Distinct Role For Distinct Entity

Distinct role for distinct entity, Law is needed for defense accountability.

Govt is on the verge of setting up its second ordnance factory in Chattogram. Like the first one, the second one will be operated and managed by the Army. Land of a closed public textile mill has already been acquired in this endeavor. For far too long, production and distribution of defence article has been concentrated into the hands of the Armed Forces, which account for a large part of the public spending and which [are] the sole buyer of the defense article.

A clear distinction between producer of defense article and buyer of such article should be made for the sake [of] accountability and transparency in the defense sector, which lacks proper laws and regulations regarding such matters.

Without proper division of roles, such public facilities often become net contributor to leakages and misuse of taxpayer's money. In recent past, we witnessed how Bangladesh Machine Tools Factory (BMTF) supplied Electronic Voting Machines (EVMs) are at the heart of debate in uncontested election. EVM cost govt between Tk 40 billion and Tk 80 billion. Moreover, BMTF's participation deprived private sector of getting the work when industrial production requires govt support. Similarly, Sena Edible Oil's entry into soybean oil market did not bring down prices of edible oil through increase in the number of another entrant. Nor did it improve transaction transparency at the retail level. Army's soybean oil purchase from the open market would divert part of the public spending to private sector,which is capable of supplying oil at competitive prices if regulatory environment is maintained through Bangladesh Competition Commission (BCC) and consumer association platforms.

First the interim govt and then the incumbent govt created a post of defense advisor to highlight more the role of the defense sector. Yet laws and guidelines that will bring transparency and efficiency to the sector are not introduced. We badly need proper laws and guidelines to ensure smooth participation of private sector, constitutional protection for the press for reporting on corruption in the defense sector and to make strong parliamentary committee on defense to administer regular hearing on defense related issues.

I highlighted the matter in the piece "Need Policies For Domestic Defense Production", published here on November 30,2023 (for more read https://hoquestake.blogspot.com/2023/11/need-policies-for-domestic-defense.html?m=1). India has Defence Acquisition Procedure(DAP). DAP 2020 set up rules regarding engagement of private companies in defense production and reservation for them in some sectors, liberalization of licensing and test/trial policies, focus on indigenous content in defense article production. It also incorporates a strategic partnership model that allows Indian companies to manufacture hi-tech equipments at home and to partner with global companies to manufacture defense equipments under technology transfer agreement.

In the USA, Defense Production Act(DPA) 1950 allows US president to divert resources and engage private companies to produce defense article to comply national security emergency. The DPA also allows president to provide loans, subsidies to private sector so that private companies can expand their production capacity to address the security needs.

Bangladesh needs similar acts and procedures so that private sector may take the onus of defense production. Another good thing about engaging private sector is that private companies are subject to audit and stakeholders will keep a close tab on the spending and appropriate measures taken. So issues like misuse of money or cost overrun will be reduced and accountability is ensured.

Starting point could be procurement of [nonlethal items like] uniforms, boot,meal ready-to-eat and protection vest. Many private sector companies have the capacity to deliver such items at competitive prices than those facilities managed by the Army.

In future, such private procurement program could be extended to APC, training munitions, turret, LCT, patrol boat,propulsion systems, navigation systems, guidance systems,electronics, thermal imaging, drone engine etc. This will pave the path for FDI in defense sector in the country. In addition, many small,medium and large private defense companies will pop up to cater to the need of the Armed Forces. This private sector centric defense procurement program will retain part of the defense spending at home and boost industrial capacity of the country as well as building other ecosystem across different sectors.

Apart from domestic procurement, such defense articles can be exported later. The Army chief in a program told the difficulty he endured in exporting such articles abroad. As mentioned earlier, clear division of roles of different entities should be demarcated. The Army cannot be sole producer, buyer and marketer of defense articles. Under clear guidelines, public or public-private companies should be formed. Many of the companies will not have the required distribution and marketing ability to promote defense articles across the globe. In Bangladesh, there is example that can be replicated to address the problem.

Bangladesh's biggest public corporation Bangladesh Petroleum Corporation (BPC) nowadays is allowing private sector in oil refining business. Two conglomerates are setting up oil refineries. However, the distribution of petroleum products across the country requires huge logistic investment that each of the company individually may find too difficult to manage. So, Padma,Meghna and Jamuna,the three public companies which are listed in the stock market , retain the responsibility for the distribution and marketing of the petroleum products across the country. Part of the refining job that requires huge govt subsidy will be done by the private companies and public companies will keep distributing the petroleum products, which are costly for one individual company. As public companies are listed in the stock market, they have to bring out the regular audit of their activities.

In Pakistan, Global Industrial Defence & Solutions (GIDS) markets and exports defense products manufactured by different public and private arms manufacturers. Individually these companies cannot afford the marketing and promotion costs,but a dedicated platform like GIDS can bear such cost. So GIDS showcases Pakistani defense products across the globe. Bangladesh can float two or three promotion platforms like GIDS so that some entities focus on defense article production while some other entities focus on promotion and marketing of the defense products across the globe.

Another thing that is quintessential is that these entities should be registered in the stock market.companies registered in the stock exchange have greater transparency than those who are not registered. Stakeholders and shareholders ask about their decisions and seek explanation. As they want answers,the press often provide them information through regular reporting. I touched the matter in the piece "Joint Defense Production: Some Points To Note", published here on February 23,2024(for more read https://hoquestake.blogspot.com/2024/02/joint-defense-production-some-points-to.html?m=1).

Private sector engagement, transparency and accountability have long been overdue issues [in the defense sector]. Earlier absence of such policies had resulted in controversy, close quarter decision making, poor strategic outcome, leakages in public spending,less competitive market,misallocation of public resources and inefficient use of productive capital. [Now the economy is characterized by] growing budget deficit,low credit to private sector, falling output in the industrial sector, and growing unemployment. [Amid these], adoption and implementation of such policies will bring fresh impetus to the economy. A part of the defense spending will go to the private sector. New companies will be formed,jobs will be created. Investment will be made. Domestic and foreign technicians will engage in tech driven production process. And a new new export sector will be developed.

Above all people will get clear explanation about how taxpayer's money is being spent in the defense sector and how they and their livelihoods will become secure due to such spending.

Joint Defense Production: Some Points To Note

Proposal floated in a seminar Ushers change in defense in particular.

Last week Indian High Commission organized a seminar and proposed joint production of defense equipment and sharing of technology. It is indeed a good proposal came from a neighbouring country that allowed private sector in defense article manufacturing. The country has a good track record of allowing the press to report on corruption on defense sector. This proposal if comes into fruition will boost the governance situation in our defense sector.

India has long ago offered a $500 million line of credit to import defense equipment from India. Bangladesh spent some of the credit to import bus, truck ,floating bridge and other nonlethal equipment. India continues to offer the line of credit. Recently, India offered to sell 105 mm light cannon to Bangladesh. In addition, maintenance ,repair and overhauling plant for the MI-17 helicopter fleet that Bangladesh set up with the assistance from the Ukraine will likely to get benefit from the Indian proposal. India has the license to manufacture some parts of this kind of helicopter and in future it is going to decommission large part of its MI-17 fleet, opting for the Western options as well as the domestic ones. Bangladesh on the other hand is going to induct more units of MI-17 helicopter as it is equipping both the BGB and the Police with this kind of helicopter. Sanctions on the Russian Federation mean Bangladesh will likely to hinge on India to procure future MI-17 units and its parts or produce the parts with Indian consent.

Indian private sector has long been operating in Bangladesh. In fact, it is the Indian private sector that opened up manufacturing and assembling facilities in the automobile sector in Bangladesh. Hero Honda first set up its motorbike assembly plant in Bangladesh. Later, other Indian and Japanese companies followed its step. Mahindra has a mini truck assembling plant in Comilla. Bajaj last year set up an assembling plant for three-wheeler after a Bangladeshi company demonstrated its ability to manufacture three-wheeler locally. Similarly, many Indian companies that researched and built prototype of Indian defense article for Indian Army but did not manage to get world attention may open facility for such equipment for the Bangladesh Armed Forces as well as for the world as Bangladesh has a very liberal and competitive export policy.

There are some hurdles in this endeavor. First, Bangladesh does not have proper policies and guidelines for engaging local / foreign private sector in defense article manufacturing. So we need proper guidelines and laws to ensure smooth participation of private sector, constitutional protection for the press for reporting on corruption in the defense sector and to make strong parliamentary committee on defense to administer regular hearing on defense related issues. India has Defense Acquisition Procedure(DAP) 2020 and the USA has Defense Production Act (DAP) 1950 and other laws and regulations to address the issues. In my piece“Need Policies For Domestic Defense Production” on November 30,2023,I highlighted the matter. Apart from that we also need laws to compensate individuals and groups who may fall victims of wrong policies / misconduct of any member of defense community.

Second, in our country public spending /resources often fall into wrong hand as proper check and balance mechanism is not in place. I have recently come across a documentary that reveals how agency people in a powerful country operate shadow company/front line company/think tank to misappropriate local resources and spy on others(Watch the docu).In Bangladesh, we witness how grand scale misappropriation of local resources/public spending often goes off the radar or seldom talk about at the highest level of defense community. Working with such front line companies at the end of the day will not bring any benefits.

Third, companies registered in the stock exchange have greater transparency than those who are not registered. Stakeholders and shareholders ask about their decisions and seek explanation. As they want answers,the press often provide them information through regular reporting. Unfortunately, most of the Army run subsidiaries are not in the stock exchange. Many of them are overusing public resources. If subsidiaries like BOF,BMTF, Radisson ,Army Golf Club sell some shares to the public and the private sector ,then stakeholders will question about their spending and decision making and government will not have to spend much on these subsidiaries. Any Indo-Bangla joint venture has to make sure these subsidiaries sell shares to the private sector. It will be boon for our capital market.

It is indeed a good news that India has shown keen interest to joint defense article manufacturing. It will transfer technology and pave the path for other future foreign investment. Thriving motorbike industry is the example. Moreover,Bangladesh will be able to get greater market access to Indian consumer market and will augment its export volume in the country. The crucial aspect of this proposal is it will bring the necessary transparency and accountability that our defense sector currently lacks.