Pakistan – How to Achieve Private Sector Growth in Defense
Private Sector Growth in Defense:
Addressing a government-organized seminar in 2018, Chief of Army Staff of Pakistan General Qamar Javed Bajwa stated that Pakistan wants to enhance private sector participation in the defense sector to make it a self-reliant and self-sufficient industry. The seminar recommended the establishment of a task force to develop a roadmap for aiding indigenous defense production, establishing a staple industry in conjunction with the private sector, utilizing surplus production capacity for export, and establishing ‘digital parks’ to take advantage of software industry potential and promote university-level research and development. However, Shehzad Ahmed Mir, director, Bow Systems Ltd, a personal sector defense contracting company, said that the government must overcome bureaucratic resistance.
“Army chiefs come and go, only policies stay; thus far, there’s no government policy to support such repetitive statements made by many soldiers’ chiefs,” he said. Mir blames Pakistan’s civilian bureaucracy for resisting change. This win-win situation is feasible as long as Pakistan’s defense priorities mingle with the efficiency of the private industrial sector and, therefore, the promotion of indigenous scientific and technological capability. This is often to not argue for self-sufficiency in defense production because it would be foolish and myopic to shut ourselves from acquiring the latest technical know-how available within the remainder of the planet or likely to become available within the future. But it’s the mode of acquisition that has to be changed – from importing entirely built up or finished products to import data about the planning, process, and fabrication, and buying essential components and materials not available within the country at competitive prices.
The private industrial firms should be asked to create the ultimate goods within the country tailored and adapted to the local conditions and requirements. The demand spillovers from defense production by the private firms to other sectors of the economy will expand employment, create new investment opportunities to supply materials and components which aren’t available locally, and improve the use of the overall capacity in some industries. This prescription has been applied in Pakistan on a limited scale, but the necessity is to duplicate this model on a more systematic and broader basis. If we allow the established order to prevail, we may find ourselves with a weak defense, a stable economy, robust defense, and a stagnant economy. None of those two options should be acceptable to any correct thinking Pakistani what we’d like: strong security and a stable and growing economy.
This alternative isn’t freed from problems that need to be carefully thought through. One of the main issues the private firm will face is that the amount required to constitute a replacement technological change will initially be small compared to a civilian item like an automobile. A learning curve will apply for this reason, and therefore, the unit costs will decline during a reasonably predictable pattern as production expands. So who bears the losses for the initial production period? Competitive bidding in such cases won’t be feasible because the economies of scale and concentration of supply wouldn’t permit many firms to exist therein space.
Small production runs and great technical complexity combine to make concentration. Can the general public sector provide subsidies during this formative phase until the assembly scale reaches A level where the losses disappear? This thing must be realized that the proposed Institutional structure and processes are radically different from the regular government and, therefore, the standard procurement rules and procedures. This is often an encompassing structure with a broader mandate and adequate powers and resources for planning, coordination, and execution.