|
Pros and cons of privatisation methodology
EDITORIAL (January 17 2003) : In his paper read at the 18th annual general meeting of the Pakistan Institute of Development Economics (PIDE) last week, a former federal secretary, Akhtar Hassan Khan, described the entire process of privatisation in Pakistan as a fruitless exercise and also pleaded for removing strategic state enterprises from the future list of privatisation.
These enterprises as he pinpointed include OGDC, PSO, PTCL, HBL and NBP. He substantiated his criticism of privatisation in the country with the findings arrived at by the ADB in its critical analysis of privatisation in Pakistan.
According to this study, only 22 percent of the privatised units are giving better performance than before, while 44 percent reflect deterioration in their working and 34 percent units stood closed.
Akhtar Hassan Khan interpreted the closure of 34 units after their privatisation as an event which 'played havoc in the country's economy'. He also attributed the faulty process of privatisation to a sharp drop in the economic growth rate from 6 percent in the 1980s to 4 percent in the first half of 1990s when the privatisation was begun.
He appeared to be right that the earlier phase of privatisation did not pay much attention to necessary precautionary measures with a view to achieving best results for the benefit of economic activity. For instance, according to him, no aspect of credibility or credit worthiness of the parties showing up as bidders and buyers of state enterprises, was investigated.
The whole basis of the sell-off was the highest bid by a successful buyer which turned out to be a faulty approach. These bidders subsequently failed to display entrepreneurship as they sold the installed machinery and other assets including land belonging to the company.
The groups included Schon and Tawakkal who paid only first instalments of the prices of the privatised concerns and disappeared from the scene. The large number of litigation case for the recovery of bid money showed that the majority of people who were handed over the privatised assets did not have serious intentions to run and manage the enterprises efficiently.
These are the bitter truths of the matter which have been brought out in the scholar's paper. The unsavoury aftermath of privatisation could be described as the initial experience in this process, which appeared to have been given due attention to avoid repetition of the same mistakes in the second phase of privatisation carried out by the military government from the year 2000 to 2002.
This phase was relatively a successful one and therefore the sweeping criticism of privatisation as aired in Akhtar Hassan Khan's paper, would not hold ground as relevant. The methods adopted for carrying out privatisation in different countries have been found to be varied in keeping with the circumstances prevailing in those countries. But the element of corruption involving outright favouritism to cronies, besides bribery and other forms of unscrupulous practices, is always an unavoidable factor.
It must be recognised that privatisation is a dynamic way of promoting participation of private investment in a developing country's economic activity. On the other hand, the presence of state management and ownership in a wide range of industrial, trading and financial enterprises has beyond all doubt proved to be a chronic source of budget deficit and unnecessary subsidisation of incompetence, inefficiency and nepotism.
Seen in this context, the privatisation would have to be carried through with necessary precautionary measures to overcome the inherent weaknesses and avoid pitfalls.
The process of nationalisation in Pakistan was itself a hasty and ill-conceived policy twist. It dealt a deadly blow to the tempo of private investment in the country.
This may be noted from the fact that all the capital intensive projects, including gas exploration and marketing, engineering plants, banking and insurance, were efficiently sponsored and managed in the private sector which subsequently were taken over by the then government.
Most of the units which were taken over turned sick immediately. It is well known that the government has been subsidising these units to the extent of Rs 100 billion annually till recently besides compensating state-owned banks with fresh capital support against their non-performing loans.
In this context it is no wonder that 34 percent of the units closed down after privatisation while 44 percent have made little progress and only 22 percent have shown better results. These findings would appear to be largely satisfactory in the peculiar context of privatisation.
There can be no two opinions that the future strategy should be carefully planned in the best interest of the country's economic activity. While the thrust of privatisation should be kept up, the emphasis should be on the quality of the process to maximise economic benefits especially in sectors like oil exploration and marketing, gas production and marketing, PTCL's role in public sector etc.
These sectors may continue to operate subject to their capability to earn profits and become self-supporting. The suggestions given by Akhtar Hassan Khan deserve closer examination with an mind.
Source: Business Recorder
|
Pakissan.com;
|
