Friday, February 3, 2023

Opinion: The Need For Privatisation

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Privatisation intermittently figures in the national debate of Pakistan as it is reported that most international financial donors apply pressure on the government to privatise most commercial ventures that are intensely loss making under the bureaucratic management.

The practice of privatisation involves transfer of ownership of business from government to private sector mainly to bring them into commercial mainstream.

The socialistic form of managing economy gave rise to the state enterprise as its protagonists considered that state control over means of production and distribution was the only method through which the maximum benefits of economic development may trickle down to the people.

This principle started to fail when the communist states of Russia and China could not deliver the desired goals through state enterprise and this socialist practice was gradually abandoned globally.

Pakistan Steel Mills (PSM), subsidiary, Muhammad Mian Soomro, Hammad Azhar

Pakistan embarked upon the privatisation in 1990 when the political government in office was known to be heavily tilted towards the private sector. The first phase of privatisation began in 1992 and went through 1996 during which banks were partially privatised amidst plenty of skepticism.

The second phase between 1997 and 2000 witnessed complete denationalisation of the banking sector. The third phase from 2001 to 2008 saw privatisation of non-banking sectors that resulted in plenty of heartburn as these privatisation campaigns caused much heartburn as they resulted in unemployment and established monopoly of some groups that was resented widely. The privatisation drive was seen to favour chosen families that were already known to have exercised control over the national economy since the inception of Pakistan.

Though the need for getting rid of loss making state enterprises has always remained abject yet successive governments have failed to do so in the last one-and-a-half decades. The impression conveyed by the privatisation efforts is that the objective of governments undertaking this exercise usually is to get over the immediate cash crunch confronted by it primarily to cover the growing gap in its targeted non-tax revenues so that they can meet IMF conditions. The previous many governments usually waver between different options ranging from restructuring SOEs as profitable businesses by placing them in the control of private-sector managers under an umbrella-holding company to putting them up for sale. The main problem however is that both these options are not followed in entirety creating further complications.

It is reported in this context that dozens of SOEs are now considered potential privatisation entities. The SOE’s so listed comprises gas utilities, energy companies, banks and financial services, land, retail business, industrial complexes along with many allied sectors. More often the problem that emerges is that implementation of corporate reforms or outright disinvestment of state enterprises in Pakistan is more a political issue than an economic decision with the result that all privatisation efforts fall through mostly in the beginning simply because policymakers hardly take the opposition parties and the personnel in confidence. This requirement is dire but the political dispensations keep on avoiding this issue to avoid any issue arising out of this process.

It is worthwhile to point out that many very large state enterprises are proposed to be privatised including loss-making PIA, Pakistan Steel, public-sector power projects, including Pakistan Transmission and Dispatch Company (PTDC). It was also reported that selling out of 26 per cent shares of PIA is also part of new privatisation policy phase though it is not certain if it materialises. In this context, the political dispensation claims that the forthcoming privatisation will not only overcome the fiscal deficit along with pure economic growth and development. The government also emphasised that the process will take due care about the future of the employees working in privatised enterprises.

The need for privatising state enterprises has assumed serious proportions as the government is required to meet high targets for the collection of foreign exchange reserves as well as federal revenue by the end of this fiscal year. Without proceeds from privatisation, it is unlikely it will be able to do this as it cannot garner enough financial resources from any other source. It is increasingly becoming clear that the only priority driving the privatisation agenda in the country is money and if they are treated as a financing item, as required by the law, and not as revenue, then the proceeds will do little to help meet the targets.

It is very important to reiterate that the main opposition to privatisation has a lot to do with the future of employees of the enterprises being privatised as it must be kept in view that the state is the largest employer in the country and the employees of privatised enterprises may find it next to impossible to find alternate employment.

The issue of the impact of privatisation on the people is also to be accorded attention. It should also be kept in consideration that the role of state in the economic life of the country may be properly evaluated.

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