BMI View: The state-dominated Pakistani defence industry still lacks advanced design and development capabilities in most segments, which means that the country remains heavily reliant on foreign partners to meet its armed f orces' requirements. However, joint venture s with China have allowed local manufacturers to benefit from technology transfer in recent years, and tanks, combat aircraft and armed UAVs are now produced i n-country. As a result, P akistani defence exports are rising - particularly to developing countries looking for affordable equipment. Islamabad is under pressure to maintain defence expenditure growth, as the government must keep powerful military officials satisfied in order to ensure political stability, amid an intensified counterterrorism campaign and persistent tension with neighbouring India. We expect significant investment into equipment needed for counterterrorism operations in the next few years, and a gradually stronger focus on strengthening naval and air power (both for which India retains superiority over Pakistan) over the longer term. That said, huge operational expenses linked to ongoing military operations will restrict funding for modernisation to some degree.
|e/f = BMI estimate/forecast. Source: BMI/US Dept. Of State WMEAT|
|Defence expenditure, USDmn||9,089.7||9,429.5||10,065.9||10,737.3||11,453.0||12,215.7|
|Defence expenditure, USD, % y-o-y||1.5||3.7||6.7||6.7||6.7||6.7|
|Defence expenditure, % of GDP||3.6||3.6||3.6||3.6||3.6||3.5|
Domestic Defence Sector:
The Block 3 version of the JF-17 Thunder fighter jointly produced by Pakistan Aeronautical Complex (PAC) and Chinese Chengdu Aerospace Corporation (CAC) is in 'final design stages' according to Chinese media in December 2015. A two-seater version of the aircraft was reported to be undergoing testing in China in that same month. In November 2015, PAC accounted plans to set up a Klimov RD-93 engine (used in JF-17s) service and overhaul facility at Kamra.
Pakistan reported in September 2015 that the locally-produced armed Burraq UAV had been successfully used in a daytime attack - the first-ever demonstration of offensive capability in battle by a Pakistani UAV - and a night time attack the following month.
Media reported in June 2015 that Pakistan Ordnance Factories may absorb the financially struggling Pakistan Machine Tool Factory.
In January 2016, Pakistan's Standing Committee on Defence Production recommended additional funding for Karachi Shipyard and Engineering Works (KSEW) under the 2016-2017 budget to expand the shipyard's capacity.
Pakistan is reportedly planning to establish a second shipyard at the Gwadar deep sea port; the proposal is currently awaiting approval from the prime minister.
In October 2015, Islamabad issued a statement saying it was planning to expand defence development and production cooperation with Turkey in areas such as communications, aircraft and shipbuilding. Turkey donated 34 Cessna T-37 trainer aircraft to Pakistan in the same month.
In October 2015, the Defence Export Promotion Organization (DEPO) opened an exhibition centre in Islamabad, which will promote defence exports and JVs in the sector.
In September 2015, the Senate Standing Committee on Defence Production issued a recommendation for a ban on external procurement of defence equipment which can be manufactured domestically.
Domestic Defence Market:
In April 2016, Bell Helicopters received a contract to deliver nine AH-1Z Viper attack helicopters to Pakistan. The Pakistani military has reportedly also expressed interest in the Chinese Changhe Aircraft Industries Corporation (CAIC)'s Z-10 Thunderbolt and Russian Mil Mi-28NE Havoc models.
In August 2015, Pakistan signed a contract with Russia for the purchase of four Mi-35M Hind-J attack helicopters.
In February 2016, the US Department of State approved the sale of two single-seat F-16Cs and six twin-seat F16-Ds from Lockheed Martin to Pakistan under a USD700mn contract.
Pakistan will, under a USD15mn contract signed in September 2015, take delivery of an undisclosed number of Boeing Insitu ScanEagle UAS.
Over 2015, Pakistan ordered six patrol boats and eight submarines from China.
According to an unnamed defence official quoted by Dawn in March 2016, the Pakistani air force is planning to retire 190 fighter jets by 2020.
The intensified Operation Zarb-e-Azb led to a significant reduction in terrorism attacks in Pakistan over 2015.
Islamabad decided against contributing to the Saudi-led intervention against Houthi rebels in Yemen in 2015.
In early-January 2016, a military base in Pathankot, India, was attacked, for which New Delhi blamed Pakistan-based Jaish-e-Mohammed (JeM). In a positive development following the attack, Pakistani authorities allegedly arrested some members of JeM, and a Pakistani investigation team visited India. However, diplomatic talks between the two countries were 'suspended' shortly after their return. Relations have been further strained by Pakistan's allegations that its military had arrested an Indian spy in Balochistan in March 2016.
On Easter Day 2016, TTP splinter group Jamaat-ur-Ahrar staged an attack at a public park in Lahore, Punjab, killing at least 70 people. Following the attack, media reported that the army and the paramilitary Rangers had initiated a crackdown in Punjab.
In March 2016, large-scale protests took place in Islamabad's high-security Red Zone against the execution of Mumtaz Qadri (convicted for murdering Punjab Governor Salman Taseer for his criticism of blasphemy laws). The army was called in to gain control over the situation.
Defence Industry Risk Reward Index
The security environment in Pakistan is highly volatile. Defence forces are currently engaged in major counterterrorism offensives in North Waziristan and Karachi, and tensions with India over Kashmir persist. This will drive military spending over the coming years, strengthening Pakistan's Industry Rewards score; however, it also makes the establishment of local operations a very high-risk venture, weighing on its performance in the Country Risks segment. Meanwhile, Industry Risks are heightened by the armed forces' heavy reliance on defence imports, limiting opportunities for growth of the domestic sector in the short- to medium-term. Consequently, Pakistan ranks ninth regionally out of the 14 Asia Pacific states included in our Risk Reward Index, with an overall score of 58 out of 100.
The Pakistan Defence & Security Report features BMI Research's independent forecasts for national and international security, the defence industry, military expenditure, employment in arms production, and arms imports and exports, as well as examining industry trends and prospects, national and multinational arms producers and the regulatory environment.
BMI's Pakistan Defence & Security Report provides professionals, consultancies, government departments, regulatory bodies and researchers with independent forecasts and regional competitive intelligence on the Pakistani defence and security industry.
- Benchmark BMI's independent defence and security industry forecasts on Pakistan to test other views - a key input for successful budgetary and strategic business planning in the Pakistani defence and security market.
- Target business opportunities and risks in the Asia defence and security sector through reviews of latest industry trends, regulatory changes and major deals, projects and investments in Asia.
- Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. KPIs and latest activity).
Global and Regional Political Outlooks
A strategic overview of the world’s major political risks, identifying countries facing leadership successions and nations at risk of upheaval, inter-state conflict, or separatism and insurgencies, plus a summary of the world’s ‘wild card’ low-probability high-impact risks.
Snapshot evaluation of the major issues affecting the defence and security sectors, economy and politics, with issues subdivided into strengths, weaknesses, opportunities and threats.
BMI Industry Forecast Scenario
Historic data series and forecasts to end-2019 for key industry indicators supported by explicit assumptions, plus analysis of key downside risks to the main forecast.
- Defence Expenditure: Defence expenditure (local currency and USDbn); defence expenditure (% of total budget); defence expenditure per capita (USD); defence budget (local currency and USDbn).
- Armed Forces (to 2012): Manpower available for military service, manpower fit for militaryservice, army personnel, navy personnel,air force personnel, total armed forces, (‘000) (% population).
- Arms Trade: Arms and ammunition exports and imports (USDmn); bombs, grenades and missiles exports and imports (USDmn); revolver and pistol exports and imports (USDmn); weapons excluding guns and swords exports and imports (USDmn).
Political Risk Assessment
Drawing on BMI’s heritage of more than 25 years of Country Risk analysis, this comprehensively evaluates the key risks to domestic politics and foreign relations, focusing on issues most likely to affect either domestic security or the defence sector.
Security Risk Analysis
BMI’s proprietary Security Risk Indices provide investors with a reliable and country-comparable guide to conflict, terrorism and criminal risk, backed up by our analyst’s latest assessment of each component. Furthermore, drawing on our Country Risk expertise, we assess the state’s vulnerability to a serious, or prolonged, terrorist campaign.
Armed Forces Spending/ Expenditure
The reports contain a detailed breakdown of areas of expenditure by the armed forces, these include spending on international deployments, WMDs and missile defence systems as well as individual breakdowns of the cost-per-soldier.
The domestic security overview lists the various potential internal security threats facing a country, ranging from internal security issues such as terrorism, cyber terrorism, crime and drugs, to external security issues including general defence procedures and potential threats from specific countries. The reports also provide a regional overview which details specific issues and flashpoints affecting the Americas, along with potential risks in the coming year.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Defence & Security Market reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.