Stage-wise privatisation
The Nawaz Sharif Government is committed to privatisation, on that issue there is no doubt or ambiguity. Confusion is manifest, however, on the pace and course of privatisation, evoking severe doubts as to the primary intent of the exercise. A perception has been built of insincerity and favouritism guiding an unholy rush in the doling out of largesse, damaging the whole concept and putting the entire process of privatisation into disrepute.
Privatisation is the need of the hour, the pell mell methods for achieving it must be terminated forthwith. Before attempting denationalisation and disinvestment, the Government of Pakistan (GoP) very rightly went in for a step by step approach in first going in for deregulation so that a conducive economic environment could be created that could absorb the many changes. We had a golden 180 days of economic history, with the NFC award and the Water Accord thrown in as a bonus. However, we had already faltered with the sale of MCB, the first bank to be denationalised. The nationalisation of banks was Zulfikar Ali Bhutto’s most grievous mistake in the sweeping nationalisation of the early 70s, denationalisation two decades later in a different socio-economic scenario only compounds it as a bigger blunder.
One must mention categorically that while going through the bid papers that were submitted for the sale of the MCB, there does not seem to be any valid reason for doubting GoP’s integrity in the sale decision to the present owners, however the fact that the Mansha Group was known to be personally close to the PM has given an unfortunate perception of favouritism among the intelligentsia and the masses, a fact which should have been avoided for the greater interest of the whole denationalisation process. People associated in any capacity with the Government have to lean over backwards, even disqualify themselves from contention, to avoid this stigma. To GoP’s credit this has been adhered to in the choosing of a second airline, one in the private sector, when another airline was given the nod instead of the obvious choice, the Gulf Consortium of investors backed by successful airlines. This was a wise decision, one has to pay a price for being the leader of a democracy.
The present course of privatisation is going to syphon off all cash liquidity into the existing industrial units with a net decrease in employment for a period of two/three years whereas saner course should have prevailed in the earmarking of a few units for sale, primarily to management-worker buyout consortiums, while attractive incentives to new industrial units would generate fresh employment. Knowing that aid from western sources is gradually drying up, private sector entrepreneurs would take the initiative for inviting foreign private sector participation in commerce and industry of the country, this would be a more natural process. By balancing denationalisation against new production units, the major cause for future anarchy and unemployment, could be avoided. As it is we have a finite amount of cash liquidity domestically and it is most likely to be invested in on-going profitable ventures leaving the really sick units in government hands, a ready made recipe for disaster.
One has considerable personal and professional respect for Lt Gen (Retd) Saeed Qadir, Chairman Disinvestment Commission, but the track record of the Senator as a committed public sector supporter hardly qualifies him for the present job, his volte-face about his known philosophy, however profuse the protestations, is rather suspect. He remained the longest serving Minister for Production in Pakistan, during his time the working of State-run industrial units were further consolidated. One of his more brilliant ideas, the conception of the National Logistics Cell (NLC), was later turned by him into an unwanted all-encompassing permanent public sector colossus and a media disaster for the Pakistan Army. Putting him incharge of disinvestment is like entrusting the fox with the task of distributing the inmates of a chicken coop. He is an able person but his approach is arbitrary, whereas the need of the hour is to invite debate from all quarters about the efficacy of trying to unload 115 out of the existing 150 units in the Ministries of Production and Industries. Leaving aside the financial bankruptcy of such an idea, there will be social disorders because of frustrations among the labour force complicated by disinformation and leading to anarchy. This will be the death knell of democracy in this country.
The first phase of the GoP’s initiatives was taken under the aegis of Mr Sartaj Aziz, conceivably the finest finance minister that Pakistan has ever had. The man’s honesty and integrity is above par, he has a welcome humility that does not drive him to seek cheap media publicity at the expense of the PM and his other colleagues. However, Sartaj Aziz spent his entire career as a bureaucrat and while that may stand him in good stead in running the government’s finance machinery, a bureaucratic career usually serves to emasculate fresh ideas. The taking of continued bold decisions to build upon his initial success in handling the economy seems to have run out of steam. The discrepancy in the Budget deficit statistics has aroused controversy and has not been helpful. There is a serious lacunae in the denationalisation programme, the methodology of speed in disinvestment cannot keep up with financial constraints.
The correct method would be to first allow more private financial institutions to be incorporated, both retail and investment banks among them. When these banks have gained enough liquidity by attracting deposits from the small investors there will be a capital base available to provide a firm financial foundation, both for buying up State owned units for sale and opening up new ventures. Keeping in mind the sorry state of Savings and Loans institutions in the States which have resulted in cumulative losses of US$ 500 billion and the fake investment companies that have sprouted up in the last decade, there should be comprehensive but pragmatic regulations for the financial institutions in the private sector.
Management-Labour Buyout Plan must be the first option for denationalising/privatising each industrial unit. After the evaluators have set up a reserved price, the bidding should be open to all pre-qualified entities. The first choice for purchase by matching the highest bid should be given to the Management-Labour Consortium who must risk their “golden handshakes” to qualify for the bidding. If the Consortium finds itself short of the reserved price they should be free to negotiate with any of those pre-qualified or even go outside that panel to make up the WHITE KNIGHT to assist the Management-Labour Consortium. In this manner we keep the industrial peace while at the same time fostering in a meaningful future relationship between the entrepreneurs and the actual workers. Some personnel from management and labour may decide upon taking their “golden handshake” and opting out of the Consortium, the number of employees would be thus reduced, bringing down future overheads. Pakistan’s present industrial sector compares with a deep sea diver being brought-up from the depths. If we bring in the diver too fast, the “bends” may just kill him, he has to be brought up in stages and even then kept in a compression chamber for some time.
The need for creating industrial units or reinvigorating them has been emphasized without giving any real thought to the Services sector where the cost of creating new employment opportunities is much lesser than in the industrial sector. Employment is employment, anything that generates money legally must come into consideration. In the industrialized world, almost half the employment slots are in the Services sector, particularly in the western world where it is better organised. Our planners pay no attention to the Services sector, in a heedless policy annunciation we impose disincentives onto the Services sector, in the last Federal Budget as much as 3% withholding tax has been levied on contracts Services. Where 5% may be considered fair on professionals like doctors, consultants, etc to impose a 3% withholding on services like cleaning, planning, electrical, security, banking etc is to discourage the entrepreneurs therein from further ventures. Services Sector is a whole new field that can be organised in a proper manner and create new job opportunities with some corporate cover, on the contrary the financial institutions must be encouraged to extend credit against services rendered as a form of anticipated bill discounting.
The Government must initiate a dialogue with the Opposition both within Parliament and outside it. Both sides have been committed to the privatisation process, it is a national issue that requires bi-partisan debate so that there is a consensus on a broad range of matters. We look at role models closer to our region and genius, like the Four Tigers and ASEAN, through blinders.
Even in the western democracies, like the Scandinavian and EEC countries, there are certain sectors which may have been partly privatised or not privatised at all, still remaining very much within the public sector, albeit with a better corporate management philosophy less open to interference from the Government on a day-to-day basis. We are hell-bent in privatising telecommunications wholly without giving mature thought to national security or the fact that it is an extremely profitable sector.
Privatisation must be done purposefully according to a well thought out plan which should be honestly implemented. The Thatcherite way pragmatically drew the masses into the process even though all the conditions for effective implementation of privatisation already existed, including economic and social parameters. This avoids confrontation with the worker class, in Pakistan where the threshold of overall patience is much lower and the level of violence much higher, privatisation without a policy perceived to be honest is an open invitation to disaster, both economic and political. To ensure that democracy survives, the present GoP must take a hard look at its present policies and revise its options in the light of the feedback from the intelligentsia and the masses of Pakistan.
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