No more business as usual-I

It is stated that Pakistan requires a sustained GDP growth of 7-9% for 30 years, increase focus on reducing fertility rate and citizens deserve Minimum Standard of Living with universal/minimum pay at Rs 75,000 pm with revision indexed to inflation every July, elite bargain amongst those with power to change state of patronage and challenging status quo.

Belgian-British economist Stefan Dercon of University of Oxford eloquently articulates that experience teaches ‘crisis is a moment’, as was for India in the 1990s, Indonesia in the 1970s and China in 1979. Pakistan is in crisis and stakeholders need to coordinate and move beyond point scoring.

Thus next decade requires tough choices, disruptive inspiration and no business as usual. It necessitates a credible structural reform package, a conducive environment for investment that encourages regional trade and allows professionals to undertake their job diligently as they tackle scenarios that evolve and modify the path accordingly.

Effective enforcement of laws will facilitate investment and this has to be encouraged by the Federation, providing continuity of policies, transparent procedures and contract award with changes effective prospectively, obligations met per contractual obligations; Deregulation and competitive environment: Regulator policies/roles providing enforcement authority only when self-monitoring fails; Staged and limited investment incentives, including a reduction in the number of permissions required and encouraging new approaches without regulator checklist selecting investors; Conducive business environment provided by a tolerant society; Definition of role of judiciary in commercial matters with a viable and timely contract dispute resolution mechanism with no judicial activism as seen in the past that does not cancel contracts but rather ensures an effective contract arbitration process; Strengthening of defamation laws, discouraging media trials aimed at victimization and providing retribution for false cases.

The fear of decision takers has caused loss to country; denial of out of box approach for energy procurement under long term contracts; monitoring and enforcement measures in business and import sectors where Rs73 billion illicit fund transfer in solar panel imports sold locally at Rs 46 billion corroborated with sales tax declarations; sales tax fraud perpetrated by a “shell” company, causing a loss of Rs 314.81 billion to the national exchequer; cost of political narrative resulted in no bids, 2-year delay for implementing 600MW solar; FBR Track and Trace System (TTS) to monitor production and sales in sugar, tobacco, fertilizer and cement industry; no confidence in our system post-Reko Diq award resulted in seeking of extreme protection for FDI in the form of Foreign Investment (Promotion and Protection) Bill, 2022 (“Bill”).

History will document that past errors as highlighted by the Supreme Court on Sept 18, focus and political narrative on corruption, media trials and victimization have resulted in missed opportunities. But what tops it all is NAB followed by FIA, ACE, AGPR, PAC, DAC and PPRA not to forget PODA, EBDO, Ehtesab Commission/Bureau as instruments of political victimisation in the garb of accountability.

Steps needed were initiated through two ordinances and amended law for confidence building and encouraging decisions that may have unexpected outcome, resulting from experimentation by both public and private sector decision takers. But SC rejection after 52 hearings has diluted positive sentiment of decision takers that were encouraged by the changes.

Given increasing interdependency, Pakistan’s most disruptive paradigm change requires effective integrated planning necessitating a Planning Commission on lines of “National Development Reforms Commission (NDRC) of China”, defining institutional parameters and boundaries for growth based on guidance of Strategic Investment Facilitation Council (SIFC) acting as “Board of Directors”. Planning Commission in turn is to evolve a consolidated revolving 10-year plan every 3 years.

This challenge to status quo requires consolidation of Commerce, Industry, Exports and BOI, Privatization; ii) Maritime Affairs, Railways and Communication; iii) Science, Technology, IT and Education; iv) Energy and v) Agriculture under Planning Commission led by a professional Deputy Prime Minister/Senior Minister and assisted by experts, think tanks and financing institutions to evolve a home-grown executable strategy.

Next disruptive measure recommended earlier and again now is revival of PIDC as a holding company to manage Federal and Provincial Government shareholding in State-Owned Enterprises (SOEs), followed by their aggressive transformation, consolidation of roles, reduction/merger of departments/companies, encouraging new opportunities for export, partnering with defence industry, focusing on regional cooperation and undertaking strategic infrastructure investments.

SOEs “Employment Exchange” role needs to end as Federal SOEs are the least profitable in the region with subsidies, loans, equity injections is 1.4 % of GDP with stock of guarantees and loans of 3.1% in 2016 and 9.7% during 2016-21.

With Bill in place and review aimed to rationalize and strengthen the SOEs’ policy and oversight being undertaken, the goal now has to be consistency and confidence-building through measures that ensure ease of doing business, encouraging FDI under 3P when restructuring SOEs assets/debts while learning from Sarmaya-e-Pakistan Limited concept that was aimed to facilitate this transition but lost its direction due to lack of preparedness and political will to see it through to its logical conclusion.

The PTI-wealth fund concept, Ishrat Hussain’s effort to restructure bureaucracy, concept of a “CPEC” and “Reko Diq Authority” with exemption from NAB, “CIRC” which cleaned the balance sheets of HBL/UBL for privatization, having empowered non-political autonomous boards, signing of performance KPI-based contracts with CEOs selected on merit by boards have failed as strings continue to be controlled by parent Ministry

And yet, outstanding domestic debt of loss-making Public Sector Enterprises (PSEs) has soared to Rs 2,328 billion and their liability in recent years is between 8-12% of GDP. Not to forget the Rs 904 billion related to commodity operations.

Although, privatisation success stories in banking, fertilizer, energy, industrial units, capital market, telecommunication have been a game changer (178 transactions of Rs649.114bn between 1991 to 30th June 2021), it is now necessary to catalyse SOEs disinvestment under a 3P mode of implementation by PIDC due to the economic situation versus the PPRA driven process to bring in a competitive environment through home grown solutions that also ensures productivity enhancement.

“PIDC” is thus necessary and rebuilding of 206 SOEs instead of initiating green field projects is more cost effective and reflects commitment to change. PIDC would have role of wealth fund as well and is to be a corporate holding company structure.

This disruptive inspiration approach is essential, given our history of privatization and efforts for reorganizing and transforming SOEs has had limited success and execution will happen only with an experienced technocrat Board and Chairman designated as Deputy Prime Minister/Senior Minister.

Instead of a big bang approach, sustained efforts by an effective empowered leadership team are required to manage the SOEs based on principle of working for profit and are not to be bailed out beyond 3 years.

Message: If unable to reduce the number of institutions: merge them: Corporatize them and force them to be financially self-reliant, productive and competitive.

“Functional divisions” of PIDC are to be managed by a qualified CEO with powers of board of directors. Divisions would be a corporate structure and could be Industry, Engineering, and Energy including E&PS, IPPs, and Commodities, etc.

These individual subsidiaries would be listed and GOP shareholding would be reduced overtime by bringing in equity partners Specifically, energy functional division’s mandate would be to reduce circular debt and losses, determination of merit order on capacity and fuel costs, ensuring peak demand shift, implementing energy conservation technology measures and product development.

Additionally, commencing deregulation of energy sector by building on our strength of being a nation of traders which would be facilitated by taking equity in liquefication facilities, buying from producers, hedging, undertaking swaps and trading on PMEX.

(To be continued)

Copyright Business Recorder, 2023