LAHORE: In 15 years since 1991 when Pakistan embarked on its journey to create a market-based economy in a really big way, the calls for bolstering a regulatory infrastructure to protect consumers and foster genuine competition in the marketplace have grown in spite of a consensus on liberalisation and privatisation across the political and economic spectrum.
“When you privatise and deregulate in a non-competitive environment, you need to put in place a sophisticated and efficient regulatory setup to foster competition in the market, thwart cartelisation by the private owners as we have seen in the cement sector, and ward off exploitation of consumers,” says economist Dr Faisal Bari.
“If you can’t really create an effective regulatory framework and mechanism that ensures genuine competition, you better avoid undertaking disinvestment of the public sector. An inefficient entity in the public sector is far better than the one manipulating the market and exploiting consumers when in the private sector,” insists former president of Lahore Chamber of Commerce and Industry Pervaiz Hanif.
Dr Bari says the government did not have any modern, efficient and competitive law when it began getting out of the sphere of running the business and encouraging market economy through liberalisation of economy and privatisation of state-owned entities (SOEs) working in the manufacturing, finance, energy and other sectors. As a consequence of lack of effective regulatory mechanism and expertise, the very basic objective of promoting competition in the private sector was defeated.
“The existing Monopoly Control Authority (MCA) did not have the kind of expertise that was required in the present-day market. In addition, the government sold a number of SOEs before actually creating a regulatory infrastructure in the shape of OGRA, NEPRA, PTA, etc,” he says.
Although there had been attempts in the past to sell-off what was later dubbed by the critics of privatisation as family silver in the mid-and-late-1980s, the only major transaction that took place was disinvestment of 12 per cent shares of PIA through stock market. The real push to the market economy came in 1991 when the government announced deregulation of foreign exchange, investment and imports, and put up 105 public sector industrial units and banks for sale.
“Privatisation was undertaken as part of a broader reforms process that also included liberalisation of investment in the country. It was critical for government to pull out resources from the loss-making and inefficient projects which were affecting the budget (by swelling fiscal deficit) and retarding economic and social growth,” explains Sartaj Aziz, who initiated economic liberalisation and privatisation as finance minister in 1991.
“Our economic liberalisation and privatisation programme enjoyed wide political support and consensus, which is demonstrated by the continuation of our policies by successive governments since then because it was a home-grown initiative,” says Sartaj, rejecting criticism that the first Nawaz Sharif government had decided to deregulate economy and privatise state assets on the instructions of IMF and other multilateral lenders.
“Our deregulation and privatisation initiative went far beyond any IMF conditionality. We were even ahead of India by two years.” In the last one-and-a-half decade, the government has completely or partially sold 361 (excluding the OGDC GDRs sold through the London Stock Exchange) units, including banks, public utilities, like PTCL and KESC, power generation plants, cement plants, textile mills and others for Rs378 billion. Out of the total privatisation proceeds, the government made Rs285 billion by selling 35 units since November 2002.
From the very first state entity sold in 1991, doubts have been raised over the lack of transparency in the process of determination of minimum reserve price of an asset to its sale to a private owner. The recent decision of Supreme Court, annulling the sale of the Pakistan Steel to a consortium of Pakistani and Saudi Arabian investors, is a classical example the way SOEs have been disinvested by successive governments at far less their real price. The court decision has actually strengthened public doubts about reports of alleged underhand deals in the process of privatisation of major units.
“Privatisation of SOEs should not be undertaken unless it is fetching the true price of an asset and has potential to create competition in the market and improve productivity,” former Planning Commission chief economist Dr. A.R. Kemal says.
In Pakistan’s case, privatisation has neither fetched the true price of the assets disinvested so far, nor managed to generate competition in the market. At best, it has just “transferred a public sector monopoly to the private sector,” and helped the private sector form cartels to fleece the hapless consumers. Also there is little or no evidence that privatisation has helped achieve other objectives envisaged by the architects of the policy, like improving the levels of efficiency in the production processes, reducing fiscal deficit, broad-basing equity capital, improving quality of service or delivery or increasing savings and investment vis-à-vis GDP.
“Nevertheless, it would also be naïve to assume that privatisation is essentially a bad policy. It can pay dividends provided you undertake it in a transparent and open manner,” says a Punjab University economics teacher.
“The government’s decision to totally get out of the market had largely contributed to widening disparities between the regions and to income inequalities to some extent.
“The private sector invests only in areas where it can maximize its profits. Since the government had made a conscious decision to stay away from all kinds of businesses, it has itself eliminated competition in the market, as well as abdicated its responsibility to provide essential services to the people of remote areas where private businesses avoid expanding,” the academic says.“There is no reason why should government interfere with the market forces. Liberalisation and deregulation of economy is a good thing. Government should interfere only in case of failure of information or cartelisation by the private sector,” says Dr Kemal.
“While it is good that the government deregulated the economy, it was done half-heartedly. The government continues to protect certain sectors and industries, like automobiles, Pakistan Steel, ICI, etc., from competition because they are represented by powerful lobbies,” says Hanif.
Sartaj says privatisation and deregulation policies give a broader framework for the functioning of the economy. “But there are several other factors, too, that need to be taken into consideration. In the 1990s, the economy could not perform well owing to various factors, including political instability (due to frequent dismissal of governments), international sanctions after nuclear tests, and unfavourable global conditions,” he says. However, he says, it is important to strengthen regulatory framework and mechanism, remove inherent irritants, like shortage of skilled manpower, as well as invest heavily in social sector. “But instead the (present) government chose to promote consumption and import-based growth, squandering opportunity that came Pakistan’s way after 9/11 in the form of greater fiscal space to invest in social sector and second generation reforms. It is as a consequence of this short-sighted policy that the country is now facing the ever-widening trade gap and high inflation, and not because of liberalisation of the economy,” the former minister says.
