Directionless Directions!

Dr. Hassnain Javed

January 14, 2019

 

 

The issue of privatization of industries in Pakistan has been a long standing debate. One view point of economists is that running industries and business is not the task of the government. Contrary to this belief is that privatization means that the government is no longer eligible to fulfill its responsibilities and has hence transferred them to the private sector. The idea is not far-fetched since the main motive behind a public-owned business is the welfare of people where services and products are offered free or at a subsidized rate. In contrast, the private sector is driven by profits and monetary benefits.

Generally, the trends in privatization of industries in Pakistan show that the rich and elite have always benefited from this policy however, the working class has always suffered. Despite of government promises, workers have lost permanent jobs and they have not been given legal protection against downsizing.
Although there have been no recent studies on the impact of privatization on Pakistan’s economy but a 1998 report by the Asian

Development Bank revealed some shocking results. Statistics show only ’22 percent of the privatized units performed better than in the pre-privatization period; 44 per cent performed the same whereas approximately a third (34 per cent) performed worse’. In light of the mentioned results many economists argue that the privatization did not contribute to the growth of the GDP [gross domestic product], investment and employment.

Keeping in view the case of KESC privatization, Dr Akhtar Hasan Khan, former federal minister called it an ‘unmitigated disaster’ and ‘the biggest blunder’ of Pakistan’s economic policy. He argues that the initiative failed due to the fact that the government had invested 147 Billion rupees during 2002-2010. Out of which 109 billion were given before privatization and 38 billion rupees after its privatization. Moreover, Water and Power Development Authority was instructed to supply 700MW to KESC despite outstanding payments of 81 billion rupees. The motive behind privatization has been to rid the government of the loss making company, however the funding to pull the company off debts continued even afterwards.

Another lesson for policy makers lies in the case of the privatization of Pakistan Telecommunication Limited during Pervez Musharaf’s era. The company was sold to Dubai-based Etisalat by giving away a 26 percent stake with a full managerial control. The decision makers saw PTCL as incompetent and outdated but a few knew that before the privatization PTCL was ranked amongst the biggest telecoms in South Asia. Even looking at its financial position at the time of its privatization in 2005 the company reported revenue of 84 billion rupees, with earnings before interest, tax and depreciation of 54 billion. But due to government’s lack of a long term strategy, the company was sold out instead of using these funds to invest in telecom abroad. What is even worse is the fact that after almost 10 years, the government still has not been able to recover the 800 Million dollars in outstanding payment and in fact, itself paid the amount it had received in technical fee and other charges.

Previously the government had promised that a privatization policy would reduce debts on the Pakistan economy by improving the performance of tertiary and banking industry. The improved performance was expected to increase quality, reduce costs and accelerate production. Many believed that this policy would exacerbate foreign direct investment, local investment and export but the reality has been far from expected. Debt tolls have accelerated to record levels and there has been an accumulation of wealth in a few hands. The prices of commodities and prices have risen to the point that even the basic necessities are out of the reach of a common man in Pakistan.

Looking at Britain’s example one of its government’s largest contractors Carillion, announced bankruptcy, leaving 20,000 of its employees without any jobs. The company is £1.5 billion in debt. This is what happens when governments outsource the tasks what should have been under their control. Similarly, in the United States the system is heavily privatized with $3.3 trillion being spent in 2016.

Currently, the government claims to have been following China’s model of economic development however, if that is true then why there are new talks about privatizing state owned companies. Another thing that must be noted over here is that a common thing amongst these world renowned Chinese companies like Temasek (which also controls majority shares in Singapore Airlines and SingTel), China National Offshore Oil Corporation (CNOOC), Haier, Emirates airlines, Dubai Ports, and Petronas (Malaysia), is that they are wholly or partly state-owned. The reason behind this is that China harbors its country’s assets with a long term vision towards success and strong desire to produce national winners.

After analyzing at all the good, the bad and the ugly of the policy of privatization in Pakistan and around the world it is safe to conclude that privatization creates a divide in the society where the elite are encouraged to pay more and the working class instigated to opt out of even the basic of necessities. Critics also argue that state owned monopolies have been conveniently turned to private monopolies as the transfer of wealth was used to enrich only certain ruling elites. Therefore, the history of privatization of industry in Pakistan has been littered with corruption allegations, political patronage, manipulation and cartelization. Thus, public-private partnerships should be encouraged but to an extent that masses benefit at large