PAKISTAN’S economy is often described as private-sector led. In practice, the state remains the country’s most influential ‘business group’. It owns major listed companies, dominates markets together with military welfare foundations, extracts liquidity, shields firms behind tariffs, subsidises inputs, and guarantees returns. The outcome is not a competitive market economy, but one that rewards access to the state over productivity.

Ownership that shapes outcomes: Several of Pakistan’s largest listed firms are directly state-controlled, including oil and gas producers, state-owned banks, utilities and telecoms. Alongside these sit major commercial enterprises controlled by military welfare foundations, notably in fertiliser, cement and banking. Together, state-owned or military-controlled companies account for roughly a quarter of the KSE-100’s free-float market capitalisation. This alone gives the state outsized influence over capital allocation, index performance, lending preferences and policy attention. But ownership tells only part of the story.

Control without ownership: Even where firms are privately owned, the state often shapes profitability through patronage rather than competition. Preferential access to bank credit, administered pricing, subsidised energy inputs, tariff protection and guaranteed return contracts all create economic rents. Entire sectors operate not on market discovery, but on policy-determined margins and risk transfer to the sovereign balance sheet. In such an environment, rational firms optimise for proximity to power rather than efficiency or innovation.

Where the profits really come from? The distortion is most visible in corporate earnings. Using recent aggregated KSE-100 profitability, total index profits are estimated at around Rs1.3 trillion. Of this, about 35-40 per cent is earned by companies that are directly state-owned or controlled, including oil and gas producers, state banks, utilities and military-run enterprises. The state’s footprint extends much further when one looks beyond ownership to policy-rent-exposed sectors, even where ownership is private.

Competition is constrained by design, not accident.

If one groups together sectors whose business models are materially shaped by state policy — rather than open competition — the picture becomes starker: banks whose profits are dominated by lending to government; oil and gas exploration operating under administered pricing and concession regimes; fertiliser benefiting from subsidised or priority gas allocation; power generation and related infrastructure operating on guaranteed-return or assured-offtake contracts; and auto assemblers and parts of chemicals protected by high import tariffs.

Taken together, these sectors account for roughly 70-75pc of total KSE-100 profits. This is a measure of how much of Pakistan’s listed corporate earnings sit in sectors where state policy is a first-order determinant of margins, volumes, risk or cashflows. In other words, most profits generated by Pakistan’s largest companies are not the outcome of unfettered competition, but of state-shaped economics.

The cost to competition: This structure produces predictable distortions. Capital is misallocated towards protected or policy-favoured sectors rather than those capable of driving productivity, exports or technological upgrading. The state becomes both referee and player, compromising regulatory neutrality. And private firms, faced with state-backed incumbents and policy uncertainty, choose the safer route: serve the protected domestic market, lobby for concessions, and avoid glo-bal competition. Over time, this produces exa­c­t­­ly what Pakis­tan exhibits today: weak innovat­ion, limited scale-up, a narrow export base, and a business culture conditioned to seek protection rather than compete.

The real reform choice: Weaning the economy off state dominance is politically difficult. Patronage creates constituencies and guaranteed-return structures provide investors illusive comfort, as the IPPs discovered.

Pakistan does not need ideology; it needs consistency: separation of the state’s role as regulator and owner, time-bound reduction in tariffs and discretionary subsidies, competitive neutrality in credit, and a gradual exit from guaranteed-return business models.

Until then, the private sector will remain cautious and under-scaled — not because it lacks ambition, but because the rules reward dependence.

Pakistan’s biggest conglomerate is not listed under a single name. It is called the state — and it continues to crowd out the private sector by thwarting competition and impeding growth.

The writer, a former CEO of Unilever Pakistan and of the Pakistan Business Council, serves on the boards of several public companies.

Published in Dawn, January 13th, 2026