2. TABLE OF THE CONTENT
• 8.5) THE PRIVATIZATION PROCESS
– PRIVATIZATION IN PAKISTAN
– GOVERNMENT POLICIES
– CRITICISM
• 8.6) THE DEBATE OVER EFFICIENCY IN THE INDUSTRIAL
STRUCTURE
– PAKISTAN’S IMPORT SUBSTITUTING INDUSTRIALIZATION
POLICY
– STUDY OF little et al
– COUNTER ARGUMENTS ON STUDY OF little et al
– CONCLUSIONS
4. WHAT IS PRIVATIZATION
PRIVATIZATION, ALSO SPELLED PRIVATISATION, MAY HAVE
SEVERAL MEANINGS. PRIMARILY, IT IS THE PROCESS OF
TRANSFERRING OWNERSHIP OF A BUSINESS, ENTERPRISE,
AGENCY, PUBLIC SERVICE OR PUBLIC PROPERTY FROM THE
PUBLIC SECTOR (A GOVERNMENT) TO THE PRIVATE SECTOR,
EITHER TO A BUSINESS THAT OPERATE FOR A PROFIT OR TO
A NON-PROFIT ORGANIZATION. IT MAY ALSO MEAN
GOVERNMENT OUTSOURCING OF SERVICES OR FUNCTIONS
TO PRIVATE FIRMS, E.G. REVENUE COLLECTION, LAW
ENFORCEMENT, AND PRISON MANAGEMENT.
5. PRIVATIZATION IN PAKISTAN
• THE STRUCTURAL ADJUSTMENT PROGRAMME
OF 1988
• PRIVATIZATION PROGRAMME BEGUN IN 1990
• PRIVATIZATION PROGRAMME STARTED BY
NAWAZ SHARIF GOVERNMENT IN 1990
6. PRIVATIZATION IN PAKISTAN
• THE DISINVESTMENT AND DEREGULATION
COMMITTEE
– TO MAKE RECOMMENDATIONS ON HOW THE
PRIVATIZATION PROCESS SHOULD TAKE PLACE
– POLICY MAKING FOR THE PRIVATIZATION OF
INDUSTRIES
7. BENAZIR’S FIRST GOVERNMENT
• PRIVATIZATION IN BENAZIR’S REGIME:
– LIP SERVICE
– PROMISED TO PRIVATIZE STATE-OWNED SECTOR
– IN REALITY NO PRIVATIZATION TOOK PLACE IN
MANUFACTURING SECTOR
8. BENAZIR’S FIRST GOVERNMENT
• REASON GOVERNMENT GAVE IN RESPONSE TO
ITS FAILURE:
“IT WANTED TO CONDUCT AN EXERCISE THAT WAS
TRANSPARENT , WELL CONCEIVED AND BROAD
BASED”
• CRITICISM:
– GOVERNMENT LACKED COMMITMENT
– LACK OF POLITICAL WILL
9. DISINVESTMENT AND DEREGULATION
COMMITTEE
• ESTABLISHED FOLLOWING PRINCIPLES:
– GOVERNMENT SHOULD COMPLETELY RETIRE
FROM PRODUCTION OF INDUSTRIAL GOODS
– IDENTIFIED 109 INDUSTRIAL UNITS FOR
PRIVATIZATION
– IDENTIFIED 4 OF THE 5 NATIONALIZED
COMMERCIAL BANKS FOR PRIVATIZATION
• THE COMMITTEE WAS DISSOLVED IN 1991
AND WAS REPLACED BY A PRIVATIZATION
COMMISSION
10. THE PRIVATIZATION COMMISSION OF
PAKISTAN
• THE MANDATE OF COMMISSION WAS:
– VALUATION OF THE ENTERPRISES THAT WERE TO BE
PRIVATIZED
– THE VALUATION WAS BASED ON THE ASSESSMENT OF
INDEPENDENT CONSULTANTS
– IMPLEMENTATION OF BIDDING PROCESS
– SUPERVISE THE TRANSFER OF UNITS FROM PUBLIC TO
PRIVATE SECTOR
11. THE PRIVATIZATION COMMISSION OF
PAKISTAN
• IN ITS EARLY PHASE THE PRIVATIZATION
PROCESS WAS UNSUCCESSFUL BECAUSE:
– DUE TO FEW NUMBER OF BIDDERS
– THE PRIVATIZATION WAS NOT THE MAIN FOCUS
OF GOVERNMENT’S ECONOMIC POLICY
12. THE PRIVATIZATION COMMISSION OF
PAKISTAN
• DUE TO UNSUCCESSFUL EFFORTS BY PRIVATIZATION
COMMISSION, GOVERNMENT DECIDED TO REVISE ITS
PRIVATIZATION POLICIES BY:
– IMPROVING THE LEGAL AND ADMINISTRATIVE
PROCEDURES
– DECIDED TO ADVERTISE THE 105 OF 109 INDUSTRIAL
UNITS FOR IMMEDIATE SALE
• ATTEMPTS WERE MADE TO MAKE THE WHOLE
PROCESS “TRANSPARENT”
• ONE OF THE MAIN REASONS FOR PRIVATIZATION AT
THAT TIME WAS TO RAISE THE REVENUE
13. PRIVATIZATION IN PAKISTAN
• BY NOVEMBER 1992
– 67 OF 109 INDUSTRIAL UNITS HAD BEEN ISSUED
LETTERS OF INTEREST TO SALE
– OUT OF THESE 67 INDUSTRIAL UNITS, THE
MANAGEMENT OF 49 UNITS HAD BEEN TRANSFERRED
TO PRIVATE SECTOR
– RS. 6 BILLION OUT OF TOTAL 13 BILLION FOR THESE 67
PRIVATIZED UNITS HAD BEEN RECEIVED BY THE
GOVERNMENT
14. PRIVATIZATION IN PAKISTAN
• WHY THIS PRIVATIZATION PROCESS WAS
SLOW AND DIDN’T DEVELOPED AS IT WAS
PLANNED:
– MOST OF THE UNITS THAT WERE OFFERED FOR
PRIVATIZATION WERE ALREADY BANKRUPT
– HENCE THE INTEREST OF PRIVATE SECTOR
TOWARDS BUYING THESE UNITS WAS VERY LOW
15. PRIVATIZATION IN PAKISTAN
• GOVERNMENT’S UTMOST PRIORITY WAS TO
PRIVATIZE THE FOLLOWING THREE INDUSTRIAL
SECTORS:
1. ENERGY SECTOR.
2. TELECOMMUNICATION SECTOR.
3. FOUR NATIONALIZED
COMMERCIAL BANKS.
16. PRIVATIZATION IN PAKISTAN
• BY LATE 1995 THE TELEPHONE AND TELEGRAPH
SECTOR HAD BEEN PARTIALLY PRIVATIZED
• TWO BANKS HAD BEEN PRIVATIZED:
– ALLIED BANK WAS SOLD TO ITS EMPLOYEES
– MCB TO A PRIVATE BUSINESS HOUSE
• PRIVATIZATION OF BANKS IN MUSHARRAF’S ERA:
– HBL
– UBL
– TWO INDUSTRIAL BANKS
NATIONAL DEVELOPMENT FINANCE CORPORATION
INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN
17. THE INSTITUTE OF DEVELOPING
ECONOMIES IN JAPAN’S REPORT
• PRIVATIZATION IN PAKISTAN WAS NOT
SUCCESSFUL BECAUSE:
– BID EVALUATION PROCEDURES WERE INCORRECT
– PROCESS SUFFERED FROM FAVOURITISM
– THE INFORMATION WAS NOT OPEN TO ALL PRIVATE
PARTIES
– TRANSFER OF UNITS TO INEXPERIENCED PARTIES AND
THEY HAD NO PREVIOUS RECORD OF RUNNING AN
INDUSTRIAL UNIT AT ALL
18. (8.6) THE DEBATE OVER
THE EFFICIENCY IN THE
INDUSTRIAL STRUCTURE
19. INDUSTRIAL STRUCTURE OF PAKISTAN
• THE INDUSTRIAL BOOM OF 1960’S, THE COLLECTIVE
VIEW OF ANALYSTS AND ECONOMISTS WAS:
– HIGH GROWTH WAS ACHIEVED AT VERY CONSIDERABLE
COST
– BUT THE ENTIRE INDUSTRIAL STRUCTURE OF PAKISTAN
WAS SEVERELY INEFFICIENT
• THE INEFFICIENCY WAS DUE TO STATE’S INTERVENTION
IN DISTORTING PRICES IN DOMESTIC MARKETS
• THUS AFFECTED THE MANUFACTURING SECTOR OF
PAKISTAN ADVERSELY
20. PAKISTAN’S EARLY INDUSTRIAL AND
ECONOMIC GROWTH
• PAKISTAN’S IMPORT SUBSTITUTING
INDUSTRIALIZATION POLICY:
– MOST OF THE YOUNG DEVELOPING COUNTRIES
FOLLOWED THE SAME POLICY
– PROTECTED DOMESTIC INDUSTRY
– CREATING TRADE BARRIERS SUCH AS TARIFF,
MULTIPLE EXCHANGE RATES AND IMPORT LICENSING
21. DEBATE OVER THE INEFFIECIENT NATURE
OF PAKISTAN’S INDUSTRIAL STRUCTURE
• THE STUDY BY IAN LITTLE, SCITOVSKY AND MAURICE:
– AMONGST THE DEVELOPING COUNTRIES STUDIED,
PAKISTAN HAD THE HIGHEST EFFECTIVE RATES OF
PROTECTION IN MANUFACTURING SECTOR
– AFTER THE PRECISE CALCULATIONS, THE AUTHORS
REVEALED THAT MANUFACTURING SECTOR’S
CONTRIBUTION TO VALUE-ADDED ACTUALLY GREW AT
NEGATIVE RATE AND NOT AT 16% AS BELIEVED
– THE CONCLUSIONS OF THE STUDY WAS THAT
MANUFACTURING SECTOR HAD BEEN GIVEN TOO MUCH
EMPHASIS WHILE AGRICULTURAL AND MANUFACTURED
EXPORTS HAD SUFFERED
22. DEBATE OVER THE INEFFIECIENT NATURE
OF PAKISTAN’S INDUSTRIAL STRUCTURE
• THE POLICY TOOLS RESPONSIBLE FOR THE INEFFICIENCY WERE
MAINLY:
– MULTIPLE EXCHANGE RATES
– IMPORT LICENSING
– TARIFF STRUCTURE
• EXPORTERS IMPORTED THEIR INPUTS AT BELOW PAR EXCHANGE
RATE AND THEN EXPORTED THEIR GOODS AT A HIGHER RATE
• EXPORT TAX WAS A DISINCENTIVE FOR THE EXPORTERS OF LEATHER
AND COTTON
• IN 1964 ABOUT 64% OF ACTUAL VALUE ADDED WAS DUE TO
DISTORTIONS IN THE INDUSTRIAL STRUCTURE
• DUE TO THIS PROTECTION THE MANUFACTURING COST OF VALUE
ADDED WAS INCREASED BY 300% ON AVERAGE
23. DEBATE OVER THE INEFFIECIENT NATURE
OF PAKISTAN’S INDUSTRIAL STRUCTURE
• THE DISTORTIONS WERE CREATED DUE TO
FOLLOWING GOVERNMENT’S PROTECTION
POLICY:
– EXCESSIVE EMPHASIS ON THE MANUFACTURING
SECTOR
– RESULTED IN POOR EXPORT PERFORMANCE
– NEGLECTED THE AGRICULTURAL SECTOR
– A DISTORTED SECTORAL DISTRIBUTION IN THE
INDUSTRY
24. DEBATE OVER THE INEFFIECIENT NATURE
OF PAKISTAN’S INDUSTRIAL STRUCTURE
• CRITICISM ON THE STUDY OF LITTLE et al:
– AKBAR NOMAN HAS ARGUED THAT THE CLAIMS
BY LITTLE et al ARE HIGHLY MISLEADING
– THE STUDY SUFFERED FROM PROBLEMS IN DATA
AND THEIR INTERPRETATION
– WORLD PRICES FIGURES WERE USED THAT WERE
OVERSTATED
– THE INEFFICIENCIES OF PAKISTAN’S
INDUSTRIALIZATION IN 50s AND 60s HAVE BEEN
MUCH EXAGGERATED
25. DEBATE OVER THE INEFFIECIENT NATURE
OF PAKISTAN’S INDUSTRIAL STRUCTURE
• CONCLUSIONS:
– INDUSTRIAL POLICY WAS PROTECTIONIST AND
DISTORTIONARY
– GIVING RISE TO DEEP ROOTED INEFFICIENCES
– LATER CAUSED THE INDUSTRIAL CRISIS IN 1970s
– THREE SUCCESSFUL SUBSECTORS EMERGED AND
ARE ACCORDING TO INTERNATIONAL STANDARDS
1. CHEMICALS
2. ENGINEERING
3. TEXTILE
26. DEBATE OVER THE INEFFIECIENT NATURE
OF PAKISTAN’S INDUSTRIAL STRUCTURE
– THE INEFFICIENCY IDENTIFIED BY little et al
ACTUALLY EXISTED
– THERE IS A CONSENSUS AMONGST PAKISTANI
ECONOMISTS THAT PAKISTAN’S INDUSTRY HAS
BEEN INEFFICIENT, DUE TO HIGH PROTECTION
AND WARPED INCENTIVES
