Exploiting (and Rewarding) Merit
The major difference between the public and the private sector is that private entrepreneurs recognize merit as the touchstone for success, in the public sector (as in bureaucracy) merit can often be a disqualifier. Public sector can be roughly equated to a hereditary monarchy, with heritage, nepotism and favoritism the prime ingredients for career advancement. While the private sector is not completely free from the use of connections and influence for being upwardly mobile, merit commands far more weightage in rewarding performance. The major reason for privatization and denationalization is to provide better management, inculcating corporate culture dedicated to cost-effectiveness devoted to a positive balance sheet, in effect more (profit) for less (overheads).
The Supreme Court of Pakistan (SC) has given a stinging indictment of the process adopted for the recent sale of the Pakistan Steel Mills (PSM), with “indecent haste“ to quote the SC judgment. The inference of wrong-doing is based on technical grounds that have been violated in fulfilling the privatization process, with due respects to the Honourable Justices of the SC, elaboration of corrupt practices (the “smoking gun”) was required for due process of law. If criminal intent was inherent those violating the law should automatically go to jail, whoever they may be. Divergent opinions being mostly political rather than legal, one thing is certain, this privatising ending in failure will act as a deterrent to foreign investors targetting potential in industry and commerce in Pakistan.
There is merit in getting “foreign direct investment” (FDI) into Pakistan, there are many examples of public sector units being turned around and made profitable after a transparent process. The name of the game is how to achieve this without losing sovereignty, the fear expressed by one of the plaintiffs in the PSM case. One has to label what is a “strategic interest”, and not put it on the auction block for fear of falling into control of forces inimical to Pakistan. The PSM sale had bad timing, it coincided with the takeover battle for Arcelor by the Mittal Group, the Indian bogey (and the Russian connection) was exploited to the full by those opposed to the sale. Patriotic fervour is not confined to Pakistan alone, across Europe particularly in France, latent nationalism reared its head to oppose Arcelor’s merger with Mittal.
Resigning before the PSM, sale Dr Abdul Hafeez Shaikh, had done an excellent job as Federal Minister for Privatisation. During the World Economic Forum Summit in Sharm Al Shaikh recently, one heard with pride the Jordanian Minister heading the King’s Office praising Hafeez Shaikh’s privatization initiative in 1996 for the telecom sector in Jordan. Praise for Pakistanis comes with a premium in this world! The only real hiccup in our privatization history has been the employee takeover of Allied Bank, the wonderful process of “Employee Stock Option Plan” (ESOP) was criminally corrupted by unscrupulous senior managers defrauding the hapless rank and file, not that NAB has done anything against these white collar criminals lining their own pockets. In contrast ESOP has been very successful in the private sector as the ENGRO model shows.
When worldwide BCCI’s assets were seized, BCCI branches in Pakistan were taken over by the Govt of Pakistan (GOP) in 1991 and given the new nomenclature, “Habib Credit and Exchange Bank” (HCEB). Nominated as a director during the first step of denationalization in 1998 when the majority shares were taken over by the Dhabi Group headed by HE Shaikh Nahayan Bin Mubarak Al Nahayan, it has been my privilege to watch at first hand what the private sector can accomplish with the straitjacket of the public sector control removed. One has been fascinated by the vision and entrepreneurial skills of His Highness in macro-managing the Bank effectively through the Board of Directors, leaving day-to-day micro-management to senior managers in the field. From three branches in 1998, the Bank has grown to plus of 150 branches throughout Pakistan, not including an off-shoot of 15 branches dedicated to “Islamic Banking”. The initial “Golden handshake” reduced some redundant employees, the number has now risen from 600 (than) to about 5000 today. Total income increased 8-fold from Rs 1841 million to Rs 14492 million, with shareholders equity rising from Rs.859 million to Rs 6738 million, an 8-fold return on investment. Not a single foreigner has been a salaried member of the management, supported by His Highness the achievement has been 100% Pakistani. Can our public sector get the same efficiency out of its employees to get the same profitability? When Shaikh Nahayan became Chairman UBL, his brother HE Shaikh Hamdan Bin Mubarak Al Nahayan continued his corporate practices as Chairman in making Bank Al Falah one of the major Banks in Pakistan, opening branches in Bangladesh and Afghanistan. Plans are in a fairly advanced stage for UAE, Bahrain, India, China and many countries of Africa.
HE Shaikh Nahayan has been principally advised and aided by Bashir Tahir, this Pakistani being assigned the sensitive task of coordinating all issues between the Chairman’s office based in Abu Dhabi and the management of the bank in Pakistan, day-to-day control in Pakistan as CEO being in the able hands of Mr Mohammad Saleem Akhtar, an extremely experienced banker. On the strength of the Bank’s outstanding return on investment for shareholders, Bashir Tahir masterminded HE Shaikh Nahayan’s launching of Warid Telecom, Wateen Telecom etc and making have huge investments in real estate projects in Pakistan. HE Shaikh Nahayan’s investment initiative has become a beacon for FDI by others. Both Bank Al Falah and Warid now have also entered the Bangladesh market.
The President has awarded Sitara-i-Imtiaz to Bashir Tahir, yet the State Bank of Pakistan (SBP) has reservations about his coming on the Board of Directors of Bank Al Falah, the Bank’s phenomenal success because of this man’s skills, drive and ingenuity notwithstanding. Does Pakistan reward merit or is merit a disqualifier in Pakistan?. This incongruity is an example of how and why public sector is sometimes blind to recognising merit. If SBP had independently come to the conclusion one would at least be satisfied, there is a nagging suspicion this has been done under external influence. Mine is an objective observation, despite having had quite a few professional differences with Bashir Tahir over the years I must put on record his enormous contribution, not only as a banking professional par excellence but as a Pakistani dedicated to boosting Pakistan’s economy substantially by pragmatic and meaningful FDI.
The difference between the public sector and private sector is how the human potential is allowed to operate, and how merit is rewarded as an incentive so that management and commercial expertise can fully exploit the potential of our stagnant industrial and economical units.
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