan 9.5
3 Afghanistan 9.4
4 India 5.1
5 Somalia 4.4
6 Nepal 3.0
7 Thailand 2.3
8 Colombia 1.9
9 Sudan 1.8
10 Israel 1.7
11 Congo, Democratic Republic 1.6
12 Philippines 1.6
13 Lebanon 1.4
14 Gaza Strip 1.4
15 Iran 1.2
16 Sri Lanka 1.2
17 Russia 1.2
18 Algeria 1.0
19 Yemen 1.0
20 Turkey 0.9
21 West Bank 0.6
22 Chad 0.6
23 Syria 0.6
24 Egypt 0.5
25 Nigeria 0.5
26 Singapore 0.5
27 United Kingdom 0.5
28 Greece 0.5
29 Malaysia 0.5
30 Indonesia 0.4
31 Spain 0.4
32 Jordan 0.3
33 Uzbekistan 0.3
34 Bangladesh 0.3
35 France 0.3
36 Ethiopia 0.3
37 Burma 0.3
38 Mali 0.3
39 Libya 0.2
40 Tajikistan 0.2
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Market Attractiveness and Emerging Opportunities
Table 8: ICD Research Terrorism Index
Rank Country Terrorism Score
41 Saudi Arabia 0.2
42 Kenya 0.2
43 Morocco 0.2
44 Ireland 0.2
45 Singapore 0.2
46 Central African Republic 0.2
47 Niger 0.2
48 Georgia 0.2
49 Peru 0.2
50 Senegal 0.2
Source: ICD Research analysis © ICD Research
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Market Attractiveness and Emerging Opportunities
3.5 Market Opportunities: Key Trends and Drivers
3.5.1 Indigenous submarine development set to drive naval defense procurements
Over the forecast period Pakistan is expected to procure three submarine systems based on air-
independent propulsion systems. The country is evaluating the German ThyssenKrupp Marine Systems
(TKMS) Type-214 submarine and French Scorpene-class submarines for the purpose. Pakistan also
plans to procure seven submarines at a cost of US$1.7 billion. In addition, Pakistan has announced
plans to build more of its indigenously developed Agosta-class submarines, which is expected to
increase the procurement of related components, such as propulsion systems and missile launch
systems.
3.5.2 Development of indigenous UAV and aerial refuelling aircraft, and refurbishment of existing
systems expected to drive air force defense procurement
Pakistan is currently in development of an indigenous attack grade UAV, known as Burraq, which will
significantly increase the procurement of drones, surveillance equipment and satellites for ground
monitoring. The country is also expected to procure technology to develop drones that have attack
capabilities. Furthermore, Pakistan is anticipated to procure aircraft engines, surveillance and weapon
guidance systems, beyond visual range air-to-air missiles, and radar warning systems from China, for
use with its indigenously developed JF-17 fighter jets, the production of which is expected to increase
over the forecast period.
3.5.3 Demand for various types of helicopters to increase to counter terrorism
The Pakistani Army is expected to buy 20 Super Cobra helicopters over the forecast period to upgrade
its ageing fleet Cobra attack helicopters. The procurements, which will cost US$1 billion, will be made
with the US$2.5 billion of US military aid Pakistan requested in 2010 to expand its efforts in the ‘war on
terror’. The requested systems include new helicopter gunships, armed helicopters, UAVs and utility and
cargo helicopters. However, the US has not yet accepted Pakistan’s US$75 million request for Advanced
Integrated Defensive Electronic Warfare Systems (AIDEW) to enhance the attack systems of its F-16
fleet, which may prompt Pakistan to seek other potential suppliers.
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Defense Procurement Market Dynamics
4 Defense Procurement Market Dynamics
The domestic defense industry of Pakistan is able to fulfill the PAF’s low and mid-technology
requirements, while the country relies on imports from foreign OEMs to provide advanced technology
support for its armed forces. The majority of these imports are sourced from China and the US, which
met 74% of Pakistani import requirements during the review period. The strong diplomatic relationships
shared with the two countries ensure that Pakistan’s defense requirements will be suitably fulfilled over
the forecast period.
In addition, Pakistan has a growing export market, for which the government has established an export
promotion board to increase its exports of indigenously developed systems.
The figures in this section are based on trend indicator values (TIV) expressed in US$ million at constant
(1990) prices. Although figures are expressed in US$, TIVs do not represent the financial value of goods
transferred. Rather, TIVs are an indication of the volume of arms transferred.
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Defense Procurement Market Dynamics
4.1 Import Market Dynamics
4.1.1 Counterinsurgency and territorial dispute with India expected to increase defense imports
Following reports that Pakistan was conducting nuclear tests in the 1990s, the US imposed sanctions on
Pakistan, which prevented the purchase of defense technologies to improve its indigenous capabilities.
However, these sanctions were not only lifted following the 9/11 attacks in the US, but the US also
began to provide Pakistan with military aid to procure advanced defense systems to counter insurgents
along its western border with Afghanistan and in its tribal areas. As a result, Pakistan has been able to
import technologically advanced defense systems such as F-16 fighter jets and attack helicopters from
the US, air-independent submarine propulsion systems and anti-ship missile systems from France,
diesel engines for building corvettes and submarines from Germany, UAV drones from Italy and Turkey,
and transport and early warning systems from Sweden.
Furthermore, Pakistan often aligns its defense procurement strategy with that of India, with which it is in
territorial dispute, so that its armed forces will be equal in the event of an armed conflict. As a result,
Pakistan continues to increase its defense budget despite its relatively small economy. However,
Pakistan’s dispute with India has begun to effect its relations with other supplying counties. Indeed, the
US is currently reviewing its arms supplies to Pakistan on the grounds that the country is amassing the
systems to use in conflict with India, while Russia, which is an ally of India, blocked the sale of engines
to Pakistan to be used in the JF-17 fighters, which are jointly developed by Pakistan and China, on the
grounds that the fighters could be used in an attack on India.
4.1.2 US and China were the leading suppliers of arms to Pakistan during the review period
Pakistan enjoys strong diplomatic relationships with both the US and China. Indeed, the US and
Pakistan have become major non-NATO allies, with Pakistan receiving substantial military aid from the
US for its participation in the ‘war on terror’. Pakistan uses the military financing to bridge the deficits in
its defense systems. During the review period, China supplied 36% of the arms imported by Pakistan,
while the US supplied 38%. China began to supply assembled J-10 multi-role attack aircraft to Pakistan
in 2009, which increased the volume of imports from China. Furthermore, as China continues to offer
low-cost loans to Pakistan to fund the joint development of defense projects and the US continues to
provide military aid to Pakistan, the two countries are expected to remain as the leading defense
suppliers to Pakistan over the forecast period.
The systems supplied by the US include Bell-412 and Bell-209 combat helicopters, F-16 fighter aircrafts
and support units such as firing systems, radar, aerial refueling kits, anti-ship, anti-submarine, anti-tank
missiles and refurbished excess defense articles such as the Perry-class frigate. However, while
Pakistan continues to make substantial requests to the US for new defense technologies to enhance its
indigenous capabilities, concerns relating the transparency of the Pakistan defense budget may threaten
the affirmative outcome of these requests.
As a result, the relationship between Pakistan and China continues to strengthen, with China often
assisting Pakistan with technologies denied to them by the US. Indeed, China has collaborated in many
successful defense projects with Pakistan, merging its technology and components with Pakistani
expertise in aircraft construction and shipbuilding to produce J-10 and JF-17 multirole combat aircraft,
which have comparable features to the US F-16, K-8 Karakoram two-seat jet trainers and light attack
aircraft, and Al-Khalid battle tanks. While the products are jointly manufactured, China manages the sale
of the products and Pakistan operates the after-sales maintenance, repair and overhaul (MRO). China is
also helping Pakistan to develop its indigenous nuclear-powered submarines, which is set to increase
Pakistani defense imports over the forecast period.
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Defense Procurement Market Dynamics
The following chart shows Pakistani defense imports by suppliers and category during 2005–2010:
Figure 13: Pakistani Imports by Supplier and Equipment Type (%), 2005–2010
Suppliers By Equipment
Sensors
Libya 6%
3% Others
Others
Sweden 7%
11%
6% Armored
Vehicles
US 11%
France 38% Aircraft
6% 44%
Missiles
12%
China Ships
36% 20%
Note: Arms suppliers to Pakistan refers to the percent share of the total volume of arms supplied to Pakistan during 2005–2010.
Source: SIPRI and ICD Research analysis ©ICD Research
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Defense Procurement Market Dynamics
4.2 Export Market Dynamics
4.2.1 DEPO expected to increase defense exports
During the review period, Pakistan’s domestic defense industry exported a relatively small number of
anti-tank missiles to Bangladesh and trainer aircraft to Saudi Arabia. Consequently, Pakistan has
established the Defense Export Promotion Organization (DEPO) to facilitate customer inquiries and
coordinate the export of high quality, ISO certified defense products and services, including Al-Khalid
battle tanks, KL-8 basic and advanced trainer aircraft, surface-to-air and anti-tank missile systems,
sophisticated surface and subsurface naval craft, air delivered munitions, small arms, and a large range
of ammunition and explosives. The country has also announced investment in R&D organizations, in
order to update its defense production capabilities to satisfy the changing requirements of its customers.
As a result, defense exports are expected to increase over the forecast period.
The following chart shows Pakistani defense exports by suppliers and category during 2005–2010:
Figure 14: Pakistani Exports by Supplier and Equipment Type (%), 2005–2010
Suppliers By Equipment
Iraq
60%
Saudi Aircraft,
Arabia Armoured 42%
16% Vehicles,
58%
Banglad
esh
24%
Source: SIPRI and ICD Research analysis ©ICD Research
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Industry Dynamics
5 Industry Dynamics
5.1 Five Forces Analysis
The Pakistani defense industry is largely driven by the aim of domestic defense system enhancement in
order to maintain military development in accordance with its neighbor, India, and to prepare itself for
potential conflict. The country’s armed forces are the sole purchasers in the industry and procurements
are driven by relationships with the particular supplier country. The Pakistani defense industry is subject
to stringent government regulations and characterized by domestic firms that specialize in satisfying the
varied needs of the country’s armed forces. Pakistan’s strong relationship with the US and China
ensures the availability of systems and technology across the defense spectrum.
The following sections provide a Porter’s five forces analysis of the Pakistani defense industry.
Figure 15: Industry Dynamics – Porter’s Five Forces Analysis
Barrier to Entry
Medium to high
Bargaining Power of Supplier Intensity of Rivalry Bargaining Power of Buyer
Low Low to Medium High
Threat of Substitution
Medium
Source: ICD Research analysis © ICD Research
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Industry Dynamics
5.1.1 Bargaining power of supplier: low
The majority of domestic production is procured by the Pakistani Armed Forces. Domestic firms are
predominantly state-run, a factor which reduces the bargaining power of the local supplier. Pakistan’s
diplomatic relationships with the supplier’s host country determine the bargaining power of the supplier.
Pakistan has the advantage of turning to Chinese support for a defense technology when the US turns
down a request, which increases the ease with which the country can change supplier and further
contributes to the supplier’s low bargaining power.
5.1.2 Bargaining power of buyer: high
The Pakistani Ministry of Defense (MoD) holds the monopoly on the procurement of defense systems,
which increases its bargaining power. This is enhanced further by its important role in the US led ‘war on
terror’, as a result of which the country receives significant arms supplies.
5.1.3 Barrier to entry: medium to high
The barrier to entry in the domestic defense sector is high, due to the state-run status of the majority of
Pakistani defense companies, and the restriction which prohibits foreign direct investment (FDI) in the
defense industry. The entry barrier for foreign firms is assessed as medium and is largely influenced by
requirement dynamics and diplomatic relations with supplier countries.
5.1.4 Intensity of rivalry: low to medium
The intensity of rivalry in the domestic sector is low, as each company focuses on the development of
different defense products, and therefore companies do not present a threat to one another. The
increased Chinese share of arms supply to Pakistan, and the resultant reduced US share, poses
challenges for the US. An increase in Chinese supplied systems would result in limited interoperability
between defense systems from the two countries, and consequently difficulties for the US in the effective
utilization of Pakistan in the ‘war on terror’. This is expected to fuel the intensity of rivalry over the
forecast period.
5.1.5 Threat of substitution: medium
The threat of substitution exists in areas in which Pakistan has entered into the development of domestic
defense systems with Chinese assistance. Following the issue of US sanctions, Pakistan developed the
JF-17 aircraft in collaboration with China. This aircraft poses a substitute threat to the US supplied F-16s
as it is more economical despite being technologically limited.
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Market Entry Strategy
6 Market Entry Strategy
6.1 Market Regulation
6.1.1 Defense procurements to follow the public procurement policy
The Pakistani Armed Forces are responsible for the country’s defense procurements and are required to
follow the Public Procurements Policy formulated in 2004. The policy states that all procurements must
be executed through competitive bidding. Under this policy, companies that supply expensive and
technically complex defense systems are required to pre-qualify technical, managerial and financial
capabilities. However, despite the existence of such legislation, the implementation of the regulatory
framework is limited, and contracts are often secured regardless of this procedure. Foreign firms cannot
directly invest in Pakistan’s domestic defense firms as the Pakistani government intends to maintain
control of defense development.
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Market Entry Strategy
6.2 Market Entry Route
6.2.1 Foreign firms enter the Pakistani defense industry through JVs or government-to-government
deals
Foreign firms have primarily entered the Pakistani defense industry through government-to-government
deals. Foreign OEMs such as Lockheed Martin, Raytheon and Boeing have entered the market through
the supply of F-16 fighter jets and missile systems for US-Pakistani contracts.
The increased availability of qualified and experienced defense engineers has contributed to a growth in
domestic ship building, through Karachi Ship Building, and aircraft building, through Pakistan
Aeronautical Corporation (PAC). By constructing submarines in Karachi Shipyard and Engineering
Works (KSEW), the German company Howaldtswerke-Deutsche Werft supplies the Pakistani Navy with
naval defense systems, and the Chinese Chengdu Aircraft Corporation formed a technology transfer
agreement with Pakistan in order to develop the JF-17 fighter jet at the PAC.
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Market Entry Strategy
6.3 Key Challenges
6.3.1 Bureaucracy and lack of transparency in Pakistani defense
Until recently, Pakistan was under military rule and did not follow a structured defense budgeting
mechanism, which resulted in improper budget allocations and a high level of corruption in the armed
forces. Since 2008, the country concentrated on streamlining its defense budget and highlighting the
amount allocated for the three defense services. However, the country’s defense budget still does not
disclose the capital expenditure allocation, and does not account for the utilization of the substantial
amount of US military aid. The Public Procurements Act of 2004 requires defense procurements to
follow a competitive bidding process, however the implementation of this legislation appears minimal, as
a result of which a biased deal selection process is still in place. A number of foreign OEMs find the lack
of transparency in defense deals, and the delay in the finalization, a key challenge in the execution of
defense deals in the country.
Currently the Pakistani defense industry, largely run by former military scientists, has only two private
participants, both of which specialize in UAVs. The domestic industry consists of military industrial
complexes entirely under Pakistani government control which suffer from alleged mismanagement of
budget funds, a factor that impedes the growth of the domestic sector. Pakistan attributes the non-
encouragement of domestic firms into the country’s defense industry to the national security concern,
however private companies have attempted to enter the industry in the fields of IT communications
security and surveillance systems production with limited success due to high levels of mismanagement
within the bureaucracy.
6.3.2 Unstable political system coupled with internal instability discourages foreign participation
During the past ten years Pakistan has experienced military coups, military general leadership, biased
elections and the assassinations of past leaders. These events have led to an unstable political system
with a limited ability to formulate and implement long term plans, which in turn has resulted in a lack of
policy for defense procurements. During the review period Pakistan has experienced 5,000 attacks from
radical militant groups, a factor which has both discouraged existing foreign companies to continue
participation in the country’s defense program and deterred new participants from establishing
operations. In collaboration with the armed forces, Pakistan is undertaking substantial coordinated
efforts to foster stability and promote foreign participation.
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Competitive Landscape and Strategic Insights
7 Competitive Landscape and Strategic Insights
7.1 Competitive Landscape Overview
7.1.1 Foreign suppliers manufacture defense systems overseas and deliver to Pakistan
The majority of Pakistan’s defense requirements for technologically advanced weapons are met through
imports. Firms such as Boeing, Raytheon, and Lockheed Martin supply missile and aircraft systems
from worldwide manufacturing units. The Chinese Chengdu Aircraft Corporation manufactures aircrafts
domestically and entrusts the responsibility of post-sales, MRO and the manufacture of several
components to Pakistan. Foreign naval firms such as the German company Howaldtswerke-Deutsche
Werft (HDW) have entered the Pakistani defense industry through JVs with Pakistan’s Karachi Shipyard
& Engineering Works (KSEW) to construct ships.
The table below highlights the key foreign companies and operations in the Pakistani defense industry.
Table 9: Key Foreign Companies and Operations in the Pakistani Defense Industry
Manufactures
Joint venture / alliance
Company overseas and Year of establishment
with Pakistan firm
supplies
Howaldtswerke-Deutsche Werft
2008
GmbH
Boeing 2007
Raytheon 2007
Lockheed Martin 2007
Chengdu Aircraft Corporation 1999
Source: Company website, annual report and ICD Research analysis ©ICD Research
7.1.2 Growing domestic defense industry is predominantly state run
With the exception of Satuma, which develops UAVs, the state-run domestic defense industry has no
civilian involvement, is structurally limited and has low levels of transparency. Substantial government
investment has assisted domestic firms in the manufacture of high quality products at affordable prices,
a factor which has driven the country’s export market. Karachi Ship Building, the largest ship building
company in Pakistan, constructs ships for the Pakistani Navy in collaboration with the German HDW.
Pakistan Aeronautical Corporation supplies the post-sales MRO for the Fighter China-1 program, a joint
agreement between China and Pakistan. Satuma, a private firm run by eminent army researchers,
develops domestic UAV systems for the PAF. The country’s domestic firms are actively involved in the
development of indigenous missile systems through collaboration with foreign OEMs.
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Competitive Landscape and Strategic Insights
7.2 Key Foreign Companies
7.2.1 Boeing: overview
The Boeing Company (Boeing) is involved in the areas of aerospace and defense. The company
operates multiple business units – Boeing Commercial Airplanes (BCA), Boeing Defense, Space and
Security (BDS), engineering, operations and technology, Boeing Capital and Boeing Shared Services
Group. The company was founded in 1916 in Seattle, Washington under the name Pacific Aero Products
Co. however, in 1997, the firm’s name changed to The Boeing Company when it merged with McDonnell
Douglas.
Boeing provides a range of defense products such as fighter aircraft, F/A-18 Hornet and F-22 Raptor, P-
8 multi-mission maritime aircraft, anti-submarine warfare patrol aircraft, aerial refueling tankers, airlifters,
helicopters, UAVs, bombers, guided short-range missiles and intercontinental missiles, patrol hydrofoils
and Boeing jetfoils, and the XM1202 mounted combat systems. The company offers defense products to
a large number of countries including Pakistan. Boeing has also established an aviation parts
manufacturing facility in Pakistan for the supply of aircraft parts.
7.2.2 Boeing: products and services
The various products and services offered by the company are:
Table 10: Boeing – Product Focus
Products Services
Fighter crafts NA
UH-60 Blackhawk helicopters
C-17 Globemaster III airlifters
F-16 fighter planes
Unmanned aerial vehicles
12 RQ-7 Shadow UAVs
Source: Company website, annual report and ICD Research analysis / © ICD Research
7.2.3 Boeing: recent announcements and strategic initiatives
October 2010: The US Air Force delivered two Boeing C-17 Globemaster III airlifters to Pakistan for the
provision of humanitarian aid to the country’s northwestern provinces, in order to support residents
displaced by conflict between Pakistani government forces and the Taliban. The C-17s delivered
125,000 meals and 50 tents.
March 2007: McDonnell Douglas Corp, a subsidiary of Boeing, received a US$15.79 million contract for
the construction of ten Harpoon anti-ship missiles for Pakistan. The company will supply the missiles as
part of a contract with the Pakistani Naval Air Systems Command under the foreign military sales
program.
7.2.4 Boeing: alliances
Not available
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Competitive Landscape and Strategic Insights
7.2.5 Boeing: recent contract wins
Table 11: Boeing – Recent Contract Wins
Date Contract value Client Description
McDonnell Douglas Corp, a subsidiary of Boeing,
received a 15.8 million dollar contract for the
construction of ten Harpoon anti-ship missiles for
February 2007 US$15.8 million Pakistan Military Pakistan. The contract is for ten Harpoon Block II,
grade B all-up-round missiles and an equal number
of MK631 containers. The majority of the work will be
executed in Missouri.
Source: Company website © ICD
Research
7.2.6 Boeing: financial analysis
Not available
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Competitive Landscape and Strategic Insights
7.2.7 Howaldtswerke-Deutsche Werft: overview
Howaldtswerke-Deutsche Werft (HDW) is a German shipyard, and part of the ThyssenKrupp Marine
Systems shipyard alliance. The shipyard is headquartered in Hamburg and has operations in Emden,
Karlskrona and Malmö in Sweden and Skaramanga in Greece. The shipyard manufactures and repairs a
range of non-nuclear submarines such as the Class 209, Class 212A, Class 214 and Missile IDAS. In
addition, HDW produce and repair frigates, corvettes and gunboats. The company also overhauls
serving boats and offers design, manufacture, outfitting, testing and in-service-support services.
Following the merger of Howaldtswerke with Hamburg-based Deutsche Werft in 1968, HDW’s name was
changed to Howaldtswerke-Deutsche Werft.
7.2.8 Howaldtswerke-Deutsche Werft: products and services
The key products offered by the company are:
Table 12: Howaldtswerke-Deutsche Werft – Product Focus
Products Services
Submarines NA
Class 214
Class 212
Source: Company website, annual report and ICD Research analysis / © ICD Research
7.2.9 Howaldtswerke-Deutsche Werft: recent announcements and strategic initiatives
Not available
7.2.10 Howaldtswerke-Deutsche Werft: alliances
Not available
7.2.11 Howaldtswerke-Deutsche Werft: recent contracts wins
Table 13: Howaldtswerke-Deutsche Werft – Recent Contract Wins
Date Contract value Client Description
HDW entered into a contract with the Pakistan Navy
to construct Class 214 diesel-electric submarines in
a shipyard in Pakistan's southern port city of Karachi.
November 2008 US$1 billion Pakistan Navy The contract is valued at US$1 billion, and HDW will
construct three submarines. The first submarine will
be delivered to the Pakistan navy in 64 months, with
the remainder delivered in the following 12 months.
Source: Company website © ICD
Research
7.2.12 Howaldtswerke-Deutsche Werft: financial analysis
Not available
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7.2.13 Raytheon: overview
Raytheon Missile Systems (Raytheon), formed in 1921, is a technology driven company which offers
specialized solutions for defense, homeland security and other industries. The company provides
advanced electronics, mission systems integration and other technologies for sensing, effects,
command, control, communications and intelligence systems, alongside a broad range of mission
support services. Defense products offered by the company include missiles, guided missile defense
systems such as missile-defense interceptors for both ground and sea-based programs and defense
accessories. The company also manufactures Bell helicopters.
7.2.14 Raytheon: products and services
The products and services offered by the company are:
Table 14: Raytheon – Product Focus
Products Services
Missiles and weapon systems NA
Advanced medium-range air-to-air missiles (AMRAAM)
AIM-9M sidewinder missiles
Tomahawk cruise missile
Source: Company website, Annual Report and ICD Research analysis / © ICD Research
7.2.15 Raytheon: recent announcements and strategic initiatives
September 2007: Pakistan signed a letter of offer and acceptance with Raytheon to procure 500
advanced medium-range air-to-air missiles (AMRAAM), the largest single international AMRAAM
purchase, in addition to 200 AIM-9M Sidewinder missiles. Delivery of the missiles will begin in 2008 and
continue through 2011. The deal is valued at US$284 million and will provide the majority of the air-to-air
fire power for the Pakistan Air Force.
7.2.16 Raytheon: alliances
Not available
7.2.17 Raytheon: recent contract wins
Table 15: Raytheon – Recent Contract Wins
Date Contract value Client Description
The company has signed a letter of offer and
acceptance for the procurement of 500 AMRAAM,
The Pakistan Air the largest single international AMRAAM purchase,
January 2007 US$284 million
Force in addition to the purchase of 200 AIM-9M
Sidewinder missiles. Delivery of the missiles began
in 2008 and will continue through 2011.
Source: Company website © ICD
Research
7.2.18 Raytheon: financial analysis
Not available
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Competitive Landscape and Strategic Insights
7.2.19 Lockheed Martin: overview
Lockheed Martin, based in Maryland, US, is a global security company involved in the research, design,
development, manufacture, integration and sustainment of advanced technology systems, products and
services. The firm commenced operations in Pakistan in 1963 and supplies defense products, including
fighter aircrafts, surveillance aircrafts and missile systems to a large number of countries including
Pakistan.
7.2.20 Lockheed Martin: products and services
The products and services offered by the company are:
Table 16: Lockheed Martin – Product Focus
Products Services
Fighter aircrafts NA
F-16s block 52 aircrafts
C-130B airlifters
F-16C aircrafts
F-16D aircrafts
Surveillance aircrafts
2 P-3C Orion maritime surveillance aircraft
Missile and weapon systems
AGM-84 Harpoon missiles
Communication equipment
Long-range AN/TPS-77 transportable radar systems
Source: Company website, Annual Report and ICD Research analysis / © ICD Research
7.2.21 Lockheed Martin: recent announcements and strategic initiatives
August 2011: Lockheed Martin provided ten upgrade kits for Pakistan's F-16 A/B aircrafts.
December 2010: Lockheed Martin delivered two of seven upgraded P-3C maritime surveillance aircraft
to Pakistan under the US government's foreign military sales program. The firm specializes in the
upgrade of P-3C aircraft and mission systems and provides maintenance services under a 2006 contract
from the US Navy's naval air systems command. The aircraft support anti-ship and anti-submarine
warfare missions and will enhance Pakistan's ability to conduct maritime surveillance in littoral and deep-
water environments.
March 2009: Lockheed Martin unveiled the first of 18 new F-16 aircraft which are in production for
Pakistan. The aircraft is the latest configuration of the fourth generation multirole fighter, and is
designated as Peace Drive I. The program raises the total number of F-16s ordered by Pakistan to 54.
The Peace Drive I order is for 12 F-16Cs and six F-16Ds, all powered by Pratt & Whitney F100-PW-229
engines. The first aircraft, a two-seat F-16D model, will be delivered to the US government, as part of the
Foreign Military Sales process, in December, with the remainder following in 2010.
June 2009: Lockheed Martin received a modification to a previously awarded indefinite-delivery/
indefinite-quantity contract from Pakistan, for the upgrade of 7 P-3C aircraft under the Foreign Military
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Competitive Landscape and Strategic Insights
Sales program. This modification will replace the airplanes’ unsustainable avionics systems with modern
equipment.
August 2007: Lockheed Martin was awarded a contract by the PAF for the supply of F-16 fighter jets.
Under the contract, the company will provide Pakistan with 12 F-16c and 6 F-16D planes.
February 2007: Lockheed Martin signed a contract with Sniper advanced targeting pods (ATPs), a part
of the new advanced block 52 F-16 aircraft program for Pakistan. In January 2008, PAF received ATPs
for F-16 aircrafts, which not only provide high stability and improved imagery but allow aircrews to
perform intelligence, targeting, surveillance and reconnaissance missions from extended standoff
ranges. Sniper is fully compatible with the latest J-series munitions and precision-guided weaponry.
7.2.22 Lockheed Martin: alliances
Not available
7.2.23 Lockheed Martin: recent contract wins
Table 17: Lockheed Martin – Recent Contract Wins
Date Contract value Client Description
To provide ten upgrade kits for Pakistan's F-16 A/B
August 2011 US$42.3 million Pakistan Air Force
aircrafts.
The company received a modification to a previously
awarded indefinite-delivery/ indefinite-quantity
contract from Pakistan to upgrade 7 P-3C aircraft
November 2009 US$4.4 million Pakistan Military
under the Foreign Military Sales program. This
modification will replace the airplanes’ unsustainable
avionics systems with modern equipment.
The company was awarded a contract by the PAF to
supply F-16 fighter jets. Under the contract, the
December 2007 US$498.2 million PAF
company will sell 12 F-16c and 6 F-16D planes to
Pakistan.
The company signed a contract with ATPs, a part of
the new advanced block 52 F-16 aircraft program for
Pakistan. PAF received Sniper ATPs for F-16
aircrafts in January 2008, that have high stability and
May 2007 NA PAF improved imagery, which allow aircrews to perform
intelligence, surveillance and reconnaissance
missions from extended standoff ranges. Sniper is
fully compatible with the latest J-series munitions
and precision-guided weaponry.
Source: company website © ICD Research
7.2.24 Lockheed Martin: financial analysis
Not available
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Competitive Landscape and Strategic Insights
7.3 Key Domestic Companies
7.3.1 Karachi Shipyard & Engineering Works: overview
Karachi Shipyard & Engineering Works (KSEW) is a heavy engineering establishment that caters to ship
building, repairing and heavy or general engineering requirements. It has broadened Pakistan’s
industrial base and significantly contributed to technology transfer. KSEW has three shipbuilding berths,
a large shipbuilding hall, two dry docks, a machine shop, fabrication shops and other supporting facilities
such as pipefitting, carpentry and a light steel fabrication shop. The organization is recognized as an
autonomous commercial organization by the MoD.
KSEW possesses the facility to construct large vessels including oil carriers, bulk carriers, warships,
cargo ships and marine craft including tugs, ferries, barges, fishing trawlers and dredgers. The firm has
the capability to produce liquefied petroleum gas (LPG) storage tanks, pressure vessels, industrial
boilers, heavy steel structures, overhead and portal cranes, complete sugar and cement plants. As a
project of Philadelphia Industrial Development Corporation (PIDC), KSEW was established in the early
1950s and incorporated into a public limited company in 1957.
7.3.2 Karachi Shipyard & Engineering Works: products and services
The products and services offered by the company are:
Table 18: Karachi Shipyard & Engineering Works – Product Focus
Products Services
Frigates NA
F-22P Zulfiquar class frigate
Patrol craft
Jalalat II class missile boat
Larkana class large patrol craft
Submari