June 8 - 14, 2009

The present government finalized its privatization policy in January this year, which allowed transactions of only 26 per cent shares of government entities with transfer of ownership and discarded the previous government's policy of strategic sale for raising money. The proposed policy is also to be applicable to all previous transactions not yet finalized for bidding.

Under the new policy, the government would invite strategic investments in government entities and would not take up any strategic sale. The past experience showed that strategic sale only raised proceeds for the exchequer, but did not improve the performance of the entities. Therefore, the target of the new privatization policy is not to raise proceeds but to improve the performance of state owned entities and to attract strategic investments from the private sector.

A meeting of members of the board of Privatization Commission headed by Naved Qamar approved the basic parameters of the new policy, which envisaged alliance of strategic investors from private sector for public sector entities through public-private partnership mode to bring in best practices and the latest technologies to improve the performance and increase efficiency.

The concept of public-private partnership was reviewed and discussed in detail and it was decided that while ensuring transparency, all other aspects should be safeguarded through comprehensive documentation. This will enable the government to maximize the value of its equity. However, not much success has been achieved so far due to internal and external factors.

Some of the critics believe that the time is not ripe for selling family silver. At a time when the developed countries are playing a leading role in stabilizing economies by taking stakes and/or injecting capital in the major industries and financial institutions in trouble, any attempt by the GoP could prove futile and counterproductive.

The global economic downturn has forced several countries to put on hold their privatization plans. Reportedly, Indonesia has dropped plan to sell 37 state firms and South Korea and Thailand have postponed privatization of banks.

In November 2008, the prime minister gave a go-ahead to initiate the process for the privatization of 37 per cent shares of Oil & Gas Development Company's Qadirpur gasfield along with transfer of operational control. The bidding of Heavy Electrical Complex and Small & Medium Enterprises Bank (divestment of 93.88 per cent shares along with management control) was also allowed.

The government faced stiff opposition from its political rivals in parliament and trade unions and civil society in the streets over its decision to privatize Qadirpur gasfield, country's second biggest field in terms of output and transfer of which to private sector can result in making gas too costly for the consumers. Critics point out that gas is, in fact, Pakistan economy's mainstay and the sector is doing well in all respects. The PM retreated and announced suspension of the process of the Steel Mills privatization until there is a consensus on the matter among legislators.

While the government was struggling to resume privatization process it opted to approach the IMF to overcome deteriorating balance of payment situation. Therefore, necessary changes in the policy were made to become eligible for the stand-by emergency assistance package. Privatization has been an essential element of the IMF assistance programs in the past and the borrowers were forced to sell their family silver. But the current crisis which has set in recession in the West has not only discredited the free market ideology but also forced the IMF to change its policy stance.

Pakistan People's Party which has been critical of the privatization policy of the previous government owned it in November last year when Syed Naveed Qamar stated that the privatization would remain a cornerstone of his government's economic agenda. He also expressed confidence in the private sector having the capability, expertise and resources to run the businesses while the government should focus on policy matters.

It is interesting to note that the privatization of state-run units in Pakistan began in 1989 on the advice of the IMF-World Bank when Ms Benazir Bhutto was in power. The massive nationalization of industries was launched by his father, Zulfikar Ali Bhutto in early 1970s. According to an expert the 1990s saw an orgy of privatization as thousands of public enterprises worth $900 billion were sold off to private owners in more than 100 countries. Of these, telecom companies accounted for a third of all rich-country privatizations, peaking at $42 billion in 1997. By October, 2003, Pakistan had approved 133 transactions at gross proceeds of Rs102 billion.

The experience shows it has been a faulty policy because the value of the units on auction always is more than the actual sale proceeds. When 51 per cent shares of Habib Bank were sold in December 2004 for only Rs22 billion, its total assets had worth more than Rs570 billion. Similarly United Bank was sold for only Rs13 billion, a throwaway price. The PTCL buyout by Dubai-based Etisalat did not bring in the assets' worth. The new owner demanded major concessions, which was agreed to and the payment was made in installments.

The government has once again announced a long list of entities to be privatized. This includes all major establishments of strategic importance.

Under the given circumstances and obviously for security reasons, no foreign investor would visit the country to have a look at the establishment being offered for sale. In fact foreign firms of repute are more concerned about setting their house in order rather than go for shopping in developing countries. The global credit crunch would not make financing of such transactions easier for the intending buyer.

It is also a myth that a public sector unit functions more efficiently when managed by a private company. KESC did not become efficient when it went into private management despite tariff increases and government subsidies, nor had the PTCL become a better institution even for the minority shareholders.

The 1996 privatization of British Rail gave birth to an inefficient and accident-prone system supported by massive subsidies. Similarly, public sector water companies in the Netherlands, Japan and the US look more efficient than private companies in France and England. Privatization merely changes ownership without an increase in the stock of capital and output. Though, there is an instant receipt of substantial amount in foreign exchange, yet it also becomes a drain on foreign exchange reserves when profits are repatriated every year.



Foreign Direct Investment has played a vital role to elevate China as the second largest exporting country of the World. China will have to make sizeable investment in South Asian Countries particularly Pakistan to have quantum leap in trade with South Asian Countries, Tariq Sayeed, President SAARC Chamber of Commerce & Industry (SAARC CCI) said at the 4th China-South Asia Business Forum entitled "Facing Global Financial Crisis: Economic and Trade Cooperation between China and South Asian Countries" at Kunming, China.

President SAARC CCI urged for Enhanced economic cooperation between China and South Asia as a mechanism to face challenges posed by global financial meltdown and said that the Global financial crisis has broken the inertia of sustainable and double digit economic growth of China and many developing countries, which were heavily dependant on USA and EU countries and while suggesting for evolving common strategy in this respect.

Mr. Sayeed said that on account of its ability to produce quality goods at highly competitive price, China enjoyed huge trade surplus with 134 countries out of 225 countries including independent territories, constituencies, islands etc As a result of that medium sized economies and countries like South Asia, facing huge trade deficit, perceived China as threat to their economies and requested the Government and Private Sector of China to change this perception through a sizeable FDI into such countries, which are facing huge trade-deficit with her including Pakistan.

He said that since 2000, bilateral trade between China and South Asia has witnessed a steady growth of more than 20% per annum and expected trade volume to exceed $ 60 billion mark by the end of 2009. Referring to a study, he said "China's trade with India will reach $60 billion, Pakistan $10 billion, Bangladesh $5 billion, Sri Lanka $4 billion, Nepal $800 million and Maldives $200 million in 2010 however, added that the pace of China-South Asia trade is relatively slow as compared with China's trade with ASEAN, which is likely to reach at $ 275 billion by 2010.

While appreciating the Economic Policies of China he said that since adoption of open policies by China in 1982, the country had made tremendous growth. It has been successful in attracting FDI of worth $ 800 billion since then including $ 82 billion in alone 2008, which has been instrumental to designate China as the 2nd largest exporter with worth of $ 1.2 trillion and reducing poverty from 50% to 16%, which is phenomenal. "Developing countries need to follow Chinese Economic Model, if they want to attain sustainable growth." added President SAARC CCI. He said that the incumbent Government in Pakistan has embarked upon a very liberal and friendly policy towards South Asia, which will help effective implementation of SAFTA and provide China enormous opportunities in the neighbouring region.

President SAARC CCI gave certain recommendations to further improve economic cooperation of China and South Asia, which included Chinese FDI in South Asian countries, transfer of technology, close relationship between business community particularly youth, frequent exchange of delegations at socio-cultural and economic level, promotion of tourism, removal of Non-Tariff Barriers, technical assistance to increase base of production in Agricultural and manufacturing sectors.

The 4th China-South Asia Business Forum was inaugurated by Qin Guangrong, Governor the Peoples' Government of Yunnan followed by addresses by Wan Jifei, Chairman China Council for promotion of International Trade ( CCIPT), Mr. Ma Mingqiang, representative, Ministry of Foreign Affairs of People's Republic of China, Han Meiqing, Deputy Director General, International Relations Department, CCIPT and professor L.G. Pieris, Minister for Commerce and Trade Development, Sri Lanka who endorsed the view of President SAARC CCI.