The Shift...Blunder or Loyalty to the state?

When Pakistan emerged on the world map, Quaid-e-Azam laid stress on the creation of a State Bank in 1948 and it became operational on 1st July 1948; because he knew the importance of a strong and prosperous economy for an impending affluent state of Pakistan.

Pakistan was born with a centrally planned economy where state directs the economy. It is an economic system in which the central government controls industry such that it makes major decisions regarding the production and distribution of goods and services. Privatization is the conception of Free Market Economy in which the prices of goods and services are determined in a free price system which offers prices in accordance with the demand and supply of products. It was introduced in Pakistan in the late 1980’s to increase efficiency of the industries and create a competitive market in Pakistan so as to improve quality at a reduced price through innovative cost-efficient methods.

What we observe in the world as free market economy today it is thought of being used by our politicians for widening their circle of greed. There is a general perception that Privatization for the sake of expanding the scale of corruption was the motive of many governments. But if we analyze the performance of Privatized institutions we see a very contrasting picture. Some institutions have rendered marvelous results while other carried on to the path of demise.

During 2002 and 2003, government started preparation for KESC’s (Karachi Electric Supply Corporation) privatization, which eventually finalized on November 29, 2005 with a 71% transfer of ownership to a consortium of the Saudi Al-Jomaih Group of Companies and Kuwait’s National Industries Group (NIG), with the government still retaining a 26% stake. The privatized consortium was unable to improve the Company’s financial and operational crisis. The privatization of KESC has left us into fits. Since the privatization of KESC we have had an increase of nearly 200% in the price of per unit of electricity and it keeps on increasing till today without any betterment in the quality of delivery.

But if we observe the privatization of PTCL, we observe that since privatization PTCL has emerged as a comparatively stronger product in the market as its graph was going down day by day before the manifestation of ETISILAT (which is an Abu Dhabi based company).

It has developed itself as a strong competitor in the Telecommunication and Broadband industry. The experience of ETISILAT played an important role in this accession of quality.

Now if we observe the Privatization of Pakistan Steel Mills we see clear and evident indications of corruption in the whole process. The consortium involving Saudi Arabia-based Al Tuwairqi Group of Companies submitted a winning bid of $362 million for a 75% stake in Pakistan Steel Mills Corporation (PSMC) at an open auction held in Islamabad. the consortium of Saudi Arabia-based Al Tuwairqi Group of Companies, Russia's Magnitogorsk Iron & Steel Works and local firm Arif Habib Securities paid a total Rs21.6 billion ($362 million), or Rs16.8 per share, to take control of Pakistan's largest steel manufacturing plant..Lowering the costs of a share from Rs. 17.43 to Rs. 16.18 without assigning any reason was a reason that forced Supreme Court to take “Suo Moto” action against its privatization. And it stated in its verdict that “A constitutional court would be failing in its duty if it does not interfere to rectify the wrong, more so when valuable assets of the nation are at stake,”

Likewise the privatization of our banking sector also yielded some good results that have raised the standards of our economy. Banking sector turned profitable in 2002. Their profits continued to rise for the next five years and peaked to Rs 84.1 billion ($1.1 billion) in 2006. Pakistan's banking sector has remained remarkably strong and resilient during the world financial crisis in 2008–09.The credit card market continued its strong growth with sales crossing the 1 million mark in mid-2005. The Federal Bureau of Statistics provisionally valued this sector at Rs. 311.741 million in 2005 thus registering over 166% growth since 2000.

In Pakistan, the shift from a command economy to a market economy is proving to be so fluctuating because the shift is very ambiguous. There are many factors that play an important role in strengthening the roots of Free Market Economy in state. In a society like Pakistan’s, with substantial corruption, privatization allows the government currently in power and its backers to siphon a large portion of the entire net present value of state assets away from the public and into the accounts of their favored power brokers. Without privatization, corrupt officials would have to slowly harvest their corrupt earnings over time. Efficient privatization depends on their being on a very low level of corruption. Also corrupt governments borrow extensively to engage in spending on overly favorable contracts with their backers (or on subsidies or other giveaways). In the end, the public is left with a government that taxes them heavily, and gives them nothing in return. Debt repayment is enforced by international agreements and agencies such as the IMF. Infrastructure and upkeep is sacrificed - leading to a further decay in the economic efficiency of the country over time.

On the concluding note, the shift is very perplexing for a country like Pakistan. Corrupt governments use it to fill their bags of interest, while if a state’s welfare oriented government is brought into power it will still face the problems of transition. What we need to do is go for the second option as it gives us a flicker of hope that a strong economy is a dream that can come to reality for Pakistan.


Abdul Majid Awan (BSS-3)