Future of the Pakistani Defense Industry-Market Attractiveness, Competitive Landscape and Forecasts to 2022

Future of the Pakistani Defense Industry-Market Attractiveness, Competitive Landscape and Forecasts to 2022


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Executive Summary

Future of the Pakistani Defense Industry-Market Attractiveness, Competitive Landscape and Forecasts to 2022

Summary

The Future of the Pakistani Defense Industry-Market Attractiveness, Competitive Landscape and Forecasts to 2022, published by Strategic Defence Intelligence, provides readers with detailed analysis of both historic and forecast defense industry values, factors influencing demand, the challenges faced by industry participants, analysis of industry leading companies, and key news.

This report offers detailed analysis of the Pakistani defense industry with market size forecasts covering the next five years. This report will also analyze factors that influence demand for the industry, key market trends, and challenges faced by industry participants.

In particular, it provides an in-depth analysis of the following

The Pakistani defense industry market size and drivers: detailed analysis of the Pakistani defense industry during 2018-2022, including highlights of the demand drivers and growth stimulators for the industry. It also provides a snapshot of the country's expenditure and modernization patterns

Budget allocation and key challenges: insights into procurement schedules formulated within the country and a breakdown of the defense budget. It also details the key challenges faced by defense market participants within the country

Porter's Five Force analysis of the Pakistani defense industry: analysis of the market characteristics by determining the bargaining power of suppliers, bargaining power of buyers, threat of substitution, intensity of rivalry, and barriers to entry

Import and Export Dynamics: analysis of prevalent trends in the country's imports and exports over the last five years

Market opportunities: details of the top five defense investment opportunities over the next 10 years

Competitive landscape and strategic insights: analysis of the competitive landscape of the Pakistani defense industry. It provides an overview of key players, together with insights such as key alliances, strategic initiatives, and a brief financial analysis

Scope

One of the most attractive defense markets in South Asia, Pakistan is expected to invest US$64.4 billion cumulatively over the forecast period, compared to US$38.3 billion spent between 2013 and 2016. The country's defense expenditure is expected to focus more on the procurement of equipment to augment its air defense capabilities, enhancing operational capabilities of the current fleet of naval vessels, and communications and surveillance systems. Cumulative expenditure on the procurement of advanced military hardware is projected to be US$24.1 billion over the next five years.

The capital expenditure allocation, which stood at an average of 13% during the historic period, is expected to decrease to an average of 6.6% during the forecast period. This is primarily due to the procurement of advanced defense equipment and focus on increasing the indigenous defense manufacturing capabilities.The country's total defense budget increased significantly over 2013-2017, with a CAGR of 9.94%, the country invested US$6.3 billion in the defense sector in 2013, and increased it to US$9.1 billion in 2017. This trend is expected to continue during the forecast period, due to the government's well-defined military procurements plans, in a bid to fight terrorist attacks. Moreover, the nation's long-standing territorial dispute with India indicates that the Pakistani defense strategy will largely correspond with India's expenditure and development programs. Key opportunities for equipment suppliers are expected in sectors such asfighters and multi-role aircraft, aviation MRO, frigates and submarines. Consequently, Pakistan's capital expenditure share is expected to increase during the forecast period due to internal and external instability. Consequently, the share of capital expenditure as a percentage of overall defense expenditure is expected to increase from an average of 32.0% between 2011 and 2015 to 33.5% over the forecast period.

The MoD is expected to invest in fighters and Multi-role aircraft, SSK-Diesel Electric Submarine, Aviation MRO and Main Battle Tanks.

Reasons to Buy

This report will give the user confidence to make the correct business decisions based on a detailed analysis of the Pakistani defense industry market trends for the coming five years

The market opportunity section will inform the user about the various military requirements that are expected to generate revenues during the forecast period. The description includes technical specifications, recent orders, and the expected investment pattern by the country during the forecast period

Detailed profiles of the top domestic and foreign defense manufacturers with information about their products, alliances, recent contract wins, and financial analysis wherever available. This will provide the user with a total competitive landscape of the sector

A deep qualitative analysis of the Pakistani defense industry covering sections including demand drivers, Porter's Five Forces Analysis, Key Trends and Growth Stimulators, and latest industry contracts



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Table of Contents

1. Introduction 9

1.1. What is this Report About? 9

1.2. Definitions 9

1.3. Summary Methodology 12

1.4. About Strategic Defence Intelligence 14

2. Executive Summary 15

3. Market Attractiveness and Emerging Opportunities 17

3.1. Current Market Scenario 18

3.1.1. Primary threat perception 18

3.1.2. Military Doctrine & Strategy 20

3.1.3. Military Fleet Size 22

3.1.4. Procurement Programs 27

3.1.5. Ongoing procurement programs 27

3.1.6. Future procurement programs 28

3.1.7. Social, Political and Economic Environment & Support for Defense Projects 29

3.1.8. Political & Strategic Alliances 30

3.2. Defense Market Size Historical and Forecast 31

3.2.1. Pakistani annual defense expenditure to reach US$15.8 billion by 2022 31

3.2.2. Annual US military aid to Pakistan boosts military spending 34

3.2.3. Territorial disputes and the war against terrorism expected to drive defense expenditure 36

3.2.4. The country's defense expenditure as a percentage of GDP to increase over 2018-2022 37

3.3. Analysis of Defense Budget Allocation 39

3.3.1. Capital expenditure share to average 33.5% during the forecast period 39

3.3.2. Capital expenditure to increase at a CAGR of 12.15% over 2018-2022 41

3.3.3. Budget allocation for the army to be highest over the forecast period 43

3.3.4. Army expenditure to reach US$7.5 billion in 2022 45

3.3.5. Air force expenditure to cumulatively value US$13.7 billion over the forecast period 47

3.3.6. Naval expenditure is expected to reach US$1.8 billion by 2022 49

3.3.7. Per capita defense expenditure expected to increase during the forecast period 51

3.4. Homeland Security Market Size and Forecast 52

3.4.1. Allocation for the police forms the major component of homeland security expenditure 52

3.4.2. Measures to curb organized crime and cyber-attacks will drive homeland security expenditure 54

3.4.3. Pakistan is at a significant risk from external and internal threats 56

3.4.4. Pakistan is one of the most terror prone countries in the world 57

3.4.5. Pakistan has a terrorism index score of 8.6 59

3.5. Benchmarking with Key Global Markets 60

3.5.1. Pakistani defense expenditure expected to increase at a CAGR of 11.63% over 2018-2022 60

3.5.2. Pakistani defense expenditure is low compared to other Asian defense spenders 62

3.5.3. Pakistan's defense expenditure expected to reach 3% of GDP by 2022 63

3.6. Market Opportunities: Key Trends and Growth Stimulators 64

3.6.1. Fighter and Multi-role Aircraft 64

3.6.2. SSK-Diesel Electric Submarine 66

3.6.3. Aviation MRO 67

3.6.4. Main Battle Tank (MBT) 68

4. Defense Procurement Market Dynamics 69

4.1. Import Market Dynamics 70

4.1.1. Defense imports projected to increase over the forecast period 70

4.1.2. China and the US were the leading suppliers of arms to Pakistan during 2012-2016 71

4.1.3. Aircraft and armored vehicles accounted for the majority of defense imports between 2012 and 2016 72

4.2. Export Market Dynamics 73

4.2.1. DEPO expected to start defense exports 73

5. Industry Dynamics 74

5.1. Five Forces Analysis 74

5.1.1. Bargaining power of the supplier: low to medium 75

5.1.2. Bargaining power of the buyer: high 75

5.1.3. Barriers to entry: medium to high 75

5.1.4. Intensity of rivalry: low to medium 75

5.1.5. Threat of substitution: low to medium 75

6. Market Entry Strategy 76

6.1. Market Regulation 76

6.1.1. Defense procurements assigned to DGDP and DGMP 76

6.1.2. Pakistani government introduces new Offset Act for defense equipment procurements 78

6.2. Market Entry Route 80

6.2.1. Budgeting Process 80

6.2.2. Procurement Policy & Process 82

6.2.3. Foreign firms enter the Pakistani defense industry through Foreign Military Sales (FMS) 83

6.2.4. Collaborations and joint ventures-a viable market entry route 85

6.3. Key Challenges 86

6.3.1. Corruption in the Pakistani defense sector hinders its growth 86

6.3.2. An unstable political system coupled with internal instability discourages foreign participation 86

7. Competitive Landscape and Strategic Insights 87

7.1. Competitive Landscape Overview 87

7.1.1. Foreign suppliers manufacture defense systems overseas and deliver to Pakistan 87

7.1.2. Growing domestic defense industry is predominantly state run 88

7.2. Key Domestic Companies 89

7.2.1. Karachi Shipyard & Engineering Works: overview 89

7.2.2. Karachi Shipyard & Engineering Works: products and services 89

7.2.3. Karachi Shipyard & Engineering Works (KS&EW): recent announcements and strategic initiatives 90

7.2.4. Karachi Shipyard & Engineering Works: alliances 90

7.2.5. Karachi Shipyard & Engineering Works: recent contract wins 91

7.2.6. Pakistan Aeronautical Complex: overview 92

7.2.7. Pakistan Aeronautical Complex: products and services 92

7.2.8. Pakistan Aeronautical Complex: recent announcements and strategic initiatives 93

7.2.9. Pakistan Aeronautical Complex: alliances 93

7.2.10. Pakistan Aeronautical Complex: recent contract wins 94

7.2.11. Pakistan Ordnance Factories: overview 95

7.2.12. Pakistan Ordnance Factories: products and services 95

7.2.13. Pakistan Ordnance Factories: recent announcements and strategic initiatives 96

7.2.14. Pakistan Ordnance Factories: alliances 97

7.2.15. Pakistan Ordnance Factories: recent contract wins 97

7.2.16. Pakistan Space and Upper Atmosphere Research Commission: overview 98

7.2.17. Pakistan Space and Upper Atmosphere Research Commission: products and services 98

7.2.18. Pakistan Space and Upper Atmosphere Research Commission: recent announcements and strategic initiatives 99

7.2.19. Pakistan Space and Upper Atmosphere Research Commission: alliances 100

7.2.20. Pakistan Space and Upper Atmosphere Research Commission: recent contract wins 100

7.2.21. Heavy Industries Taxila: overview 101

7.2.22. Heavy Industries Taxila: products and services 101

7.2.23. Heavy Industries Taxila: recent announcements and strategic initiatives 102

7.2.24. Heavy Industries Taxila: alliances 102

7.2.25. Heavy Industries Taxila: recent contract wins 103

7.2.26. The Heavy Mechanical Complex: overview 104

7.2.27. The Heavy Mechanical Complex: products and services 104

7.2.28. The Heavy Mechanical Complex: recent announcements and strategic initiatives 104

7.2.29. The Heavy Mechanical Complex: alliances 105

7.2.30. SATUMA: overview 106

7.2.31. SATUMA: products and services 106

7.2.32. SATUMA: recent announcements and strategic initiatives 106

7.2.33. SATUMA: recent contract wins 106

7.3. Key Foreign Companies 107

7.3.1. Boeing: overview 107

7.3.2. Boeing: products and services 107

7.3.3. Boeing: recent announcements and strategic initiatives 108

7.3.4. Boeing: recent contract wins 108

7.3.5. Raytheon: overview 109

7.3.6. Raytheon: products and services 109

7.3.7. Raytheon: recent announcements and strategic initiatives 109

7.3.8. Raytheon: recent contract wins 109

7.3.9. Lockheed Martin: overview 110

7.3.10. Lockheed Martin: products and services 110

7.3.11. Lockheed Martin: recent announcements and strategic initiatives 110

7.3.12. Lockheed Martin: alliances 111

7.3.13. Lockheed Martin: recent contract wins 112

7.3.14. Chengdu Aircraft Industry Group: overview 113

7.3.15. Chengdu Aircraft Industry Group: products and services 113

7.3.16. Chengdu Aircraft Industry Group: recent announcements and strategic initiatives 113

7.3.17. Chengdu Aircraft Industry Group: alliances 114

7.3.18. Chengdu Aircraft Industry Group: recent contract wins 114

8. Business Environment and Country Risk 115

8.1. Economic Performance 115

8.1.1. GDP Per Capita 115

8.1.2. GDP, Current Prices 116

8.1.3. Exports of Goods & Services (LCU) 117

8.1.4. Imports of Goods & Services (LCU) 118

8.1.5. Local Currency Unit per US$ 119

8.1.6. Market Capitalization of Listed Companies US$ Billion 120

8.1.7. Market Capitalization of Listed Companies (% of GDP) 121

8.1.8. Government Cash Surplus/Deficit as % of GDP 122

8.1.9. Goods exports as % of GDP 123

8.1.10. Goods imports as % of GDP 124

8.1.11. Service Imports as % of GDP 125

8.1.12. Service Exports as % of GDP 126

8.1.13. Foreign Direct Investment 127

8.1.14. Net foreign direct investment as % of GDP 128

8.1.15. Mining, Manufacturing, Utilities Output 129

9. Appendix 130

9.1. About SDI 130

9.2. Disclaimer 130

List of Figures

Figure 1: Pakistani Defense Expenditure (PKR bn), 2013-2022 32

Figure 2: Pakistani Defense Expenditure (US$ bn), 2013-2022 33

Figure 3: US Coalition Support Fund Aid (US$ Million), 2013-2017 34

Figure 4: Pakistani Defense Expenditure Including US Aid (US$ Billion), 2013-2017 35

Figure 5: Pakistani Defense Budget Excluding US Aid (US$ Billion) Vs Pakistani Defense Expenditure Including US Aid (US$ Billion), 2013-2017 35

Figure 6: Pakistani GDP Growth vs. Defense Expenditure as Percentage of GDP Growth, 2013-2022 38

Figure 7:Pakistani Defense Budget Split Between Capital and Revenue Expenditure (%),2013-2022 40

Figure 8: Pakistani Defense Capital Expenditure (PKR Billion), 2013-2022 42

Figure 9: Pakistani Defense Capital Expenditure (US$ Billion), 2013-2022 42

Figure 10: Pakistani Defense Expenditure Breakdown (%), 2013-2022 44

Figure 11: Pakistani Defense Expenditure for Army (PKR billion), 2013-2022 46

Figure 12: Pakistani Defense Expenditure for Army (US$ billion), 2013-2022 46

Figure 13: Pakistani Defense Expenditure for Air Force (PKR billion), 2013-2022 48

Figure 14: Pakistani Defense Expenditure for Air Force (US$ billion), 2013-2022 48

Figure 15: Pakistani Defense Expenditure for the Navy (PKR billion), 2013-2022 50

Figure 16: Pakistani Defense Expenditure for the Navy (US$ billion), 2013-2022 50

Figure 17: Pakistani Per Capita Defense Expenditure (US$), 2013-2022 51

Figure 18: Pakistani Homeland Security Budget (PKR Billion), 2013-2022 53

Figure 19: Pakistani Homeland Security Budget (US$ Billion), 2013-2022 53

Figure 20: Terrorism Heat Map, 2017 56

Figure 21: Terrorism Index, 2017 59

Figure 22: Benchmarking with Key Markets-2013-2017 vs. 2018-2022 61

Figure 23: Defense Expenditure of the World's Largest Military Spenders (US$ Billion), 2017 and 2022 62

Figure 24: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2017 63

Figure 25: Fighter and Multi-role Aircraft Market Size (US$ Million), 2017-2027 65

Figure 26: SSK-Diesel Electric Submarine & MRO Market Size (US$ Million), 2017-2027 66

Figure 27: Aviation MRO Market Size (US$ Million), 2017-2027 67

Figure 28: Main Battle Tank Market Size (US$ Million), 2017-2027 68

Figure 29: Pakistani Defense Import Trend, 2012-2016 (TIV values) 70

Figure 30: Pakistani Defense Imports by Country (%), 2012-2016 71

Figure 31: Pakistani Defense Imports by Category (%), 2012-2016 72

Figure 32: Industry Dynamics Porter's Five Forces Analysis 74

Figure 33: Pakistan's GDP Per Capita, 2015-2025 115

Figure 34: Pakistan's GDP, Current Prices (In US$ Billions), 2015-2025 116

Figure 35: Exports of Goods & Services (LCU), 2005-2014 117

Figure 36: Imports of Goods & Services (LCU), 2005-2014 118

Figure 37: Local Currency per US$- Exchange Rate, 2015-2024 119

Figure 38: Pakistan's Market Capitalization of Listed Companies (US$ Billion), 2005-2012 120

Figure 39: Pakistan's Market Capitalization of Listed Companies (% of GDP), 2005-2012 121

Figure 40: Pakistan's Government Cash Surplus/Deficit as % of GDP, 2005-2013 122

Figure 41: Pakistan's Goods Exports as % of GDP, 2005-2014 123

Figure 42: Pakistan's Goods Imports as % of GDP, 2005-2014 124

Figure 43: Pakistan's Service Imports as % of GDP, 2005-2014 125

Figure 44: Pakistan's Service Exports as % of GDP, 2005-2014 126

Figure 45: Pakistan's Foreign Direct Investment (US$ Billion), 2005-2014 127

Figure 46: Pakistan's Net foreign direct investment as % of GDP, 2005-2014 128

Figure 47: Pakistan's Mining, Manufacturing, Utilities Output (USD Billion), 2005-2014 129

List of Tables

Table 1: Pakistani Land Forces Strength 22

Table 2: Pakistani Navy Strength 24

Table 3: Pakistani Air Force Strength 25

Table 4: Pakistani Ongoing Procurement Programs 27

Table 5: Pakistani Future Procurement Programs 28

Table 6: Pakistani Defense Expenditure (PKR billion & US$ billion), 2013-2022 32

Table 7: Total Pakistani Defense Expenditure Including US Aid, 2013-2017 34

Table 8: Pakistani GDP Growth vs. Defense Expenditure as a Percentage of GDP, 2013-2022 37

Table 9: Pakistani Defense Budget Split Between Capital and Revenue Expenditure (%),2013-2022 39

Table 10: Pakistani Defense Capital Expenditure (PKR Billion & US$ Billion), 2013-2022 41

Table 11: Pakistani Defense Capital Expenditure Breakdown (%), 2013-2022 43

Table 12: Pakistani Defense Expenditure for Army (PKR Billion & US$ Billion), 2013-2022 45

Table 13: Pakistani Defense Expenditure for Air Force (PKR Billion & US$ Billion), 2013-2022 47

Table 14: Pakistani Defense Expenditure for Navy (PKR Billion & US$ Billion), 2013-2022 49

Table 15: Pakistani Per Capita Defense Expenditure (US$), 2013-2022 51

Table 16: Pakistani Homeland Security Expenditure (PKR Billion & US$ Billion), 2013-2022 52

Table 17: Terrorism Index, 2017 57

Table 18: Benchmarking with Key Markets-2013-2017 vs. 2018-2022 60

Table 19: Offset Multiplier Categories 79

Table 20: Pakistani Budget Formation Timetable: 80

Table 21: FMS route followed by Foreign Companies 83

Table 22: Market Entry Strategies by Key Foreign Companies 85

Table 23: Key Foreign Companies and Operations in the Pakistani Defense Industry 87

Table 24: Karachi Shipyard & Engineering Works-Product Focus 89

Table 25: Karachi Shipyard & Engineering Works-Alliances 90

Table 26: Karachi Shipyard & Engineering Works-Recent Contract Wins 91

Table 27: Pakistan Aeronautical Complex-Product Focus 92

Table 28: Pakistan Aeronautical Complex-Alliances 93

Table 29: Pakistan Aeronautical Complex-Recent Contract Wins 94

Table 30: Pakistan Ordnance Factories-Product Focus 95

Table 31: Pakistan Ordnance Factories-Alliances 97

Table 32: Pakistan Ordnance Factories-Recent Contract Wins 97

Table 33: Pakistan Space and Upper Atmosphere Research Commission-Product Focus 98

Table 34: Pakistan Space and Upper Atmosphere Research Commission-Alliances 100

Table 35: Pakistan Space and Upper Atmosphere Research Commission-recent contract wins 100

Table 36: Heavy Industries Taxila-product focus 101

Table 37: Heavy Industries Taxila-alliances 102

Table 38: Heavy Industries Taxila-recent contract wins 103

Table 39: The Heavy Mechanical Complex-product focus 104

Table 40: The Heavy Mechanical Complex-alliances 105

Table 41: SATUMA-product focus 106

Table 42: SATUMA-recent contract wins 106

Table 43: Boeing-Product Focus 107

Table 44: Boeing-Recent Contract Wins 108

Table 45: Raytheon-Product Focus 109

Table 46: Raytheon-Recent Contract Wins 109

Table 47: Lockheed Martin-Product Focus 110

Table 48: Lockheed Martin-alliances 111

Table 49: Lockheed Martin-Recent Contract Wins 112

Table 50: Chengdu Aircraft Industry Group-Product Focus 113

Table 51: Chengdu Aircraft Industry Group-Alliances 114

Table 52: Chengdu Aircraft Industry Group-Recent Contract Wins 114

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Karachi Shipyard & Engineering Works (KSEW), Pakistan Aeronautical Complex (PAC), Pakistan Ordnance Factories (POF), Pakistan Space and Upper Atmosphere Research Commission (SUPARCO), Heavy Industries Taxila (HIT), Heavy Mechanical Complex (HMC), Surveillance and Target Unmanned Aircraft (SATUMA), The Boeing Company, Raytheon Missile Systems, Lockheed Martin, Chengdu Aircraft Industry Group

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