January 18, 2004

Promoting public-private enterprises appears to be the way ahead, but in our context it has failed to work because the model assumes that the state is consistent with its policies and sincere in its intentions

DEVELOPMENT in an underdeveloped country is not entirely the responsibility of the state. It simply does not have the resources, the potential and the capacity to make it happen on a sustained basis. The financial resources are thin, the human resources are weak, and the intellectual resources are scarce, leaving the public sector in an underdeveloped society incapable of delivering the right quantity and quality of goods and services required to build a vibrant economy.

Development in such societies can only take place if the private sector takes up the responsibility of supplying the missing resources and skills needed to provide basic economic and social services like health, education and infrastructure. It is the success of this model that economies like Japan, China and Malaysia have become models of development.

In an ideal scenario, the state plays a facilitating role, while the private sector plays the managerial role, creating a win-win relationship where the state’s regulatory and sanctioning powers combine with the planning and implementation prowess of the private sector to create development synergy. However, in reality this model is highly difficult to implement, as the assumptions on which this model is based are often proven invalid.

The model, for instance, assumes that the state is consistent with its policies, sincere in its intentions, and benevolent with its disbursement of funds for the right task at the right time. This, for sure, is a big ask from governments notorious for exactly the contrary. Yet, wherever this model has been tried even with a partial degree of commitment on both sides, it has borne fruit.

In Pakistan, such initiatives have traditionally been undertaken by individuals who either have a social spirit motivating them due to some personal tragedy, or some strategic philanthropists who feel the responsibility to support social causes. A purely commercial effort that manages this partnership on professional and sustainable basis is still hard to find in the country.

The existing trade policy has clearly laid out areas where the government would like to use this model to provide the industries with basic infrastructure, skill and technological facilities required by them to become more competitive in the post-WTO world. Let us see some of the efforts made in this country in the health, education and business sector to learn a few lessons from their experiences, and then examine the government initiative in this direction to be able to analyze its chances of success:

EDUCATION AND HEALTH MODEL: The range of partnerships that already exists within the education sector in Pakistan can be gauged from the following (not exhaustive) categories. Partnership is understood here as a joint investment for the production of a value — in this case a literate child and then a literate society:

* Partnership between the government and for-profit sector, like fellowship schools in Balochistan and Sindh. The government provides a subsidy to privately-run for-profit schools in return for these schools enrolling a requisite number of girls from a designated target community. The government invests resources, while the private sector ensures service delivery.

* Partnership between for-profit and NGO sectors. For instance, Orangi Pilot Project in Karachi and PIEDAR schools in Kabirwala, Punjab. The Asia Foundation provides initial capital and capacity-building funds, while the private sector is responsible for service delivery

* Partnership between the government and the community, like construction of government school on land donated by the community. This is the standard practice in rural areas. The government invests capital and running expenses, while the community provides the land.

* Partnership between the NGO and the community. For instance, investment in establishment of trust for girls schools where joint decision-making is done about the calendar of activities. The NGO provides the expenses and does motivational work, while the community undertakes to change social norms concerning female mobility and schooling.

Major success stories thus far in the field of education are PIEDAR schools in rural Punjab and the OPP in Karachi. PIEDAR is an action-research organization that took up the challenge of proving that even poor rural communities are willing to pay for quality education for their girls. The Asia Foundation partnered with PIEDAR for the establishment of private fee-paying schools in Kabirwala, in Punjab’s Khanewal district.

Eighteen schools were started in 1995, and there was a slow and painstaking process of motivating parents, specially mothers, to get involved. Teachers were identified from within the local community, some of them had secondary schooling, while others had studied up to the primary level only.

The key feature of these schools is continuous interaction with a Learning Coordinator who visits each school at least once a week. The teachers have a strong sense of ownership of the school, but also a sense of working alongside a larger team around the Coordinator. The schools started with a monthly fee of Rs5, then raised it to 15, and are planning to raise it further to Rs25. The idea is that once the initial trust between the school and the community is established, parents are willing and able to contribute fully towards the running of the school.

The Orangi Pilot Project (OPP) in Karachi was initiated in 1980 through the efforts of the late eminent social activist Dr Akhtar Hameed Khan. Orangi has a population of around one million. An initial donor grant was made to the OPP to finance ‘education entrepreneurs’ to start up schools.

Each school is considered a private enterprise and the activist who establishes the school is identified as an ‘education entrepreneur’. The startup grant is supposed to take care of the initial costs of setting up the school. Thereafter, the school has to function on a for-profit basis. A unique feature of these schools is that they run to flexible timings in order to suit the needs of 9-16 year-olds, some of whom are engaged in gainful employment.

Over four thousand pupils have benefited from these schools, which are monitored by OPP teams that also teach management and book-keeping skills to the ‘education entrepreneurs’. The sustainability of these schools has been established since they function on a for-profit basis after an initial subsidy.

In the health sector, the most successful models of public-private enterprise are the Karachi-based Sindh Institute of Urology and Transplant (SIUT) headed by Dr Adeebul Hasan Rizvi, and the Shaukat Khanum Memorial Hospital in Lahore.

In Lahore, most public-sector hospitals have been there since before Partition — Mayo Hospital, Lady Wellington, United Christian, Ganga Ram, Gulab Devi hospitals and so on. They are not just in dilapidated condition, but also find themselves in administrative quagmire.

Thus, Imran Khan’s initiative to raise funds from the public and later compel the government to provide endowment fund has given it a sustainability that will make it survive any major changes in the structure and strategy of the changing governments. The plan to diversify the hospital’s range of services to make it more profitable also indicates a professional approach which is totally missing in public-sector hospitals.

INDUSTRY MODELS: The Japanese Ministry of Industries and Trade (MITI) is jokingly called Japan Incorporated due to the extremely close and compatible relationship it shares with the Japanese private sector. It works hand in hand with the nine conglomerates in Japan that control all business in and out of the country. All the rules of business are made in consultation with the business world and most of these conglomerates enjoy a big hand in deciding the country’s trade policies.

On the contrary, in Pakistan there has generally been a tug of war between government ministries and the business sector, with both sides complaining about the lack of understanding on the other’s part. As such, there are very few examples of a successful public-private partnership between the industry and the government. One rare example has been the construction of airport in Sialkot where the exporters, desperately in need of a quicker mode of transportation for their export cargo, decided to collaborate with the government by raising financial resources for the construction of the airport to enable the government to undertake the project successfully.

The Public-Private Industry Initiative announced through the trade policy has taken a big step towards bridging the gap between the two sectors by setting up an upgradation fund to the tune of Rs3.74bn.

The fund will finance the initiatives for technological upgradation, social, environmental and security compliance, setting up combined effluent and waste-water treatment plants, hiring consultants, upgrading industrial clusters, warehousing Pakistani products abroad, setting up agriculture export processing and special export zones as well as brand acquisition. It would also set up three ‘garment cities’ to promote Pakistan internationally as a leading producer of value-added textile products.

The ‘cities’ will be set up in Karachi, Lahore, and Faisalabad, and will be owned and operated by corporate entities with equity partnerships involving the government, multilateral institutions and textile industrialists.

For technical management and export marketing, consultancy services will be provided at the enterprise level on a 50:50 cost-sharing basis from the upgradation fund. In the case of declining sectors, like leather and carpets, contributions from the fund might go up to 75 per cent.

To cope with the post-quota environment, financial assistance will be provided from the upgradation fund for the relocation of textile and clothing industries. Industries in other sectors with export potential on a 50:50 cost-sharing basis will be provided subsidy on freight expenditure, machinery/equipments, wharfage and handling, local expenditure, inland transport, offloading, insurance and agency charges. The Board of Investment will remove equity restrictions from investments in the services sector.

A scheme will also be offered under which the EPB will hire professional companies, specialized in the business of warehousing and marketing, to offer space in selected foreign countries to exporters free of cost for the first year, extendible on a case-to-case basis for the second year, according to eligibility criteria for exporters and for products.

To promote export products, the EPB will arrange to hire retail space in high-traffic shopping malls in major commercial capitals of the world.

A new scheme will be launched to enable exporters to acquire/franchise brand names. Support will be provided to exporting companies for obtaining bank loans at six months Treasury Bills auction rate plus two per cent under the prudential regulations of the SBP.

Seen in its entirety, the plan seems to be a good idea on paper and the policy appears to have the right thrust in the right direction. However, a big question mark remains on how much of this can actually be implemented given the role government officials are likely to be playing in its execution.

A recent example of public-private initiative becoming the victim of government interference and bureaucracy is the treatment being dealt to the PHA (Parks and Horticulture Authority) in Punjab. Led by Kamran Lashari, it had converted the city of Lahore into a tourist resort. Taking the help of many national and multinational companies, the PHA has converted the old and dilapidated Gowalmandi into a Food Street, which made it the favourite spot of local and foreign tourists, thereby increasing the income capacity of the businesses on that street a thousand times. Unfortunately, bureaucrats and politicians could not stand its success.

Since its coming into existence in 1998, the PHA has perhaps been the only independent body of the Punjab government that has drawn equal appreciation and criticism for its performance. Today, after the emergence of the city government and a rather mysterious exit of Kamran Lashari as the PHA chief, the Authority finds itself locked in a tussle with the city authorities.

CONCLUSION: Opposites attract, but many a time this initial attraction changes into conflicts and confrontation when they have to coexist. This precisely is the problem with the public-and-private marriage. Partners soon discover that they have different values and viewpoints, and their consistent inability to adjust to each other results in a failed relationship, and ultimate separation. The following steps may be helpful in creating successful partnerships between these opposing members:

* Careful selection of partners is essential. Industries chosen from the private sector should have the will and the motivation to ensure execution of the project despite bureaucratic delays by their counterparts in the public sector.

* The role of the government should be clearly defined. Whether it is regulatory or participatory should be spelled out and agreed upon by both the parties. Preferably, the role of the government should be that of a facilitator rather than being the major executionary body.

* Failed government departments must be given minimum role in such ventures. One basic flaw in the trade policy initiative is the major role the EPB is supposed to play in its implementation. EPB, which is known in the private sector as Export Prevention (not Promotion) Bureau, neither has the skill nor the will to perform the tasks outlined in the policy.

* The project must have financial sustainability and profitability for all stakeholders, with a major stake for the private entrepreneur, to ensure a continued interest in its maintenance and growth. Projects with endowment funds are likely to weather the ups and downs of the project cycles better, and, thus, funding must have these investment valves build into them to prevent resource starvation.

* The project must have a proper board and management structure. The Board must comprise independent and committed people who may ensure transparency and accountability of all concerned. The board must also ensure that the project does not become a one-man show, and that it has enough intellectual capacity available to replace any personnel at any level to ensure long-term sustainability.

Without these key steps, the public-private partnership is always going to be on the rocks. In a country like Pakistan, such failures further increase the distance between the state and the industry, leaving the country vulnerable to hostile political and economic takeovers.

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