SHARES ISSUE PRIVATIZATION - A VIABLE OPTION TO AVERT MALFUNCTION
HAMADULLAH ABRO (firstname.lastname@example.org)
June 8 - 14, 2009
Privatization is an act of transferring government's management roles in an activity or the ownership of ill public assets to the private sector. Thus, it reduces government's role and increases the participation of private sector in producing goods and services. Privatization has been regarded as means of increasing efficiency and technological advancement. Besides, sale proceeds received has favorable fiscal impact and helps in strengthening the capital markets.
In Pakistan, the aim of privatization is to save the government resources, which are depleting due to unrelenting losses of State Owned Enterprises (SOEs), to encourage foreign direct investment, to improve efficiency of SOEs, and last but not the least to spur economic growth through industrialization.
Pakistan is unfortunate in this regard. Privatization policy in Pakistan has not met its basic objectives. Every government in power exercised it to favor vested political interests and ignored the long-term national objective owing to ineffective privatization policy. Consequently, either privatized units closed down, formed cartels to exploit consumers or buyers stripped the assets and walked away. Resultantly, it has affected the national economy and has contributed minimal to industrial and economic growth.
Current government has expressed privatization as one of the tools of economic policy. Before embarking on it, government should revise its strategy and look for other forms of privatization. In the current economic landscape privatization through capital markets would be a viable and preferred form of privatization because of benefits it offers.
Pakistan economy is going through recessionary phase, which has affected almost every segment of society. Particularly, low-income segment has been worst hit. Share issue privatization can be used to give monetary incentive and to create investment opportunity for this segment to mitigate the impact of worsening economic indicators.
Shares issue privatization has significant impact on capital market development and foster competition. It also helps in deepening and strengthening of capital markets. In current economic scenario and when Pakistan economic and law and order situation has been deteriorating, sale of SOEs to the domestic investors would be beneficial option. Share issue privatization policy will lead to increase in trading activity, market capitalization and depict a positive picture to investors. Resultantly all other related and non-related sectors will be benefited. Secondly, transparency and disclosure in market would improve which will improve credibility and attract more investment eventually beneficial for investors.
1. Privatization policy should aim at achieving national objectives rather than gaining short-term political advantages.
2. Privatization policy should be designed in a way that ill assets should be sold first. Incentive should be given to private sector to participate in. It will improve operational efficiency and profitability that eventually lead to a positive impact on the GDP, which is an indicator of the growth in the economy.
3. Stable law and order situation is one of the main factors to attract investment. Government should try to restore law and order situation in the country and create investment friendly climate.
If privatization is implemented in its true essence, it will surely benefit organizations at micro and economy at macro level. It brings efficiency, technological advancement, brings new set of skills and effective management styles at organizational level. Government can concentrate on activities more suited to her. It also saves government's valuable resources which government better utilizes for poverty alleviation, public welfare, and infrastructure and human resource development. Privatization would also greatly assist in the development of capital markets for mobilization of domestic savings, resulting in greater efficiency and fostering quality and quantity in an atmosphere of competition ultimately helps in achieving long-term national objectives.