Monday August 15, 2022

Regulatory decay

July 06, 2022

LAHORE: Countries the world over have risen from the ashes despite possessing no material or natural resources. One resource they had in abundance was strong institutions and a determined human resource to protect their national pride. We unfortunately lack that determination.

After separating from Pakistan in 1971, Bangladesh remained a basket case till the 1990s. It lacked resources, but nationalism was deep in their heart. They grabbed the first opportunity provided to them in the shape of an extremely poor country and went up the ladder at an amazing speed. The regulatory institutions in Bangladesh are very strong.

Japan was devastated in World War II, but within 15 years was a global economic force to reckon with. It also lacks steel, oil, and gas which it imports to move ahead. The Japanese national spirit is legendary.

Pakistan is not the only country that went into economic chaos despite having so many natural resources. Venezuela and Nigeria are glaring examples that possess huge oil reservoirs, but wasted it because of corruption and mismanagement. In Pakistan’s case, we failed to benefit from so many natural endowments.

We possess the best canal irrigation system and were well ahead of China in cotton, wheat, and rice productivity in the 1960s. The Chinese are now global leaders in productivity of these crops.

Our productivity has declined over the years as we failed to maintain our irrigation system, and continue to waste water by not adopting water conservation techniques.

We were exporting cotton after fulfilling our domestic needs in 1994. Today our production has almost halved, and we are constrained to import even medium staple cotton to run our industries.

Bangladesh was a non-entity in textiles in 1990, its textile exports now are double that of Pakistan. This is even though Bangladesh does not produce cotton and is totally dependent on imports.

For a few decades after 1960, we were the rising stars of Asia after Japan. Our GDP growth rate was double that of India.

After the 1990s, the Indian growth rate started accelerating and by the start of the 21st century it was one of the fastest growing global economies. Incidentally after the start of 21st century, our GDP growth started retarding; and in the last 15 years our average growth rate has slowed down considerably. The Indian growth rate on the other hand averages double than that of Pakistan in the last 15 years.

Our nation now lacks the determination and spirit exhibited in its earlier decades after independence. The institutions worked with dedication during the first thirty years of independence and were strengthened by the rulers.

At the end of the 20th century, new regulatory institutions were established. The Securities and Exchange Commission, Competition Commission, Oil and Gas Regulatory Authority, NEPRA, PEMRA, and a few more were added to regulate specific sectors during the last 25 years. But the new institutions did not perform up to their mandate and the earlier institutions also weakened.

The decline of institutions played havoc with our economy and promoted rent seeking culture. Corruption is one reason for deterioration due to weakening of institutions.

The corruption level in India is only slightly better, but its regulatory institutions are very strong. They do not allow deviations from regulations.

The corruption level in Bangladesh is much higher than Pakistan, but its regulatory institutions are very strong and alert to.

Pakistan needs to fix its regulatory environment to not only improve institutions, but create a balance environment conducive for competitive businesses and industries.