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October 7, 2015

The PPP concept


October 7, 2015


Pakistan came into being without a resource base. Quaid-e-Azam Mohammad Ali Jinnah thus approached the US to extend a helping hand. The Americans responded positively but conditioned it with regional cooperation – nay, us as a camp follower. Pakistan has been a ‘camp follower’ ever since.
However, Pakistan inherited a strong framework of Central Superior Services – recruited, educated and trained on the British pattern of the Indian Civil Services. This included stalwarts like Ghulam Mohammad and Choudhry Mohammad Ali from the Audit and Accounts Services. Among them was also Ghulam Faruque, an all Indian railway service officer. While Ghulam Mohammad and Chaudhry Mohammad Ali laid out a broad economic base, Ghulam Faruque set up an industrial institution called Pakistan Industrial Development Corporation – PIDC.
Entrepreneurs poured into Pakistan from all over the world with capital and talent. Policymakers set up the necessary framework of serving units such as the Planning Commission, Industrial Development Board, Industrial Development Bank of Pakistan, Pakistan Industrial Credit and Investment Corporation, etc. While Pakistan’s private sector relied upon aid, loans and credits from international finance and investment services under the influence of the US, PIDC set up several industries throughout the length and breadth of the country – from oil to refineries, textile and sugar mills. These units were then offered to entrepreneurs to buy on easy terms.
On the other hand, the aid, loans and credit flowing in to support the private sector were not utilised to develop the much-needed socio-physical infrastructure. These aid, loans and credit have actually been a curse on the recipients, who have to buy against such inflows machines, parts and raw material at exorbitant rates, A substantial part of the aid, loans and credits is consumed by the consultants who administer them. Thus, the actual receipts are less than the sum offered.

payment of these aid, loans and credits is, however, entirely in foreign exchange by the recipients from their own earnings. These loans etc are thus a trade mechanism to boost the donors’ trade revenue – which continues unabated to this day. The Kerry Lugar Bill, Coalition Support Fund and such other programmes are euphemisms for aid, loans and credit.
The remedy lies in taxing the untaxed, undocumented economy. Such reforms will be more than the current revenue and will give us access to our own economy, including creating much-needed socio-physical infrastructure through Public Private Partnerships (PPP). This kind of economic doctrine will make Pakistan self sufficient and masters of our destiny enabling us to, for once and for all, shun and reject aid, loans and credits.
Some of the economic development took place between 1947 and 1958. Industrial development accomplished between 1958 and 1968 was so vibrant that exports from Pakistan during that period were higher than those of the Philippines, Malaysia, Thailand and Indonesia. GDP growth on average was 6.8 percent. The economy was so vibrant that when India devalued its currency, Pakistan did not.
It was during Ayub’s reign that the seeds of the separation of East Pakistan and nationalisation were sown. Dr Maboobul Haq, chief economist to the government at that time, came out with a study suggesting that there was a gross concentration of wealth in the hands of the so-called ‘22 families’. Interestingly, their wealth cumulatively was less than of an Indian conglomerate then. However, in the name of social equality and balanced distribution of wealth, 31 key industrial units, 13 banks, over a dozen insurance companies and even cotton ginning factories and rice husking mills – and two petroleum companies – were nationalised.
The average GDP growth came down to 4.8 percent from 6.8 percent. Nationalisation of industries hurt growth, and the framework of the respected services were destroyed during Ayub and Bhutto’s regime. Many an officer was removed for whatever reasons, weakening the steel framework of civil services inherited from the British. As a result government service, once seen as a cerebral and prestigious institution, became the second choice for the best and brightest young minds.
The public sector imposed itself over the private sector and set up industrial units. The socio-physical infrastructure remained unattended during both the advent of aid, loans and credits and also during the public sector’s intervention. The latter remained focused on setting up industries rather than units to produce water, gas, oil and electricity, let alone roads, buildings and communication. During Benazir and Musharraf’s times, denationalisation gathered steam, but even during this period setting up socio-physical infrastructure did not attract much attention. It is in this background that the concept of public-private partnership was born.
The PPP idea was pioneered by the UK through the Private Finance Initiative. PFI projects now represent between 10 and 13 percent of all UK investment in public infrastructure. PFI in the UK has mostly consisted of Design Build Operate Finance – DBOF – contracts, which typically lasted 20-30 years. The PPPs have been bringing forward the delivery of major projects. The model was designed to achieve value for money, reduce procurement costs, and deliver more projects on time and within budget than traditional methods.
Current market conditions do not close the door on PPPs but do provide an opportunity for both government and industry to develop a more refined model that is more appropriate for the new environment.
The World Bank estimates that about 70 percent of infrastructure investment comes from the public sector, eight percent from official development assistance and 22 percent from the private sector. Infrastructure projects in certain developing countries prefer the PPP option, globally, as well as in Pakistan. At present, the investment commitment to private infrastructure projects in low and middle-income countries has grown to 30 percent.
While the bureaucratic management model has its strengths, what it can take from the corporate culture is business acumen: business management – a refined science in its own right – in an age of specialisation of finance, management, supply chain, human resource, marketing, etc.
There is now an increased understanding at the highest governmental level that the private sector is able to introduce efficiency, skill, innovation and technology as well as absorb financial and project risks. And the private sector can rely on enlightened entrepreneurialism through the participation of enlightened bureaucracy.
It is specialist bureaucracy and generalist policymaking – by politicians also – that can deliver the goods in changing circumstances, more so in setting up socio-physical infrastructure and managing private-public sector units jointly which is what is needed now.
The writer is the chairman of the Atlas group of companies.
Email: [email protected]




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