Power, perks, prestige and privileges of Pak military’s commercial ventures
Dr
Ayesha Siddiqa-Agha
introduces the issue of the Pakistan military’s commercial interests and
says the government should take an immediate decision to stop the invisible and
visible state subsidization of many of these companies
While the political and administrative influence of Pakistan’s military is a generally known fact, there is little public knowledge of the organisation’s corporate interests. With assets and investments worth about Rs 200 billion, the four foundations of the armed forces — Fauji Foundation, Army Welfare Trust, Shaheen Foundation and Bahria Foundation — represent the biggest business and industrial conglomerate in the country with hardly any trace of public accountability.
Interestingly, the 1973 Constitution limits the role of the defense forces to external security. Yet, over the years and because of a host of factors, the military has managed to expand its role to meddle into political, administrative and business spheres. The four Foundations were set up ostensibly to provide for the welfare of retired military personnel. But that role has since long taken a back seat. The growth and mode of operations of these foundations now indicate an urge at empire building and providing perks and privileges for senior rank officers. ( see TFT; “Army Welfare Trust: Vested Khaki interests and double standards of business accountability”; p- 3; Dec 14-20, 2001 )
While most militaries around the world undertake welfare activities for their personnel, the extent — and nature — of these activities is a good benchmark to judge the political influence wielded by the armed forces. For example, welfare activities in the US or other countries, where militaries represent the liberal model of professionalism, are limited in scope. This is done to avoid additional burden on the exchequer and civil society. Contrarily, praetorian militaries — those given to periodic interventions into the political sphere, overtly or covertly — expand their mandate to include multifarious activities, especially commercial ventures in the name of welfare. This process is underpinned by the military’s self-acquired role as the engine for socioeconomic and political growth.
This pattern is visible in most Latin American and a number of South East Asian countries. However, military’s involvement in commercial ventures not only represents a needless over-extension of its mandate, but is a pattern visible in societies with weak democratic political cultures.
The entire formal structure of military business in Pakistan is highly complex. Although most of the business ventures are supposed to be in the private sector, the operations tend to cross-cut through the two sectors. This makes it very difficult to ascertain the source of funding or any form of financial accountability. Most of these foundations were started with initial funding from the public sector. This included direct grants from the government, though not directly out of the defense budget.
For instance, the Fauji Foundation — first of the four foundations — inherited funds and assets left by the British under the welfare scheme for soldiers. In Bahria’s case, the seed money came from the Navy’s welfare budget. Similarly, certain costs — personnel, investment and other costs — are paid for by the government and the funds in such cases are appropriated from the annual defense budget. It is, therefore, difficult to trace the net financial burden due to the general lack of transparency of the defense budget.
However, these four foundations do not represent the extent of the Pak military’s business initiatives. The military uses multiple channels for furthering its moneymaking objectives by operating both in the public and private sectors. The public sector is represented by ventures such as the National Logistic Cell (NLC) and the Frontier Works Organization (FWO). The NLC, set up in 1978, has emerged as a trucking and transportation giant. Although the government claims that the NLC works under the direction of the Federal Planning Commission, it is actually entirely controlled by the Army GHQ. Its total strength is 6,578, including 2,442 serving army officers and 4,136 retired officers. The Cell has a fleet of 2000 vehicles, and its assets are estimated at about Rs 5 billion.
Similarly, the FWO, an establishment that existed prior to the 1980s, was given the responsibility of road construction and civil works on a profit-making basis. Moreover, these organizations continue to get financial injections from the public sector. For instance, in 1993/94, NLC received about Rs 245 million for investment in stocks and bonds.
In Pakistan, this role developed gradually since the first foundation was established in the early 1960s. The political leadership allowed such expansion as a political bribe to win the military’s support. The military leadership, on the other hand, considers this role as perfectly logical and sees it as its contribution towards national socioeconomic development. However, this claim is without substance. One of the findings of a detailed research on the subject was that most of these business ventures were found to be making losses. In fact, certain business operations posed a burden on the public sector by drawing funds from the annual defense budget. This budgetary encumbrance was more pronounced in ventures solely managed by retired military personnel than those running with private-sector partnership. Much of the administrative cost of these ventures, including those run with private partnership, is borne by the public sector, primarily the defense budget.
There are many instances when government auditors raised objections to financial discrepancies, but the objections were dropped after intervention from the highest official levels. Some of the operations have created a monopoly situation and are found harmful for the private-sector. This is especially evident in the construction and transportation businesses where major private companies have had to quit because of competition from military-run operations at special advantage. The ability of firms like the NLC and the FWO to grab huge business contracts from the government through the influence of the military has forced companies like Gammon, for example, out of business.
Moreover, the rank and file of the armed forces has been kept away from such corporate ventures. The entry to the foundations is restricted to a limited number of retired personnel, mainly from the higher and middle management ranks. It is primarily senior retired officers or personnel on the verge of retirement and a limited number of middle- and lower-ranking officers that have traditionally participated in these corporate activities. These Foundations, in one respect, have the aura of a special cadre where jobs are obtained as a reward or lost as a punishment. The manipulation of these Foundations for political and institutional purposes allegedly began during General Zia-ul-Haq’s regime. Zia used the top positions in the Foundations both to reward officers after retirement for their exceptional obedience towards him while in service or to sideline those in service who posed a potential threat to him or to his system. Officers serving in the top managerial positions enjoy all perks and privileges that they would in their military positions.
Then there are those retired personnel who desire jobs in these foundations because of the inherent discomfort of working within a purely civilian organization. In their view, the military control of these corporate organizations helps sustain a disciplined environment similar to that in the armed forces. A 3-year job in one of the foundations, hence, saves them from the immediate shock of working in the private sector or under a purely civilian administration.
These concerns, of course, are taken on board while making the decision of whether or not to establish or expand the military’s business ventures. For instance, in order to accommodate helicopter pilots from the service, who otherwise would not get a job in the private sector, the Army decided to set up Askari Aviation. The company now employs five to six helicopter pilots from the service. A feature peculiar to a number of cases is that the ventures were not started on the basis of any feasibility study but on the whims of the top management to accommodate certain high-ranking officers. In any case, the prime interest of the military in these foundations is the employment opportunities and benefits provided to senior officers. Indubitably, lower ranking officials and soldiers are not the cause for the growth of this business empire. Senior military officials view it as an opportunity to squeeze the last advantage that they possibly can from the public sector.
Unfortunately, the top management of all these organizations, which mostly comprises retired military officers, is not trained to manage corporate ventures resulting in wastage of resources. The profitability of most of these organizations is questionable. The Foundations have also caused indirect financial loss to the exchequer in the form of non-payment of taxes, wangling loans or through paying lower taxes.
Prior to 1991, the government also lost a lot of money on account of taxes which the foundations did not pay. Under the Charitable Endowments Act 1889, all welfare foundations were exempted from paying taxes. This rule was changed in 1991, but the taxes imposed on these foundations differed. Shaheen and Bahria Foundations pay 33 percent tax, whereas AWT and FF are taxed at 20 percent. A senior official of SF has attributed this to the Army’s clout of “influencing such decision-making”.
Given the current state of the national economy, it is vital for the present government to evaluate these activities and contribute towards economic development through cutting costs and visible and invisible state subsidies incurred by such public-cum-private ventures.