Fauji Foundation

Pakistan's armed forces wield enormous political clout and have taken over control of the country through coup d'etats on three occasions since its independence in 1948. The armed forces have also developed a sizeable commercial apparatus that dates back to the 1950s.

All the service branches, as well as the defence ministry, operate their own businesses that are influential players in the domestic economy. These business interests are controlled by money-making foundations that are headed by either serving or retired officers from each of the three armed services.

The defence ministry owns the Fauji Foundation, which is the largest and oldest of the military-controlled foundations. It was established during British colonial rule and one of its primary functions is to ensure the welfare of retired military personnel and provide employment for demobilised soldiers. It is officially a charitable trust that enjoys privileged tax breaks and had nearly 30 industrial enterprises in the late 1990s that were involved in sugar production, food crop cultivation and processing, oil refining, gas distribution, cement production, fertiliser manufacturing and electric power generation. Its declared net assets in 1996 totalled Rs8 billion ($135 million) and its operations earned Rs1.4 billion in profits that helped to finance a sizeable education and welfare apparatus that included 12 hospitals and nine training centres.

The army's foundation is the Army Welfare Trust (AWT), which was established in the late 1970s and is involved in an extensive range of businesses that include farming, rice, sugar and fish processing and cultivation, cement production, pharmaceuticals, travel agencies, banking, commercial real-estate development, insurance, aviation and housing construction.

The AWT's Askari Commercial Bank is regarded as one of the best-run banks in Pakistan and a number of AWT-operated enterprises are listed on the country's stock exchanges. The army's general headquarters closely oversees the AWT and the service chief is the head of the foundation's governing board.

The army's National Logistics Cell is also very involved in commercial haulage operations, especially in the country's frontier regions and is reported to have been responsible for supplying Afghan rebel forces during their war against the Soviet Union in the 1980s.

The air force operates the Shaheen Foundation that has specialised in aviation-related activities, including the running of the country's second largest airline, Shaheen Air International (SAI), and also air transportation and maintenance services. In addition, the foundation has insurance, commercial real estate, television and radio broadcasting and computer technology services. The foundation nearly collapsed in 1998 after an investment in a road toll project went wrong and SAI also stopped operating following a failed joint venture.

The Pakistani Navy has more modest commercial operations compared to the other service branches, which is under the umbrella of the Bahria Foundation. This foundation owns businesses in the shipping, fishing, travel, real-estate development, farming, port management and paint production sectors.

The military has also been occasionally brought in to run key state corporations that have suffered under civilian mismanagement. In 1998, for example, the army was given responsibility for running the country's Water and Power Development Authority, which was on the verge of bankruptcy.

Most of the declared earnings of the foundations and other military- controlled businesses appear to go largely to supporting welfare programmes and for business reinvestment. The armed forces apparently do not receive any sizeable share of the profits from these commercial operations and they have to rely on the government for their financial needs. This has not been a pressing concern, however, as the military has enjoyed priority access to the allocation of fiscal resources because of their powerful political influence in the country's decision-making elite and the enduring security threat posed from India.

Although the Pakistani military has earned a positive reputation as a well-run and relatively clean organisation in contrast to the civilian apparatus that is widely perceived as corrupt and inefficient, this image has been tarnished by a number of corruption scandals involving serving and retired military officials who were responsible for the management of these foundations.

However, following a military coup in October 1999 by Gen Pervaiz Musharraf, the government decided to exempt all serving military officers from corruption investigations by civilian authorities.