PBC & Pakistan

For those who are still unsure, the battle of Islamabad has been won by big corporates. That was the single biggest takeaway from the fifth round of Pakistan Economic Forum (PEF) organised by Pakistan Business Council (PBC) in Islamabad late last week.

None other than the Finance Minister Asad Umar, chairman of the PBC in his past life as a corporate honcho, said “the PTI and the PBC are in sync”. “We are playing the same team”, and that ‘we (the government) have covered 80 to 90 percent of PBC’s demands in the various upcoming economic policies and federal budgets’. Related fact: the much-expected supplementary finance bill will be announced by the end of this month or first week of January, said Asad at the PEF. Quite sure there will be at least one cheeky headline: ‘PTI’s new year gift’.

PM Imran Khan, who also attended the PEF with prayer beads in his hand, joined Asad Umar in giving confidence to the big business. His single point message repeated umpteen times during the speech: there is nothing wrong with wealth creation. “Wealth creation is not a sin; evading taxes, illegal earnings, money laundering, smuggling is”. He said the campaign against industrialists, capitalists and wealth creators ought to come to an end, and that Pakistan would have been a glorious country had the famous 22 families not been exorcized from the country’s business landscape.

Khan seems to know his audience well. Standing atop a container, corruption used to be his biggest agenda point. In his televised address to the nation, he shifts to ‘having compassion’ and building a Medina like welfare state, taking care of the poor, addressing stunting and malnourishment. No surprises therefore that in his address to the PBC last week, Khan focused only on wealth creation and made just a single faint passing reference on wealth or income distribution without any sense of emphasis.

All Khan said on the subject that ‘distribution could have been better’ during the so-called Ayub’s famous decade of development, and that a plan for ‘coordinated poverty alleviation is currently in the works’. This was quickly followed up by a statement that “poverty cannot end without wealth creation”, citing, unsurprisingly, the case of China.

Unlike China, however, where state capitalism paved way for market development, the PTI seems clear that “government’s role is only of a facilitator”, at least so said Asad at the PEF. He also emphasised that “the private sector also needs to look inside” than simply expect endowments from the government; that “they need to catch up with the world” referring to increasing productivity and efficiency.

The issues and prescriptions highlighted by the PBC are difficult to argue with. Manufacturing is indeed a proverbial sin in Pakistan. Ehsan Malik, PBC’s CEO, and a host of other speakers representing the country’s premier business advocacy organisation, flagged a wide array of issues that need to be addressed by federal and provincial governments. The list includes poor credit to SMEs, a disincentivising tax structure and policy, lack of coordination between federal and provincial governments, shortage of skilled labour, misaligned trade agreements and so forth.

Individually, on line by line basis, these and many other issues flagged by the PBC are spot on; who can dispute those high cascading taxes on imports of raw material used in local manufacturing. These demand a course correction in a “transformational way rather than transactional” manner, to quote Malik’s expression. But there are three areas where the PBC is oft found wanting.

First: PBC’s weak public engagement with the provincial mandarins. For instance, a host of issues that were identified at the PEF were effectively provincial concerns. The zoning of land for industrial use; tapping the mining and mineral sector; and developing a skilled labour force. These and many other are all provincial concerns. Yet for the last many years, the PBC doesn’t publicly engage with provincial governments, ala the PEF.

Second: development of four industries and sectors was pitched at the PEF: naphtha, steel, light engineering and IT. But the sales pitch for those ideas lacked some of the key aspects needed to convince policy thinkers.

For instance, it lacked the analyses of competitive landscape not only of the present but more importantly of the foreseeable future. The industry would not wish to end up in a situation where it sets up a naphtha plant and the whole ecosystem around it in five to seven years — only to find out the region is flushing with naphtha, pushing regional prices lower and making life difficult for local downstream sector.

Likewise, by the time this country develops a fancy zone and gets the business running for light engineering goods, the world may have moved on to 3D printing, which then begs the question whether we want to develop industries of the past or of the future.

Third: a significant number of independent economists and other stakeholders believe that PBC’s ‘Make in Pakistan’ mantra is another name for protectionism. The PBC has denied such allegations, but that communication has not been too effective.

Ever since the PBC made inroads in power corridors after the PTI came to power, stakeholders have been even more concerned that the entity will lobby for protectionism, which will eventually come to hurt consumers. Ergo, the PBC should at least put out a position paper explaining with well researched examples what it doesn’t mean by ‘Make in Pakistan’, and that it supports a sunset clause to where and when the industries have been or proposed to be protected.

Given the vantage point it now has of being very close to the ears of top political leaders, the PBC now has much bigger responsibility on its shoulders. If it really wants to play a transformational role and not merely a transactional one; it will need to address these concerns and offer holistic policy analyses.