Monday March 27, 2023

Recipe of economic revival: Production base and SOEs

January 30, 2023
A representational illustration. —
A representational illustration. — 

Economy is crippling under the burden of debt. It is not for the first time Pakistan is facing debt crisis.

Over the time, Pakistan has developed a habit to fill financial gap by short-sighted borrowing or seeking help from friends. This time, usual methods are not working. Pakistan is running from pole to pole to find financial resources. The situation demands us to ponder on why it is happening again and again. Why Pakistan is not capitalising on the investment opportunities?

The review of historical actions and policy choices indicates numerous shortcomings. First, ruling elite lacks political will and wisdom to devise pro-growth, pro-development, pro-poor and reality-based policies. They love to hunt a bird in bushes ignoring one in hand. For example, Pakistan falls in primary economy (commodity-based economy) category and still it has to transit to secondary economy (industrial production-driven economy). Contrary to ground realities, ruling elite is trying to run country by applying instruments of territory economy (services-based economy).

Second, wrong policy choices have played havoc with economy. For example, Power Policy of 1994 has shaken the basis of energy sector and economy. It introduces five specific problems along others. Energy sector is facing circular debt crisis; competitiveness of Pakistani products falls sharply due to higher energy prices; cheap and clean sources of energy like hydropower was ignored and politicised to promote 1994 Power Policy; private sector ignored other sectors to secure higher profits from the energy sector which further weaken industrial base; Pakistan has to import fossil fuels to meet the need of power generation plants.

Third, GDP growth was always led by consumption. The situation further complicated when Pakistan preferred to meet demand by import. Pakistan did not focus on domestic production base. It resulted in higher import bill. Now, the country spends $20 billion on food and oil import for power generation which is extremely high.

Fourth, successive governments failed to give a boost to production sectors. For example, agriculture, which is backbone of economy, has been overlooked by the governments. Pakistan promoted real estate and property mafia. It is engulfing productive lands and turning Pakistan into food insecure country. The worst impact is a sharp increase in import of food items which stands at $10 billion. The country is paying the price in the form of shortage of raw material, diminishing return of sector and loss of livelihood which has given rise to poverty.

Simultaneously, industrial sector was captured by few members of elite class. They never allowed competition and are surviving on subsidies. Further, small and medium enterprises (SMEs), which are considered backbone of industrialisation process, have been systematically discouraged. Rent-seeking behaviour of institutions is not allowing pro-investment and pro-business environment to flourish.

Fifth, successive governments left no stone unturned to destroy state-owned enterprises (SOEs). The SOEs were stuffed (overstaffed) with cronies without giving any head to merit. State officials captured the driving seat of SOEs without having any knowledge of dynamics of business and industry.

Sixth, ruling elite never allowed creation of productive and quality human capital by denying quality education and skill development opportunities which are pre-requisite for building economy. Retired bureaucrats, establishment and their cronies were facilitated to capture jobs.

Seventh, Pakistan has no comparison to kill the opportunities. Story starts with green revolution and industrialisation opportunities in 1960s. The most recent example is CPEC. Pakistan can attract billions of dollars as investment through CPEC.

These factors contributed to economic meltdown. Thus, Pakistan has to fix these issues to revive the economy. First of all, fix wrong policies like Power Policy 1994. Second, it will have to strengthen production base. Agriculture can provide us immediate relief which must be followed by SMEs and big industry. It should also focus on fourth industrial revolution by keeping in mind our development status.

Third, SOEs should be adopted as leading player for economic revival. For that purpose, government should get rid of cronies, bureaucrats and establishment from SOEs. Global review of SOEs supports the argument they always help achieve sustainable development if run on the economic rational. Most recent example is China miracle, where SOEs played leading role in turning around the fate of country. Unfortunately, Pakistan is moving in opposite direction.

Fourth, capitalise on the available opportunities like CPEC by adopting prudent policies and right actions. It can help build production base. It will generate financial resources which Pakistan can use to break shackles of debt trap woven by Western institutions. It will pave the way for materialising dream of sustainable development.

Let’s be sure Pakistan cannot overcome the economic mess without building production base and enhancing role of SOEs.