Pakistani foreign minister Ishaq Dar’s recent announcement regarding the United Arab Emirates buying USD 1 billion shares in the military’s private company, Fauji Foundation, seems to have raised many eyebrows. The government, of course, is excited as the move reduces Pakistan’s liability by a billion dollars out of the USD 3 billion that Abu Dhabi parked in Pakistan’s State Bank in 2018 to shore up its foreign exchange reserves. Islamabad pays about 3-4 per cent interest annually for the loan.
According to the new arrangement, which my sources in Islamabad claimed was on the UAE’s insistence, Pakistan will continue to pay interest on USD 2 billion as per the older arrangement, while USD 1 billion has been converted into shares.
What’s enigmatic about the arrangement is that a state liability is being transferred to what is legally a private entity. Sources in Pakistan dealing with financial matters say that though there is no legal method for this new arrangement, the military and the government will put their heads together to legalise it.
A state-managed private firm
The Fauji Foundation (FF) is the military’s largest welfare foundation, established in 1954 under the Charitable Endowment Act, 1890 to cater for the welfare of retired military personnel and their families. The initial investment of PKR 18 million came from Pakistan’s share of the British Post War Services Reconstruction Fund in 1947, which the military opted to invest in establishing a welfare foundation. This was then used to set up industries around the country. The FF followed the Turkish welfare organisation OYAK’s model, where pension funds are invested in business to then provide for the welfare of ex-servicemen and their families. The organisation’s claim is that they provide welfare for over 10 million people and run projects in the health and education sectors.
It’s because of the law under which the FF was created that the military insists it is a private firm—even though the Foundation is completely administered and managed by state entities. The defence secretary is the chairman of its apex body, the Committee of Administration. Other members of the committee include the army’s chief of general staff, the quartermaster general, the adjutant-general, the chief of logistics staff – Pakistan (CLS), the deputy chief of naval staff (training and personnel) – Pakistan Navy, and the deputy chief of air staff (administration) – Pakistan Air Force.
In 2005, when the Parliament raised questions about a sugar mill belonging to the FF being sold at a lower price, the Ministry of Defence argued that it was not liable to share details regarding a private company.
Like the FF, its three sister welfare organisations—the Army Welfare Trust (AWT), Shaheen Foundation (SF), and Bahria Foundation (BF)—have also never been subjected to public auditing as they insist on being private entities. They also claim to be profit-making, though a few of FF employees I interviewed for my book, Military Inc: Inside Pakistan’s Military Economy (2007), spoke about malpractice, corruption, and inefficient operations. This means that UAE will have to turn a blind eye to issues of accountability and financial transparency, basically believing what the Army GHQ in Rawalpindi will tell them.
For instance, Brig Sher Khan (Retd), who served as Director Technical (sugar) in the FF, mentioned that poor accountability standards and corruption caused a loss of money. But generals insist that the FF has emerged as one of the biggest industrial and business groups in the country, and one of the largest taxpayers, because of its efficient performance. In fact, Gen Pervez Musharraf (Retd), when he was still the army chief and president, defended the military’s financial empire during one of his speeches in 2004:
“Then, we have army welfare trust, we have Fauji Foundation. Yes, they are involved in banking… we’ve got fertilizers… we are involved even in pharmaceuticals. We are involved in cement plants… So, what is the problem if these organizations are contributing and are being run properly? We have the best banks. Our cement plants are doing exceptionally well. Our fertilizer plants are doing exceptionally well. So, why is anyone jealous? Why is anyone jealous if the retired military officials or the civilians with them are doing a good job contributing to the economy of Pakistan and doing well?”
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Munir’s foothold in economy
As far as the UAE is concerned, the most vital factor is that it has managed to convert a non-performing loan into shares with guaranteed profits. No other financial company in Pakistan can compete with the military’s profitability—the FF and the other three welfare foundations have massive tax exemptions that automatically put them ahead of other private businesses. Moreover, with the army at its back, the FF is certainly not a risky investment option for the UAE.
When I wrote the first edition of Military Inc, I found that in 2006–07, the FF’s declared assets were about USD 169 million, with 25 independent business projects. Out of these, 18 were totally controlled by the Foundation. These projects included schools and universities, oil and gas, fertiliser, cement, cereal, sugar manufacturing, farms, electricity generation, and private security. The FF also had an international venture with Morocco for the production of phosphate that is required for cement production. Since 2007, the FF has acquired the AWT’s Askari Bank, expanded its farming ventures, got into mining and meat export, and recently acquired about 20 per cent share in Arif Habib’s recent acquisition of Pakistan International Airlines (PIA).
Notwithstanding the fact that there is little accountability in the military’s foundations, the FF comes out looking more profitable than its sister welfare organisations, which is why it was able to acquire Askari Bank. Interestingly, the acquisition happened much after the second Nawaz Sharif government advised the military to merge its foundations. The advice was given by Dar, who was then the finance minister, after Gen Musharraf asked the government for PKR 5 billion to bail out the AWT that was losing money. Now, the FF is much bigger than the other three teams and has the political clout and influence to become a partner in running the national airline.
The sale and purchase of the PIA in the past week in itself is an example of the structure, nature, and direction of Pakistan’s private sector. Journalists covering Pakistan’s economy said that Habib has always been a military lackey and will probably allow the FF to manage the airline while he brings in the resources. However, he is also likely to use the partnership for other benefits.
This partnership between Habib and the FF is also a direct consequence of the military’s ascendency to political power. With the confidence that he has ‘won’ the recent conflict with India, a pat on his back from US President Donald Trump, and newfound geopolitical relevance in the Middle East, Asim Munir will now establish his foothold in the economy with the FF as his front.
In order to reposition the country’s economy, which is now Munir’s primary goal, he only has his own men to trust. Echoes from the Islamabad grapevine suggest that he may even force changes in the federal cabinet to make sure the government is more efficient and workable than what he believes it is at the moment. Whether the plan will work is a different question.
Ayesha Siddiqa is a senior fellow at the Department of War Studies at King’s College, London. She tweets @iamthedrifter. Views are personal.
(Edited by Prasanna Bachchhav)
Countries have armies.
Pakistani army has a country to bleed and pillage.
No wonder Putin called it a Junta with nuclear weapons.