The Pakistani Defense Industry - Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017

Product Synopsis

This report is the result of SDI’s extensive market and company research covering the Pakistani defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.

Introduction and Landscape

Why was the report written?
The Pakistani Defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain market share in the Pakistani defense industry.

What is the current market landscape and what is changing?
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 third-largest importer of arms during 2007–2011, behind 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. China was the major arms supplier to Pakistan during 2007–2011 as well as in 2012. Pakistan also imports diesel engines for submarines from Germany, early warning systems from Russia, and air propulsion systems for submarines from Sweden.

What are the key drivers behind recent market changes?
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. Furthermore, the country develops, manufactures and exports a wide variety of military equipment such as unmanned aerial vehicles (UAVs), modern fighter jets, battle tanks, armored vehicles, frigates, submarines, high tech firearms and personal grenade launchers. Therefore, over the forecast period, opportunities are expected to exist in the development and export of this military equipment.

What makes this report unique and essential to read?
The Pakistani Defense Industry Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017 provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

Key Features and Benefits

The report provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.
The report includes trend analysis of imports and exports, together with their implications and impact on the Pakistani defense industry.
The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.
The report allows readers to identify 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.
The report helps the reader to understand 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.

Key Market Issues

Due to the lack of a structured defense budgeting policy until 2008, the Pakistani defense industry has experienced widespread corruption in the use of allocated funds. 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 portion of US military aid assigned for expenses.
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. 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
Pakistan established the Defense Export Promotion Organization (DEPO) in early 2000 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.

Key Highlights

During the review period, the total defense expenditure of Pakistan increased at a CAGR of XX% to value US$XX billion in 2012, excluding US$XX billion of US military aid. As a result, the country was the world’s third-largest importer of arms during 2007–2011 as per Stockholm International Peace Research Institute (SIPRI). Furthermore, defense expenditure is expected to record a CAGR of XX% over the forecast period, to value US$8.9 billion by 2017.
Foreign firms have primarily entered the Pakistani defense industry through government-to-government deals. Foreign OEMs such as Lockheed Martin, Raytheon, and Boeing have entered the market through the supply of F-16 fighter jets and missile systems for US-Pakistani contracts. The increased availability of qualified and experienced defense engineers has contributed to a growth in domestic ship building, through Karachi Ship Building, and aircraft building, through Pakistan Aeronautical Corporation (PAC). By constructing submarines in Karachi Shipyard and Engineering Works (KSEW), the German company Howaldtswerke-Deutsche Werft supplies the Pakistani Navy with naval defense systems, and the Chinese Chengdu Aircraft Corporation formed a technology transfer agreement with Pakistan in order to develop the JF-17 fighter jet at the PAC.
Under the heading of public order and safety, an amount of US$XX million was provided in the budget for 2012–13 compared with US$XX million in the previous budget. A major chunk of XX% was allocated for police in the 2012–13 budget. While XX% of the budget was earmarked for law courts, XX% was allocated to administration, and the remaining share was earmarked for fire protection, prison administration, and research and development. In 2010 there was a huge increase of XX% in the public order and safety budget, mainly driven by an increase in the police budget.

Table of Contents

1 Introduction
1.1. What is this Report About?
1.2. Definitions
1.3. Summary Methodology
1.4. SDI Terrorism Index
1.5. About Strategic Defence Intelligence (www.strategicdefenceintelligence.com)
2 Executive Summary
3 Market Attractiveness and Emerging Opportunities
3.1. Defense Market Size Historical and Forecast
3.1.1. Pakistani annual defense expenditure to reach US$XX billion by 2017
3.1.2. Territorial disputes, internal threats and the war against terrorism expected to drive defense expenditure
3.2. Analysis of Defense Budget Allocation
3.2.1. Capital expenditure share expected to increase to XX% during the forecast period
3.2.2. Budget allocation for army highest during the review period
3.2.3. The country’s defense expenditure as a percentage of GDP declined during the review period
3.2.4. Per capita defense expenditure expected to increase during the forecast period
3.3. Homeland Security Market Size and Forecast
3.3.1. Allocation for police forms the major component of homeland security expenditure
3.3.2. Pakistan is at a significant risk from external and internal threats
3.4. Benchmarking with Key Global Markets
3.4.1. Pakistani defense expenditure expected to increase at a CAGR of XX% over the forecast period
3.4.2. Pakistan ranks twenty eighth in global defense spend
3.4.3. Pakistan’s defense expenditure expected to reach XX% of GDP by 2017
3.4.4. Pakistan is one of the most terror prone countries in the world
3.5. Market Opportunities: Key Trends and Growth Stimulators
3.5.1. F 16 procurement and upgrade, and J 10 and JF 17 procurement expected to drive air defense procurements
3.5.2. Indigenous submarine development set to drive naval defense procurements
3.5.3. Development of indigenous UAV and aerial refueling aircraft, and refurbishment of existing systems expected to drive air force defense procurement
3.5.4. Demand for various types of helicopters to increase to counter terrorism
3.6. Key Procurements and Market Size
4 Defense Procurement Market Dynamics
4.1. Import Market Dynamics
4.1.1. Counterinsurgency and territorial dispute with India expected to increase defense imports
4.1.2. US and China were the leading suppliers of arms to Pakistan during the review period
4.2. Export Market Dynamics
4.2.1. DEPO expected to start defense exports
5 Industry Dynamics
5.1. Five Forces Analysis
5.1.1. Bargaining power of the supplier: low
5.1.2. Bargaining power of the buyer: high
5.1.3. Barriers to entry: medium to high
5.1.4. Intensity of rivalry: low to medium
5.1.5. Threat of substitution: medium
6 Market Entry Strategy
6.1. Market Regulation
6.1.1. Defense procurements assigned to DGDP and DGMP
6.2. Market Entry Route
6.2.1. Foreign firms enter the Pakistani defense industry through JVs or government to government deals
6.3. Key Challenges
6.3.1. Bureaucracy and lack of transparency in Pakistani defense
6.3.2. Unstable political system coupled with internal instability discourages foreign participation
7 Competitive Landscape and Strategic Insights
7.1. Competitive Landscape Overview
7.1.1. Foreign suppliers manufacture defense systems overseas and deliver to Pakistan
7.1.2. Growing domestic defense industry is predominantly state run
7.2. Key Domestic Companies
7.2.1. Karachi Shipyard & Engineering Works: overview
7.2.2. Karachi Shipyard & Engineering Works: products and services
7.2.3. Karachi Shipyard & Engineering Works: recent announcements and strategic initiatives
7.2.4. National Defense Complex: overview
7.2.5. National Defense Complex: products and services
7.2.6. National Engineering and Scientific Commission: overview
7.2.7. National Engineering and Scientific Commission: products and services
7.2.8. National Engineering and Scientific Commission: recent announcements and strategic initiatives
7.2.9. Pakistan Aeronautical Complex: overview
7.2.10. Pakistan Aeronautical Complex: products and services
7.2.11. Pakistan Aeronautical Complex: recent announcements and strategic initiatives
7.2.12. Pakistan Aeronautical Complex: alliances
7.2.13. Pakistan Aeronautical Complex: recent contract wins
7.2.14. Pakistan Ordnance Factories: overview
7.2.15. Pakistan Ordnance Factories: products and services
7.2.16. Pakistan Ordnance Factories: recent announcements and strategic initiatives
7.2.17. Pakistan Ordnance Factories: alliances
7.2.18. Pakistan Ordnance Factories: recent contract wins
7.2.19. Pakistan Space and Upper Atmosphere Research Commission: overview
7.2.20. Pakistan Space and Upper Atmosphere Research Commission: products and services
7.2.21. Pakistan Space and Upper Atmosphere Research Commission: recent announcements and strategic initiatives
7.2.22. Pakistan Space and Upper Atmosphere Research Commission: alliances
7.2.23. Pakistan Space and Upper Atmosphere Research Commission: recent contract wins
7.2.24. Air Weapons Complex: overview
7.2.25. Air Weapons Complex: products and services
7.2.26. Air Weapons Complex: alliances
7.2.27. Daudsons Armory: overview
7.2.28. Daudsons Armory: products and services
7.2.29. Daudsons Armory: recent announcements and strategic initiatives
7.2.30. Heavy Industries Taxila: overview
7.2.31. Heavy Industries Taxila: products and services
7.2.32. Heavy Industries Taxila: recent announcements and strategic initiatives
7.2.33. Heavy Industries Taxila: alliances
7.2.34. Heavy Industries Taxila: recent contract wins
7.2.35. The Heavy Mechanical Complex: overview
7.2.36. The Heavy Mechanical Complex: products and services
7.2.37. The Heavy Mechanical Complex: recent announcements and strategic initiatives
7.2.38. The Heavy Mechanical Complex: alliances
7.2.39. SATUMA: overview
7.2.40. SATUMA: products and services
7.2.41. SATUMA: recent announcements and strategic initiatives
7.2.42. SATUMA: recent contract wins
7.3. Key Foreign Companies
7.3.1. Boeing: overview
7.3.2. Boeing: products and services
7.3.3. Boeing: recent announcements and strategic initiatives
7.3.4. Boeing: recent contract wins
7.3.5. Raytheon: overview
7.3.6. Raytheon: products and services
7.3.7. Raytheon: recent announcements and strategic initiatives
7.3.8. Raytheon: recent contract wins
7.3.9. Lockheed Martin: overview
7.3.10. Lockheed Martin: products and services
7.3.11. Lockheed Martin: recent announcements and strategic initiatives
7.3.12. Lockheed Martin: alliances
7.3.13. Lockheed Martin: recent contract wins
8 Business Environment and Country Risk
8.1. Demographics & Social Statistics
8.1.1. Total Rural Population
8.1.2. Total Urban Population
8.1.3. Life Expectancy – Male
8.1.4. Life Expectancy – Female
8.2. Economic Performance
8.2.1. GDP Per Capita
8.2.2. GDP, Current Prices
8.2.3. Consumer Price Index
8.2.4. Local Currency Unit per US Dollar
8.2.5. Local Currency Unit per Euro
8.2.6. Market Capitalization of Listed Companies
8.2.7. Market Capitalization of Listed Companies (% of GDP)
8.2.8. Government Cash Surplus/Deficit
8.2.9. Government Cash Surplus/Deficit as % of GDP
8.2.10. Goods exports as % of GDP
8.2.11. Goods imports as % of GDP
8.2.12. Goods Trade Surplus/Deficit as % of GDP
8.2.13. Service Imports as % of GDP
8.2.14. Service Exports as % of GDP
8.2.15. Service Trade Surplus/Deficit as % of GDP
8.2.16. Foreign Direct Investment
8.2.17. Net foreign direct investment as % of GDP
8.2.18. International reserves, including gold
8.2.19. External Debt
8.2.20. External debt as % of GDP
8.3. Energy and Utilities
8.3.1. Electricity Net Consumption
8.3.2. Conventional Thermal Electricity Net Generation
8.3.3. Hydroelectricity Net Generation
8.3.4. Nuclear Electricity Net Generation
8.3.5. Conventional Thermal Electricity Installed Capacity
8.3.6. Proved Natural Gas Reserves
8.3.7. Petroleum Consumption
8.3.8. Petroleum Consumption – Annual Change
8.3.9. Crude Oil Proved Reserves
8.4. Infrastructure
8.4.1. Rail Lines
8.4.2. Air transport, freight
8.4.3. Automotive Exports
8.4.4. Automotive Imports
8.5. Labour
8.5.1. Total Labour Force
8.5.2. Unemployment Rate
8.5.3. Labour Participation Rate
8.6. Minerals
8.6.1. Mining, Manufacturing, Utilities Output
8.6.2. Transport, storage and communication Output
8.7. Technology
8.7.1. Patents Granted
8.8. Telecommunication
8.8.1. Total Fixed Broadband Internet Subscribers
8.8.2. Total Fixed Broadband Internet Subscribers – Annual Change
8.8.3. Fixed broadband Internet subscriptions (per 100 people)
8.8.4. Internet Users
8.8.5. Internet Users Penetration Rate
8.8.6. Telephone Lines
8.8.7. Telephone Lines Penetration Rate
8.8.8. Mobile Cellular Subscriptions
8.8.9. Mobile Cellular Subscriptions Penetration Rate
9 Appendix
9.1. About SDI
9.2. Disclaimer

List of Tables

Table 1: Pakistani Defense Expenditure, 2008-2012
Table 2: Pakistani Defense Expenditure, 2013-2017
Table 3: Pakistani Defense Budget Split Between Capital and Revenue Expenditure (%), 2008-2012
Table 4: Pakistani Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2017
Table 5: Pakistani GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2008-2012
Table 6: Pakistani GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2013-2017
Table 7: Pakistani Per Capita Defense Expenditure (US$), 2008-2012
Table 8: Pakistani Per Capita Defense Expenditure (US$), 2013-2017
Table 9: Pakistani Homeland Security Budget (US$ million), 2008-2012
Table 10: Pakistani Homeland Security Budget (US$ million), 2013-2017
Table 11: Benchmarking with Key Markets – 2008–2012 vs. 2013–2017
Table 12: SDI Terrorism Index
Table 13: Key Foreign Companies and Operations in the Pakistani Defense Industry
Table 14: Karachi Shipyard & Engineering Works – Product Focus
Table 15: National Defense Complex – Product Focus
Table 16: National Engineering and Scientific Commission – Product Focus
Table 17: Pakistan Aeronautical Complex – Product Focus
Table 18: Pakistan Aeronautical Complex - Alliances
Table 19: Pakistan Aeronautical Complex - Recent Contract Wins
Table 20: Pakistan Ordnance Factories – Product Focus
Table 21: Pakistan Ordnance Factories - Alliances
Table 22: Pakistan Ordnance Factories – Recent Contract Wins
Table 23: Pakistan Space and Upper Atmosphere Research Commission – Product Focus
Table 24: Pakistan Space and Upper Atmosphere Research Commission - Alliances
Table 25: Pakistan Space and Upper Atmosphere Research Commission – recent contract wins
Table 26: Air Weapons Complex – product focus
Table 27: Air Weapons Complex – alliances
Table 28: Daudsons Armory – product focus
Table 29: Heavy Industries Taxila – product focus
Table 30: Heavy Industries Taxila – alliances
Table 31: Heavy Industries Taxila – recent contract wins
Table 32: The Heavy Mechanical Complex – product focus
Table 33: The Heavy Mechanical Complex – alliances
Table 34: SATUMA – product focus
Table 35: SATUMA – recent contract wins
Table 36: Boeing – Product Focus
Table 37: Boeing – Recent Contract Wins
Table 38: Raytheon – Product Focus
Table 39: Raytheon – Recent Contract Wins
Table 40: Lockheed Martin – Product Focus
Table 41: Lockheed Martin – alliances
Table 42: Lockheed Martin – Recent Contract Wins

List of Figures

Figure 1: Pakistani Defense Expenditure, 2008-2012
Figure 2: Pakistani Defense Expenditure, 2013-2017
Figure 3: Pakistani Defense Budget Split Between Capital and Revenue Expenditure (%), 2008-2012
Figure 4: Pakistani Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2017
Figure 5: Pakistani Defense Budget Allocation Between Services (%), 2012
Figure 6: Pakistani GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2008-2012
Figure 7: Pakistani GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, 2013-2017
Figure 8: Pakistani Per Capita Defense Expenditure (US$), 2008-2012
Figure 9: Pakistani Per Capita Defense Expenditure (US$), 2013-2017
Figure 10: Pakistani Homeland Security Budget (US$ million), 2008-2012
Figure 11: Pakistani Homeland Security Budget (US$ million), 2013-2017
Figure 12: SDI Terrorism Heat Map, 2012
Figure 13: Benchmarking with Key Markets – 2008-2012 vs. 2013-2017
Figure 14: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2012 and 2017
Figure 15: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2012
Figure 16: SDI Terrorism Index, 2012
Figure 17: Pakistan’s Multi-role and Fighter Aircraft Market Size (US$ Million), 2012–2022
Figure 18: Pakistan’s Cyber Security Market Size (US$ Million), 2012–2022
Figure 19: Pakistan’s C2C4ISR Market Size (US$ Million), 2012–2022
Figure 20: Pakistan’s Submarines Market Size (US$ Million), 2012–2022
Figure 21: Pakistan’s Counterterrorism Market Size (US$ Million), 2012–2022
Figure 22: Pakistan’s Radars Market Size (US$ Million), 2012–2022
Figure 23: Pakistan’s Border Security Market Size (US$ Million), 2012–2022
Figure 24: Pakistan’s Police Modernization Market Size (US$ Million), 2012–2022
Figure 25: Pakistani Defense Imports by Country and by equipment (%), 2007–2011
Figure 26: Industry Dynamics Porter’s Five Forces Analysis
Figure 27: Pakistani Rural Population (In Millions), 2008–2017
Figure 28: Pakistani Urban Population (In Millions), 2008–2017
Figure 29: Pakistani Life Expectancy – Male (Years), 2008–2017
Figure 30: Pakistani Life Expectancy – Female (Years), 2008–2017
Figure 31: Pakistani GDP Per Capita, 2008–2017
Figure 32: Pakistani GDP, Current Prices (In US$ Billions), 2008–2017
Figure 33: Pakistani Consumer Price Index, 2008–2017
Figure 34: Local Currency per US$- Exchange Rate , 2008–2017
Figure 35: Local Currency per Euro, 2008–2017
Figure 36: Pakistani Market Capitalization of Listed Companies (US$ Billion), 2002–2011
Figure 37: Pakistani Market Capitalization of Listed Companies (% of GDP), 2002–2011
Figure 38: Pakistani Government Cash Surplus/Deficit (US$ Billion), 2002–2011
Figure 39: Pakistani Government Cash Surplus/Deficit as % of GDP, 2002–2011
Figure 40: Pakistan’s Goods Exports as % of GDP, 2002–2011
Figure 41: Pakistan’s Goods Imports as % of GDP, 2002–2011
Figure 42: Pakistan’s Goods Trade Surplus/Deficit as % of GDP, 2002–2011
Figure 43: Pakistan’s Service Imports as % of GDP, 2002–2011
Figure 44: Pakistan’s Service Exports as % of GDP, 2002–2011
Figure 45: Pakistan’s Service Trade Surplus/Deficit as % of GDP, 2002–2011
Figure 46: Pakistani Foreign Direct Investment (US$ Billion), 2002–2011
Figure 47: Pakistani Net foreign direct investment as % of GDP, 2002–2011
Figure 48: Pakistan’s International reserves, including gold (US$ Billion), 2002–2011
Figure 49: Pakistani External Debt (US$ Billion), 2001–2010
Figure 50: Pakistani External Debt as % GDP (US$ Billion), 2001–2010
Figure 51: Pakistani Electricity Net Consumption (Billion Kilowatt hours), 2001–2010
Figure 52: Pakistani Conventional Thermal Electricity Net Generation (Billion Kilowatt hours), 2001–2010
Figure 53: Pakistani Hydroelectricity Net Generation (Billion Kilowatt hours), 2001–2010
Figure 54: Pakistani Nuclear Electricity Net Generation (Billion Kilowatt hours), 2001–2010
Figure 55: Pakistani Conventional Thermal Electricity Installed Capacity (Million Kilowatt hours), 2001–2010
Figure 56: Pakistan’s Proved Natural Gas Reserves (Trillion Cubic Feet), 2002–2011
Figure 57: Pakistan’s Petroleum Consumption (Thousand Barrels Per Day), 2002–2011
Figure 58: Pakistan’s Petroleum Consumption – Annual Change, 2002–2011
Figure 59: Pakistan’s Crude Oil Distillation Capacity (Billion Barrels), 2002–2011
Figure 60: Pakistan’s Rail Lines (kms), 2001–2010
Figure 61: Pakistan’s Air transport freight (million ton-km), 2001–2010
Figure 62: Pakistan’s Automotive Exports (US$ Thousands), 2001–2010
Figure 63: Pakistan’s Automotive Imports (US$ Thousands), 2001–2010
Figure 64: Pakistan’s Labour Force (In Billion), 2001–2010
Figure 65: Pakistan’s Unemployment Rate (% of total labour force), 2008–2017
Figure 66: Pakistan’s Labour Participation Rate, 2001–2010
Figure 67: Pakistan’s Mining, Manufacturing, Utilities Output (USD Billion), 2002–2011
Figure 68: Pakistan’s Transport, storage and communication Output (US$ Billion), 2002–2011
Figure 69: Pakistani Patents Granted, 2002–2011
Figure 70: Pakistan’s Total Fixed broadband Internet subscribers, 2002–2011
Figure 71: Pakistan’s Total Fixed broadband Internet subscribers - Annual Change, 2002–2011
Figure 72: Pakistan’s Fixed broadband Internet subscriptions (per 100 people), 2002–2011
Figure 73: Pakistan’s Internet Users (In Million), 2002–2011
Figure 74: Pakistan’s Internet Users Penetration Rate (Per 100 People), 2002–2011
Figure 75: Pakistan’s Telephone Lines (In Million), 2001–2010
Figure 76: Pakistan’s Telephone Lines Penetration Rate (Per 100 People), 2002–2011
Figure 77: Pakistan’s Mobile cellular subscriptions (In Million), 2002–2011
Figure 78: Pakistan’s Mobile Cellular Subscriptions Penetration Rate (Per 100 People), 2002–2011