Is Privatization good for Pakistan?


In the past, private entrepreneurs in Pakistan did not windfalls in the real economic sense of the word by earning a return on their investment in a competitive world; on the other hand public enterprises are still in deficit despite heavy investment on these enterprises by government. But China is an example of robust State own enterprises (SOE) where the productivity of public enterprises have been increasing year by year since 1990. Currently, China has almost 150,000 SOEs, which have total worth nearly 100 trillion Yuan ($ 15.7 trillion) or more, and which employs more than 30 million people. Albeit, in 1990s, China, India, Russia and Brazil had started from same position, but China vanquished all of these countries, China GNP per capita grew by 730 percent, while few SOEs countries i.e. Brazil, Russia and India achieved only 185 percent, 118 percent and 374 percent respectively. Besides, privatization is not mandatory to achieve a sustainable growth because some of world best airlines like, Emirates, Etihad, and Qatar airlines are all the state own airlines have gained outstanding reputation for quality by overtaking many well-named private airlines. If the rail way in India is earning profit, then why not the railway in Pakistan can earn profit? It is palpable that the issue in Pakistan is management, not ownership. Let’s talk about the PIA; it seems that the overstaffing is a minor issue in PIA because the payroll is only about 16 percent of the total PIA budget. The grave issue started arising amid 2005, when the veteran general manager and manager were replaced by people who had no any experience of running airline before. The proposal to acquire seven new aircraft was rejected from a Kuwait-based company, while they took huge amount of loan at a high interest rate to lease used air crafted at high prices. This shows that it is not operational inefficiency, but poor management which is the problem with all SOEs in Pakistan.

Besides, in 2019, the commercial SOEs incurred net losses of Rs 143 billion, these public enterprises becomes huge burden on the country’s finances through leakages and impeding the countries growth by continuous deficit. Therefore, the poor’s instead of gaining windfalls from state enterprises actually worse off as almost Rs 100 billion a year are spending of the budget annually on replenishing the losses of these corporations, banks and other enterprises. In the past, these public enterprises became the source for employing thousands of supporters of political parties that assumed power and became a source of patronage and privileges for the ministers and favored bureaucratic appointment to manage these enterprises. These employees and managers have neither the managerial expertise nor technical competence to carry out the job.

Moreover, was it miss-management or not? The GOP provided about one trillion rupees in 2019 to DISCO, which included foreign and domestic loans, equity investment and subsidies etc. But the actual money allocated and released to DISCO, adds up circular debt due to delay or payment not made by the government to DISCO. The budgetary grants to the Railways and other enterprises are in addition to this amount of one trillion. A break-up of the aggregate net losses shows an interesting sectorial pattern. Oil and gas companies showed net profits of Rs242 billion while infrastructure companies (PIA, Railways, NHA, Post Office etc.) ended up with net losses of Rs267 billion and power companies with Rs117 billion.. During FY19, collective losses of the rest of the SOEs in this subcategory were around Rs17 billion out of which Pakistan Post had the largest losses of over Rs9 billion. It could be mentioned here that if rail-way in India can earn profits then why not rail-way in Pakistan could earn profit?

In case of developing countries, privatization of SOEs are more dangerous because if the privatize company involves in tax evading due to patronage and political connections then it will  be more cumbersome on public finance ,and social welfare loss due to high prices impose by private company. The past experience of Privatization in Pakistan is not good; the basic reason for privatizing these enterprises should not be running of the business but regulating the business. If government itself is a contestant in the business, it will be a conflict of interest because other companies will be doubtful about the neutrality of umpire. The government will probably favor its enterprise and discriminates against the private company; the result would be the shutdown of private enterprises, under these circumstances, the market becomes chaotic, disorderly and unruly as there is no neutral ‘person’ to monitor and enforce the rules. The economy thus pays a heavy price for this loss of the market mechanism in the production, sale and distribution of goods and services. But if same company is privatized in China, then the productivity will be high as compared to SOEs because of good-management and policy. According to the National Bureau of Statistics; the Economists Unit the productivity of the Chinese private enterprises had been increased since 2005 to till 2017. During 2014-2017 the share of industrial profit by private enterprise had reached to 40 and 42 percent, which then started falling after 2018, and at this point the government sector overcame the private enterprises. It means that in any country management is important instead of ownership to perform.

On the contrary,  the privatization experiences in Pakistan is worst because they earned rents through the maze of permits, licenses, preferred credit by the banks, subsidies, privileges, concessions and specific SROs granted to the favored few. Naturally when one sees people becoming rich not through the dint of their hard work and enterprise but by manipulation, back door entry, connections, reciprocity, paying bribes, adopting extra legal means, bypassing the established rules and laws, getting scarce foreign exchange quotas, evading taxes, defaulting on bank loans and rigging the markets etc., we should not be surprised to see the venom against the so called ‘private profits’. There is always fear about the unemployment as a result of privatization, after privatization the low skillful labors will definitely lose their job and it will be replaced by more skillful labored. It could be seen while the privatization of commercial banks in 1997. In 1997 there were 105000 employees working in the financial sector, after privatization was completed, the banking industry has expanded and the work force surpassed to 114000. It is palpable that the pattern of employment has changed and more productive and skilled workers have been taken in at the expense of low skilled labor. Hence it is cleared that the government of Pakistan instead of thinking about privatization of public enterprises it should be focused on the managerial issues. The inexperienced workers should be replaced by veteran’s mangers and general managers. Besides, merit base selection should be the priority of every enterprise to decimate deficits of these enterprises.

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