The Idea behind IDEAS

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International Defence Exhibition and Seminar (IDEAS) 2004 is being held in Karachi from Sep 14 to Sep 18, 2004 , the inauguration of the Exhibition is preceded by a Seminar on Sep 13, “The Changing Global Security Environment”. IDEAS 2004 is the third in a series which began with IDEAS 2000, IDEAS is an idea that has been 30 to 40 years overdue for implementation in Pakistan.

Including para-military forces, those serving in uniform in Pakistan easily exceed three-quarters of a million (750,000) in number, the minimum strength required to contain the threat on one of our borders. We now have two active borders. From small arms to long range artillery, various types of ground transportation, tanks and armoured personnel carriers, light aircraft to state-of-the-art fighter aircraft, fast patrol boats to submarines, computers to radars, etc most items have to be imported to equip our Armed Forces. Material requirements include such basic stuff as boots, uniforms, tents, camouflage nets, etc etc, fortunately almost all manufactured locally. A huge defence budget is thus necessary for constant purchase and supply of arms, equipment, etc, most of it in scarce foreign exchange. At the time of independence all Ordnance Factories were inherited by India, we had none. There was no investment of private sector in any defence industry. For many years everything was produced from abroad, it was quite some time before we started to manufacture our light arms and ammunition indigenously. By the late 70s early 80s, we made good progress in manufacture of both small arms, heavy weapons, ammunitions, bombs for aircraft, etc but precious foreign exchange had still to be diverted to the defence sector. Our defence planners took some steps over the years to manufacture items indigenously to ease the pressure on our foreign exchange reserves.

Take the example of the basic infantry weapon. If we were to purchase an automatic rifle from abroad for US $ 300, that is money in foreign exchange going to a foreign manufacturer. However when the rifle is made in Pakistan Ordnance Factories (POF), Wah, except for a small percentage of raw material in import (and costs thereof) the balance manufacture and labour costs is in Pakistani currency. The material being bought from a local vendor and the labour cost being given to a local worker, money is cycled into the economy and re-cycled thereafter into the economic cycle. Even with state-of-the-art advancement in weaponry, it is always necessary to purchase from abroad, we missed the boat on switching over from caliber 7.62 mm to 5.56 mm in 1988-89 because of vested interest. If the numbers are adequate and given the size of our Armed Forces they will always be adequate, there must be an arrangement with the original manufacturer to “Buy Back” part of what is manufacturer locally. This Buy-Back will ensure (1) that the increased numbers result in economy of scale and (2) the foreign manufactures is inherently associated with maintaining quality and (3) foreign exchange earning because of the export sale. Obviously this “Buy-Back” will be of great benefit to the local manufacturer, in the developed world almost all are in the private sector. Given the range of arms, ammunition, equipment required, a careful coordination would have ensured many years ago that our defence manufacturing industry would not only save precious foreign and earn foreign exchange in exports but the added manufacturing would make it a force multiplier to the economy.

We pay a lot of lip-service to "TRANSFER OF TECHNOLOGY" but in actual practice we do not give any protection to our industries by insisting upon this, given in some cases this may not be possible. One has to look at our import bills for spares to understand what a vast amount of foreign exchange is lost in this manner. Pakistan could easily contract for OFF-SET purchases. The machinery and equipment that we import could easily be replaced by workshops making that machinery and equipment (and their spares) in Pakistan. We have a number of factories quite capable of doing the needful but their present machinery has to be upgraded and consolidated to be effective. The availability of skilled manpower needs no elucidation. By insisting for OFFSET purchases as in BUY-BACK, we will ensure not only balancing the foreign exchange bill but also manufacturing quality products, our erstwhile suppliers will hardly be happy to be re-imbursed with shoddy goods. It then becomes their vested interest to ensure quality manufacture from the machinery and equipment supplied by him, for the product (and spares thereof) of their design.

Take the working example of a 5-ton truck for the Pakistan army. Pakistan could perhaps negotiate with a major vehicle manufacturer for manufacture on a deletion program of its 7-10 years requirements in Pakistan on the many existing assembly lines available, but the potential partner must re-purchase 20-30% of the trucks from us. This would ensure TRANSFER OF TECHNOLOGY, quality, genuine OFFSET and a phased “deletion program” where we can utilise the Pakistan Machine Tool Factory for axles and transmissions, Bela Engineering for the engines, General Tyres for the tyres, etc, making it quite clear to the VENDORS that no product less than the desired quality would be acceptable. We have quite a developing vendor industry. This is exactly how Spain has attracted an enormous investment over the past year or so. The biggest imports into Pakistan are in the defence and aviation fields. Whereas it would be almost impossible to really duplicate "state of the art" weapons systems, we have fairly advanced infra-structure capable of producing precision products. Precision Engineering Limited, a subsidiary of PIA, is producing spares on an OFF-SET program for the Boeing 737 purchased by PIA. POF, Wah is acknowledged as world class in its range of products. Indonesia has built up a sizable industry on this pattern and is now going into exports of the related products on an impressive scale. e.g. aviation industry.

We must also mix “Offset” and “Buy-Back” with “BARTER” Countertrade and Counter-purchase. The F-16/tomatoes swap is a singular example of economic independence, wherein Turkey, with access to Foreign Military Sales (FMS) credits from USA, elected to close the gap between its cash resources and the purchase price by paying for the F-16s from General Dynamics, USA in the form of its own produce rather than contract more loans and credits. However, if one thinks that General Dynamics (the makers of F-16s) ended up with more tomatoes than they needed, think again, in all probability they pre-sold those tomatoes to another company.

If he could (or would) do the above, what all can the dedicated planner in Pakistan achieve? To start with (1) “zero balancing of foreign exchange”, (2) boosting of exports (3) provision of direct work for our manpower by in-country manufacture (4) by a “deletion program” helping the emergence of ancillary industries (5) more utilisation of labour and lastly (6) the production of quality products through enforced TRANSFER OF TECHNOLOGY where the supplier has to perforce re-export part of the production in OFFSET purchase.

To support and coordinate the need for a wide-based industry to fulfill our defence needs, one must give credit to Gen Pervez Musharraf for taking two fundamental steps viz (1) force-feeding the launch of the IDEAS in 2000 under very adverse circumstances in order not only to give a fillip to our local industry but to foreign exhibitors to reach a large part of their target audience at fairly economical cost as compared to individual company trips and (2) creating the “Defence Export Production Organization” (DEPO) as a coordinating authority for sales on Barter, Buy-Back, Offset, Counter-purchase and Countertrade. DEPO started as a cell in Joint Services HQ headed by Maj Gen Ali Hamid, and is now a full-fledged organization (with Ali Hamid continuing as Director General), IDEAS is now an effective instrument of purpose to display Pakistan’s military wares and give foreign manufacturers interested in the Pakistan defence market an opportunity to show off their products. DEPO thus fulfills a great credibility gap in Pakistan’s defence planning requirements, IDEAS 2004 is a means to that end.

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