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September 27, 2020

Lopsided performance

Business

September 27, 2020

LAHORE: Lopsided performance of institutions in Pakistan is linked to the person heading it. The Competition Commission of Pakistan performed during tenures of its founding chairman Khalid Mirza and his successor Rahat Kaunain. It remained dysfunctional for nine years.

The cartelised practices in different sectors were unearthed and heavy fines were slapped. A case of collusive bidding was identified involving a multinational, as well. The multinational company admitted its involvement and exposed the entire collusive behaviour of different companies in government tenders.

Then for almost nine years, the CCP remained dormant under different chairpersons. The activities were limited to deceptive marketing of products by different companies, while most of the corporate sector was ignored for cartelised behaviour.

In these nine years, we saw uniform rates of different commodities manufactured in Pakistan from different processes. The CCP lost its bite, as most of its orders remained bogged down in litigation by the affected parties.

In the cement sector, for instance, the efficiencies of many units were much lower than the well-managed state-of-the-art cement units. Logically, the most efficient mills are expected to marginalise the most inefficient mills, particularly if they have access production capacity.

In the cement sector, they do have excess capacity of over 1.5 million tons. Still none of the most efficient plants operated at full capacity. The efficient mills confined themselves to their geographic market in the country though with lower cost of production they could easily sell their commodity in faraway markets.

Cement prices remained almost uniform in the country. There was of course some difference in prices of cement produced in North and South regions of the country.

Sugar mills also operated on the same principle. The price of sugar remained uniform for both the efficient and the inefficient mills. They, in fact, went a step further. They operated at full capacities to create a huge surplus. They then used their political clout to force the government to allow them to export the surplus quantity by providing subsidy, as the sugar production cost in Pakistan was higher than its global rates.

The inefficient mills continued to produce sugar because the retail rates of the commodity were maintained through an arrangement. This way, the most efficient mills earned very high profit and the inefficient ones were able to survive on decent margins.

When it came to exports the most efficient and the influential ones grabbed the quotas and minted further money through subsidies.

It looks strange that the poultry rates in the country remain uniform in different geographical regions. In fact, the rates for chicken meat and eggs were announced on a daily basis by the regional offices of the Poultry Association of Pakistan.

This practice was stopped after CCP took this as anticompetitive practice. However, the situation on the ground has not changed. Poultry rates are still uniform in the same city and its surroundings.

Hoarders have emerged as another class that impede competition by hoarding large stocks of daily use commodities. They release these stocks much below the market demand and reap high profits.

The CCP has got nothing to do with prices, but it acts when unethical practices are used to eliminate competition. Hoarding falls under unethical marketing.

The CCP has yet to act against this class. The flour mills manipulate wheat flour rates collectively.

With the change of guard in CCP and induction of past proactive chairperson the CCP has again come into action. There have been raids in cement and sugar sectors.

Both have up till now been hiding under stay orders on the past penalties. Would present raids on the cement sector by the Competition Commission of Pakistan settle the cartelisation issue?

Pakistan cannot move ahead economically until a level-playing field is available to all. Anticompetitive practices distort the market. It creates monopolies that exploit consumers.

Monopolistic and cartelised economies make the manufacturing sector inefficient. The entrepreneurs do not feel the need to upgrade technology because they have a captive market. They can sell their products at high rates because of undue protection and subsidies they enjoy from the state.

The inefficient culture has not spread into exports, as well. The main exporters are operating on obsolete technology and government subsidies. There is an entry bar on newcomers both in the domestic industry and export sector because of monopolies that effectively keep new entrants at bay.

The fault lies with weak institutions that operate not on rules and regulations, but on the competence (or incompetence) of their head.