Q31.

Do national defence and security institutions have beneficial ownership of commercial businesses? If so, how transparent are details of the operations and finances of such businesses?

31a. Extent of commercial ventures

Score

SCORE: 0/100

Assessor Explanation

Assessor Sources

31b. Transparency

Score

SCORE: 25/100

Assessor Explanation

Assessor Sources

Compare scores by country

Please view this page on a larger screen for the full stats.

Relevant comparisons

The Algerian armed forces are economically active in various sectors. According to the Director of Military Industries at the Defence Ministry, the military industry includes armament, energy, electronics, textile processing, and mechanical engineering. He also said that the military has 40 companies throughout the country (1). The Algerian military also manufactures trucks (2).

The Deputy Defence Minister has underlined that the military industry is important in the process of developing and modernizing the capabilities of the Algerian armed forces (3) but no information on the exact size of the military industry could be found. According to a military official, the foreign direct investments in projects in the military industry amount to nearly one billion US dollars (4). No further information on this figure, for example, a time period, was found. It is therefore not possible to draw any conclusions about the extent of the military’s commercial businesses.

Army officials have publicly spoken about the military industry and its activities (1), (2).

Reports on industry operated by the military give some information on its operation but do not fully disclose the nature of its operations and finances, no information was found. There are reports on the scope of the military’s businesses activities, which ranges from armaments to electronics. Its textile production industry is explicitly utilized for both the military and the civil market (3). According to another source, nearly 30,000 civil workers are employed in the military-economic sector (4).

There is no available data to measure the extent of commercial ventures of defence institutions. According to its latest organic statute, since 2006 the public military procurement company Simportex has been run by the Ministry of Defence, which may acquire ownership in national or foreign companies (presidential decree 110/18, Art. 4, 4) (1), (2). Its staff is bound by confidentiality clauses, and there is little publicly available information on the company’s operations and finances, apart from opinions issued by the Audit Court on contract submissions (3), (4).

Although approved contracts by the company are commonly published in the official state gazette and sometimes publicized in the media, details are often not disclosed or publicly available (1), (2), (3). The company Simportex has a history of non‐transparent commercial transactions. This may be due to its long‐time unofficial control by senior officials of the presidency. The then director of Simportex, General Joao Pedro Cavunga has been heard to say “We are a military company, and as such we are not allowed to disclose information of military nature” (4). This year, the state-owned news agency, Angop disclosed in March that President Lourenço approved a 160 million Euro contract for the acquisition of two patrol boats from Airbus through Simportex (1), (2), (3).

The Law N° 037-2008 (2008) prohibits any commercial activity for active-duty members of the armed forces (1). Burkina Faso’s armed forces do not own any business; however, it was reported across the country on many occasions that the military personnel and individuals, particularly those among the high ranking officers, own businesses and participate in commercial enterprises. The military has been ruling the country for more than 50 years (2), (3), (4), (5).

The Law N° 037-2008 (2008) prohibits any commercial activity for active-duty members of the armed forces (1). Burkina Faso’s armed forces do not own any business; however, it was reported across the country on many occasions that the military personnel and individuals, particularly those among the high ranking officers, own businesses and participate in commercial enterprises. The military has been ruling the country for more than 50 years (2), (3), (4), (5).

Genie Militaire, one of the specialist units of the Cameroon military, is highly involved in construction works. It has constructed schools, roads and other structures in the cities of Yaounde and Douala for the state [1] [2] [3]. Over the years, this unit has gained the hearts and minds of Cameroonians through services it provides to the public [1].

According to an IMF review (July 2018) of Cameroon’s fiscal transparency, “the extent of government holdings in the commercial sector is significant … these holdings are detailed in an annex to the budget law; however, this annex is not made public” [4]. Therefore, it is difficult to ascertain the involvement of military and security institutions in commercial activities as this is not declared publicly.

According to an IMF review (July 2018) of Cameroon’s fiscal transparency, “the extent of government holdings in the commercial sector is significant … these holdings are detailed in an annex to the budget law; however, this annex is not made public” [1]. Therefore, it is difficult to ascertain the involvement of military and security institutions in commercial activities as this is not declared publicly.

As an institution, neither the MoD or the defence forces own significant commercial ventures. According to an interview with a former Licorne senior official, the fact – obvious – that local commanders are involved in businesses, legal or not, does not mean that the Institution itself runs income-generating activities at a large scale. The involvement of former rebel leaders of the Forces Nouvelles (FN) and the participation of high-ranking regional military cadres (known as COMZONES) in illicit trafficking in commodities and natural resources in their respective bastions has been widely substantiated in research and media coverage. According to a March 2016 IFRI report by Aline Leboeuf, citing a UN Security Council report by a group of experts, several COMZONES are known to profit from a parallel local economy, including the trafficking in gold, diamonds and cocoa:

“The latest report, submitted on April 13, 2015, to the UN Security Council, underlines that “the influence that some former zone commanders have on the state security apparatus remains problematic”. The report again reveals Wattao’s involvement in gold and diamond trafficking, as well as in the illegal taxation of transportation networks, while Losseni Fofana’s BSO is accused of the illicit taxation of illegal cocoa farmers within the national park next to Duékoué” (1).

Leboeuf maintains there has been a tacit tolerance of such informal sources of income by the administration of President Ouattara because of the threat that COMZONES continue to pose to domestic political stability in the aftermath of the 2010-2011 crisis. Leboeuf states, “the problem with Comzones also stems from the control they continue to exert over their fighters, who may be reintegrated or may not be, but who are still armed and available to fight as auxiliaries or simply to serve as guardians to protect the mines or other illegal activities of Comzones” (1).

There is no evidence that the MoD structures are involved or that they have beneficial ownership (propriété effective) in the trafficking rings operated by the COMZONES. The informal economies controlled by the former rebels are fully non-transparent and illegal. International media, research by multilateral institutions and NGOs have all widely exposed the commercial interests and beneficial ownership of the COMZONES in their areas of influence. So, it has lifted some of the opacity and political sensibility surrounding this problem in Côte d’Ivoire.

For example, the March 2016 IFRI report by Aline Leboeuf addresses the trafficking practices of Issiaka Ouattara (known as Wattao) in the region of Séguéla (1). Jeune Afrique has also carried regular updates of regional military warlords and their commercial businesses in the local parallel economy (2). An OFPRA report from September 2017 listed the names of the COMZONES and the areas in which they can supplement their income by trafficking in commodities and natural resources (3).
They include Morou Ouattra (known as Atchengué), Hervé Toure (known as Vetchio), Ousmane Cherif, Tuo Fozie, Messamba Kone, Zoumana Ouattara, Issiaka Ouattara (known as Wattao), Losséni Fofana, Daouda Doumbia, Ousmane Coulibaly, Gaoussou Kone, Martin Fofie and Zakaria Kone.

Egyptian Defence institutions have extensive commercial activities (1), (2), (3), (4). The estimates vary widely due to its opaque nature between 2% and 40% of GDP (5), (6). Al-Sisi himself estimates it is 2% of GDP and that is likely to be conservative. If this estimate is accurate, it is about EGP 100 billion. If the activities yield a conservative 15% return, it is more than EGP 15 billion, which is higher than the 10% of the last available EGP 43 billion figure of the 15/16 budget. Given high inflation, the defence budget is likely to have doubled in absolute figures since 15/16, but even if this is the case, the figure is still more than 10%. This estimate is far from scientific, but if anything it is conservative, and also shows a low return by private-sector standards. Note that the military gets a massive competitive advantage over the private sector regarding access to land, the cost of labour, taxation, etc (7), (8).

In general, financial and economic revenues and operations are not transparent (1), (2), (3), (4). The businesses are known, but their profits, operations, finances are secret (5), (6).

Ghana had explicitly announced the established of the Defence Industries Holding Company. The Ghanaian Armed Forces are actively involved in for-profit businesses, ranging from construction to other services that use military labour and resources (1).

The Kumasi Boot and Textiles business is a case in point of limited transparency in GAF-related business. The financial details and transparency on DIHOC related businesses are sporadic despite being serviced by a board of members.

Defence and security institutions have beneficial ownership of commercial businesses in Jordan. The armed forces website lists a number of these business and they include KADBB and real estate development, which allows the armed forces to sell and purchase lands and to allegedly provide ‘decent housing’. The KADDB owns several other companies, which are also associated with the country’s natural resources such as JLVM, JORDANAMCO, JMSS, JADARA, JORAMMO, and ARM [1]. In addition to that, the U.S has consistently encouraged Jordan to commercialise its military services in order to strengthen its economy [2]. There are no details about defence budgets generally, even those coming through central Government. Therefore, it is difficult to accurately amount as to whether these businesses generate income that is less or more than 10 percent of the overall defence budget. The secret budget generally comes from these businesses however, they constitute less than 10% of the defence budget [3,4]. Overall, defence institutions have ownership of commercial businesses that are major enterprises, but the percentage of their contribution to defence budget cannot be identified.

Businesses owned by the defence sector are publicly declared, however, details of their operations and finances are not transparent. As previously demonstrated, the armed forces website lists some of these enterprises under its developmental role section [1]. However, the actual details of their operations remain unclear, and information about them can sometimes be found through media scoops [2]. Moreover, none of the declared entities are included in the Audit Bureau’s audited entities section [3]. Research through the Parliament’s news page, desk-based research in Arabic and English, and interviews with experts about these enterprises, show that there is very little information about their finances and operations [4,5]. Their income is undeclared, and their projects are not listed, which demonstrates a little transparency related to their existence but not to any other details.

The Kuwaiti military, police and KNG do not own any commercial businesses, according to current and former officials, journalists and activists (1, 2, 3, 4, 5, 6, 7, 8 and 9). That being said, these institutions, just like other state bodies, can sometimes resell or lease old equipment and assets like buildings and land, and these activities are legally subject to the scrutiny of the SAB (10), ACA (11) and Parliament (12). (But ACA can only investigate if it received a tip or complaint, or noticed public interest in a certain issue.) Fear of the wrath of the military or the executive branch and the Emir prevents most individuals inside Parliament and the ACA and SAB are too intimidated or involved in corruption themselves to properly review these dealings, officials and activists said. Even though at least 50 percent of the military’s budget and about 15 of the police and KNG budgets are being spent on unknown activities, there is no reason to think that these activities include commercial businesses. (13, 14 and 15).

A monthly aggregate figure for the business dealings of the security agencies is published every month by the Finance Ministry but the Ministry does not provide many details beyond simply saying that this money was made from activities like the “sale of state assets,” so the public does not know what, if any businesses, these agencies own. This problem is also not limited to the security sector of Kuwait. Almost all other ministries have similar activities that are also not transparent (1, 2 and 3).

The LAF possesses private institutions that are open for civilians to use (1). For example, members of the public can book a room at the Monroe Hotel, which is owned by the LAF (2). However, the revenues of these institutions do not appear in the defence budget (3). Thus, it is unclear what percentage of the budget they constitute (3).

The LAF’s private institutions are publically declared (1), but detals of ther operations and finances are not transparent (2).

Inferential evidence shows that the annual income generated by public work, which constitutes a commercial business owned by the military, may exceed 1% of the defence budget. According to a 2006 SIPRI assessment, frequent non-reporting of defence incomes and expenditures was a tolerated phenomenon under ATT’s government despite being technically illegal.¹ A key area where this took place was off-budget income, notably from public works, developmental missions and private enterprise – activities that were not considered to be cost-effective for profit-driven private companies but serve as revenue-generating ventures for the military.¹ Their related incomes did not appear in the national budget.¹
One such activity is military engineering undertaken by the central military repair and assembly workshops that are equipped to build mechanical spare parts for public and private companies. In the three financial years 2000, 2001 and 2002, the armed forces executed public works worth a combined total of 3.8 billion CFA (USD 5.5 million).¹ In those three years, the approved defence budget was USD 61 million, 61 million and 60 million.¹ Thus, even the combined income generated from this commercial stream over three years doesn’t amount to 10% of the defence budget for one year. But the annual income would exceed 1% of the defence budget.
There is clear evidence from 2014³ and 2018² to confirm that the army continues to undertake such public works under IBK’s government. The body responsible for such public works is the Direction du Génie Militaire (DGM), whose motto is ‘Construire – Parfois détruire – Toujours servir’ (Build – Sometimes demolish – Always serve).² As its motto suggests, the DGM is responsible for public construction works – both in the execution and the pre-construction studies.² An article notes that the DGM recently completed works on the roads between:
– Kangaba-Nerana
– Sévaré-Gao
– Tombouctou-Dounetza
These projects not only enable the military to travel and deliver supplies more easily in their ongoing fight against jihadist groups, but have the external benefit of serving traders and people who live in those towns and regions.²

The activities of the DGM are publicly known and the government is keen to publicise how the military’s contribution to public works benefits wider society. Consequently, details of specific projects are reported upon as highlighted in Q31A.
However, the income derived from such activities remains opaque. As the SIPRI report points out “this income does not appear in the national budget. In general, this income is used to cover the costs of the public works; if there is profit, it is invested in maintenance and new infrastructure for the army”.¹
Since defence finances have generally not been subject to audits or publicly detailed in recent years, the amount of income currently generated by the DGM remains unknown. In 2016, Mali’s authority for regulating public sector contracts and spending (ARMDS) found that it was wholly unable to audit the Ministry of Defence’s finances for 2014 because of the lack of documents provided by the ministry.2
Moreover, the BVG’s last published report came in 2015 and made no mention of defence spending or incomes.3 The failure to publish any subsequent reports or to address the defence budget by the body supposed to monitor accountants and administrators highlights the lack of transparency relating to defence activities.
As the World Bank points out, the BVG has not specifically reviewed Ministry of Defence accounts, and only an aggregate administrative account is transmitted to the auditor when the annual budget is examined.4,5

No evidence was found to suggest that security institutions have any beneficial ownership of businesses. This might be explained by the attempt of the King to deliberately prevent the armed forces from gaining too much power through income generation outside of their budget allocation from central government, particularly following the 1971 and 1972 coups Also, no evidence the King owning defence-related businesses through the ministry of defence or outside of it was found. (1)(2)(3)(4)(5)(6)(7)(8)(9) (10)(11)(12)(13)(14).

This sub-indicator is scored Not Applicable as Morocco’s national defence and security institutions do not have any beneficial ownership of commercial businesses.

Neither the Constitution (1) nor the Military Penal Code (2) bans defence institutions from having beneficial ownership of commercial businesses. However, section 6, art. 129 of the Public Penal code provides for strict regulations around which public officials can be involved in private business. Sanctions range from 100 000 FCFA to 1 million FCFA and, at least, two years of imprisonment (3).
According to some sources, there have been incidents in which members of Niger’s armed forces have been involved with artisanal mining projects in the north of the country. But never on any significant scale, the equivalent of 1% of the defence budget. The assessor did not find evidence of any military involvement in private enterprises.

No evidence was found of any military involvement in private enterprise. Interviewees agreed that this was unlikely. Therefore, this indicator has been marked Not Applicable.

Examples of commercial companies owned by the Ministry of Defence include the Defence Industries Corporation of Nigeria, (DICON), Defence Health Maintenance Limited, NA Welfare Holdings Ltd, and Air Force parastatal AESTL (1). Provisions are made to fund some of these commercial companies from the defence budget. The Nigerian Naval Dockyard is another example of a commercial business owned by the Ministry of Defence (2). All these companies receive allocations from the budget, their financial transactions are not captured in the audit process (1).

The audit processes of these commercial entities are subject to the oversight of the Ministry of Defence and in turn by the National Audit Office. However, detail reports are not available on their websites and not easily accessible by the public (1).

The audit processes of these commercial entities are subject to the oversight of the Ministry of Defence and in turn by the National Audit Office. However, detailed reports are not available on their websites and not easily accessible by the public Omitoogun (2006) (2). Military spending is internally audited and in theory subject to external audit by the auditor-general and the House committees in turn. However, the level of oversight is not transparent and does not meet international best practice (1).

According to multiple sources, the army owns businesses indirectly through the sultan’s office, but there is a lack of information on these business and their nature. There is a strong belief that these businesses are related to the export of oil and trade (1). No information was found on the Ministry of Defence’s ownership of businesses. There is information concerning the MoD Pension Fund investments in the petroleum industry (2), (3). The scale of profits is unpublished, it is impossible to discern if profits constitute more than 10% of the defence budget. The lack of information on commercial ventures on either the MoD or Ministry of Finance websites demonstrates a lack of transparency (4), (5). Information found on state-owned enterprises suggests the government has no clear definition of what is considered state-owned, and despite processes of the privatisation board membership by senior state officials ensures access to public funds and lack of transparency in profits (6). No information on state-owned businesses detailed military-owned businesses.

The shares, held by the Ministry of Defence Pension Funds, are the largest in Oman and the MoD is one of the biggest investors in local capital markets including finance and real estate (1). The MoD’s ownership and involvement in businesses are not declared on the ministry’s website and exist only under companies’ websites (2), (3). There is no transparency from the Ministry of Defence; or accountability from the Ministry of Finance or the State Audit Institution in business ownership (4), (5). There is no data available on these businesses; they are not declared to the public. The MoD owns the pension fund, but nothing owned by the sultan office’s is declared (6).

There are no businesses owned by the national forces or the security apparatuses. There is no evidence that this type of practice takes place in Palestine (1). The only entity that owns private companies is the Palestinian Authority, not the security or national forces. The companies owned by the PA are electricity companies and PADECO. Moreover, the Code of Conduct for Security Personnel in Palestine prevents any security members from running a business or participating in bids related to the Palestinian government (2).

This indicator has been marked Not Applicable, because no businesses or companies are owned by security or intelligence forces. However, this does not mean that security chiefs do not have private commercial ventures (1).

Article 128 of the Constitution states ‘‘when assuming their positions, the Ministers shall aim to serve the interests of the country and shall not, in any way, misuse their official positions for their own interests, or for the interests of their own acquaintances. The law shall determine the acts that are restricted for Ministers and the acts committed during their term of office that entail accountability; and the said law shall specify the manner of accountability.’ [1] Despite this, defence institutions and personnel own major enterprises. The constitutional restriction does not specify the type of personal interests that are disallowed. Barazan Holding, established by the MoD, was created to improve the capabilities of the armed forces. [2] In addition to Barazan Holding, the Qatari armed forces own a major commercial enterprise registered in Luxembourg, under the name ‘Qatar Armed Forces Investment Portfolio’. The investments made by this company are considered major transactions and most of the information is available. One of the investments was the purchase of The Marriot Hotel in Barcelona. [3] According to multiple sources, the commercial ventures of the armed forces are legal both internally in Qatar and externally. [4,5]

There is limited transparency of the defence institutions’ investments in commercial businesses. The names and enterprises are usually declared to the public, but material on the financing and the operations is not available. The information available about such investments is not released by the Government or the defence institutions [1,2].

There are several companies owned or linked to the Saudi military, including Military Industries Company (MIC), which is under the purview of the Saudi MoD, as well as Advanced Electronic Company (AEC) and Alsalam Aircraft Company (1). The MIC itself has a number of affiliates, such as the Armored Vehicle and Heavy Equipment Factory, a factory that develops armoured vehicles and other military equipment (2).
Saudi Arabian Military Industries (SAMI) is a recently-formed military industry company which is owned by the Public Investment Fund, the Saudi sovereign wealth fund. SAMI will act as both a manufacturer and service provider and plans to establish several local companies including through joint ventures with global equipment manufacturers (3).
Given the dearth of publicly available details relating to the finances or corporate structure of the abovementioned enterprises, it is unclear what portion of the defence budget these commercial businesses may constitute. However, they are unlikely to constitute more than 10% of the budget, which was SAR 210.0 billion in 2018 (4). According to our sources, “although the current trend is to copy the UAE model of having military industries within Saudi Arabia, it is not independent in the core. It belongs and is administered by the royal family. It is a representation of the current political pattern in the kingdom. The whole industry is still in the early stage and does not produce any revenues so far” (5), (6).
According to a Gulf affairs expert, “national defence and security institutions having ownership of commercial businesses would work against the interests of the ruling family. Measures have been put in place since the 1960s to coup-proof the country, and this has meant ensuring that the national defence and security institutions do not have ownership of the commercial business. Having said that, national defence and military institutions operate as microcosms within the country and serve as separate ecosystems, which means that they are – by and large, self-contained and semi-autonomous” (7).

According to our sources, all businesses that have links to the military are declared to the public; however, there is a lack of details on budgets, financial asses, and activities. There is not detailed information concerning the current business operations (1), (2).

According to our sources, the MoD and military own no commercial businesses or corporations that generate financial assets on large scale. The only semi-private business would be the beach and sports clubs. Its revenues are used for internal maintenance and running management expenses, and do not go to the budget of the MoF (1,2). Defence and security institutions do not own commercial businesses of any significant size. There is no evidence that the Tunisian army owns commercial businesses. The website of the Ministry of Defence does not mention such ownership (3). The budget of the Ministry of Defence does not mention resources from commercial businesses. The review of the Tunisian and international press did not result in evidence of ownership by the army of any significant commercial businesses (4).

This indicator is marked Not Applicable because national defence institutions do not have any beneficial ownership of commercial businesses.

According to our sources, any institution (private or commercial) that belong to and are owned by the state is listed for the public. This rule also applies to MoD (1,2). The list of all public institutions is available online on the website of the Presidency of Government. (3)

The Emirati Armed Forces do not own any business as per our sources. Even EBIC, a defence sector business is not owned by the armed forces or the Ministry of Defence. It is managed independently from the army and the MoD. MBZ owns and manages (indirectly) the company (1), (2), (3).

There is no transparency concerning the defence institutions investments in commercial businesses at all. Although audit reports of companies associated (not owned) with defence institutions are produced by independent auditor companies, information about such investments is not available for the public through official means (1), (2), (3).

Country Sort by Country 31a. Extent of commercial ventures Sort By Subindicator 31b. Transparency Sort By Subindicator
Algeria 0 / 100 25 / 100
Angola 0 / 100 25 / 100
Burkina Faso 0 / 100 0 / 100
Cameroon 0 / 100 0 / 100
Cote d'Ivoire 75 / 100 0 / 100
Egypt 0 / 100 25 / 100
Ghana 0 / 100 0 / 100
Jordan 0 / 100 50 / 100
Kuwait 100 / 100 0 / 100
Lebanon 50 / 100 50 / 100
Mali 50 / 100 50 / 100
Morocco 100 / 100 NA
Niger 100 / 100 NA
Nigeria 50 / 100 50 / 100
Oman 0 / 100 0 / 100
Palestine 100 / 100 NA
Qatar 0 / 100 25 / 100
Saudi Arabia 50 / 100 50 / 100
Tunisia 100 / 100 NA
United Arab Emirates 100 / 100 0 / 100

With thanks for support from the UK Department for International Development and the Dutch Ministry of Foreign Affairs who have contributed to the Government Defence Integrity Index.

Transparency International Defence & Security is a global programme of Transparency International based within Transparency International UK.

Privacy Policy

UK Charity Number 1112842

All rights reserved Transparency International Defence & Security 2020