Tuesday March 05, 2024

Investment opportunities

November 30, 2023

LAHORE: Investment opportunities in Pakistan are limited to a few families or groups that can be seen in every industrial or service sector. We see no greenfield projects but simply expansions of already existing projects of these groups.

There are 23-24 cement mills in the country ever since the cement sector was privatized. At the time of privatization, the total cement capacity in Pakistan was 9.9 million tons per annum. It has now increased to over 60 million tons. All of the increase was made by the same owners that took over privatized mills.

People while unloading bags of sugar from a truck. — AFP/File
People while unloading bags of sugar from a truck. — AFP/File

The only exception was investment by a British Pakistani during the Pervez Musharraf era who was provided better incentives than the then operating mills. Because of limited ownership, the chance of cartels is high in this sector. In fact, the cartel was uncovered over a decade back by the Competition Commission of Pakistan. The CCP decision was challenged in courts and the case is still pending.

Sugar is another sector which is limited to around 78 mills. These mills are mostly owned by political families. Some businessmen from the major business groups have also established sugar mills, after which the politicians maneuvered to impose a ban on establishing new sugar mills.

The business groups became interested in sugar mills as they saw that the sugar sector was facilitated by all governments as the politicians across political divides owned these mills.

Coming to the influential families, we see them owning textile composite mills, power plants, cement mills, corporate dairy farms, shopping malls, and brand outlets spread all over the country.

Some of them own banks, some sugar mills, and some have also ventured into hospitality business and aviation. In fact, three of the top five banks of the country are owned by these business families, they are in real estate, and recently the top two families have ventured into the automobile sector as well, assembling Korean brands in the country. One of the families also owns an insurance company as well.

These families have resources available all the time. They get credit easily and at a very low premium over the central bank policy rates. Making money is not a crime, but denying a level playing field to new entrants is certainly unethical. It has been found that the big businesses, after entering a new sector and securing dominance, try to deny entry to newcomers. Non-availability of viable finance is already a barrier for the new entrants.

The bureaucratic red tape is another barrier. The big businesses, because of their sheer size, manage the bureaucrats comfortably. They also pay rent but not in all stages of public dealings.

Most of the listed companies belong either to these few listed groups or to the government of Pakistan.

It is not in the interest of Pakistan's economy to deny fair opportunities to businesses operating outside the major business groups. The hurdles in the way of smaller businesses must be removed.

The big businesses have done Pakistan a great favor by operating and expanding even during the worst periods of the economy. The recent corporate results are a testament to this fact.

But Pakistan needs at least 100 times more entrepreneurs to take the country ahead. The only hurdle in this regard is bad governance and violation of rules by the bureaucrats that remain unaccountable.