Nationalization and Privatization in Pakistan

Nationalization and Privatization in Pakistan Ramiz Amin 8979 Submitted to: Dr. Imdad Shah

Contents Nationalization and Privatization in Pakistan ............................................................................................... 2 Introduction .......................................................................................................................................... 2 Brief History of Nationalization ................................................................................................................. 3 The First Phase (1971-77) ......................................................................................................................... 3 The Second Phase (1988 to Present) ........................................................................................................ 3 How Nationalization was opposed?...................................................................................................... 4 Defensive Arguments ................................................................................................................................ 4 Privatization .................................................................................................................................................. 5 The First Phase of Privatization (1989-1993) ............................................................................................ 5 The Second Phase (1993-1999) ............................................................................................................. 6 The Third Phase (1999-2012) ................................................................................................................ 7 How privatization is actually perceived? .............................................................................................. 8 How it was opposed? ............................................................................................................................ 8 Conclusion ................................................................................................................................................. 8


Nationalization and Privatization in Pakistan

Introduction Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector whereas Nationalization is the opposite of Privatization which is defined as Takeover of privately owned corporations, industries,

and resources by

a government with

or

without

compensation. Common reasons for nationalization include (1) prevention of unfair exploitation and large-scale labor layoffs, (2) fair distribution of income from national resources, and (3) to keep means of generating wealth in public control.


Brief History of Nationalization Firstly, the nationalization programme was initiated by the then Prime Minister Zulfiqar Ali Bhutto in 1972. His main aim was to free the market from the ownership of Business Tycoons and enhance the economic liberalization. It was then for the second time implemented by Benazir Bhutto in 1988 and then by Yousuf Raza Gilani in 2012 who intended to nationalize Steel Mills and the Railway Sector.

The First Phase (1971-77) This phase was first introduced by the then Prime Minister Zulfiqar Ali Bhutto. This very first phase nationalized engineering and electrical industries, and Power Sector. nd

The 2 stage was initiated on 1 January 1974, with the purpose to focus on the banking sector of Pakistan. Shipping companies were also nationalized. The 3

rd

stage was introduced on July 1, 1976 which provided cotton, ginning and rice

husking units under the control of public sector. This worsened the situation as consumers got low quality products and impure commodities at uncertain and shocking prices. Then the Government of PPP focused on the nationalization of cement, steel and fertilizers in 1977.

The Second Phase (1988 to Present) In November 1988, the Ex PM Benazir Bhutto had clear intentions to end nationalization so as to enhance industrialization in Pakistan.


But Ms. Benazir Bhutto did not completely carry out the process of denationalization programme. There was no privatization of the nationalized units. But somehow limited scale privatization occurred during her reign. Most importantly, the UBL Pakistan and railway association was nationalized during the reign of Ms. Benazir Bhutto which made her party strengthen the government control on Pakistan Railways and Pakistan Steel Mills. Then in 1998, the then PM Nawaz Sharif ordered the cessation of state owned enterprises and corporation under the ownership of Government control. From 1999 to 2010, there was no nationalization phase until 2011. The nationalization programme was once again initialized by Prime Minister Yousaf Raza Gillan i on December 15, 2011. The reason behind it included the inclusion of government ownership in Pakistan Steel Mills, Pakistan Railways as well as Pakistan International Airlines. The nationalization programme keeps on getting restructured to be made more profitable while remaining within the ownership of government control.

How Nationalization was opposed?

Investors had no trust and confidence on such programme. Among the investors, Nawaz Sharif could be included in the list of affectee who lost his steel mill. Chaudhry Shujat’s

Gujrat Enterprises can be the second inclusion in the list. When the shipping companies were being nationalized, then those who showed their discontent were imprisoned.

Defensive Arguments However the Pakistan’s People Party defended the concept because they thought that it

protected the rights of workers and gave high priority to the workers themselves. Most importantly, it created a sense of realization of self-awareness among the workers. It also created a suitable, fair and healthy work environment.


Privatization In Pakistan, large number of public sector units have been privatized which include the following sectors: 1. Telecommunications 2. Banks 3. Thermal power stations 4. Production, prices 5. Efficiency, Investment 6. Employment and fiscal deficit Privatization genuinely means denationalization of nationalized units. It was first initiated by Mr. Nawaz Sharif in order to strengthen the economy of Pakistan and profit seeking business. This was then continued by Shaukat Aziz who privatized 80%-90% industries during the ending days of this tenure.

The First Phase of Privatization (1989-1993) The government of Mr. Bhutto had formed a strong public-sector targeting cement, steel and fertilizers. After the end of his reign, General Zia ul Haq issued a white paper which instructed the setting of the commission under Pakistan Industrial Credit and Investment Corporation (PICIC) chairman N.M. Ukailie. At that time only three industries


were returned to the deserved owners which included Eittefaq Group of Industries to Mian Mohammed Sharif whilst others remain under government control. On 22nd Jan, 1991, Privatization took place on a large scale. Firstly it started with the denationalization of banking sector, starting first with MCB Bank Limited. This privatization programme was aimed at private savings and investment and to accelerat e the economic growth. The 2nd phase was initialized by the then Finance Minister of Pakistan named as Sartaj Aziz in order to transform the publicly owned enterprise to profit seeking business. The mega corporations such as WAPDA, KESC and PTCL were privatized. From 1990-93, almost 115 industrial units were privatized which included the privatization of two major banks and 10% Shares of Sui Northern Gas Pipelines Limited .

The Second Phase (1993-1999)

After the general elections in 1993, the 2

nd

phase of privatization started under the reign

of Prime Minister Ms. Benazir Bhutto. It included the privatization of financial institutions, telecommunication corporations, thermal power plants, oil and gas sectors. The government of Benazir Bhutto did not opt to privatize those state corporations who were generating sound revenue abroad but did privatize those industries which were at the risk of financial collapse. It was requested to privatize the Pakistan Railway sector but Ms. Benazir Bhutto did not approve the request of privatization of the Railway Sector because she thought this privatization would be the create utmost disturbance in her tenure. But still during 1996, as many as 20 industrial units, one financial institution, one electric power plant and 12% shares of Pakistan Telecommunications Ltd. were privatized by Benazir Bhutto. The second phase remained active until 1998 when it was halted by Prime Minister Nawaz Sharif after imposing economic emergency to hinder or perform deterrence capability to Indian nuclear aggression. All stock exchanges, stock markets and the


second phase of the privatization programme were immediately ended by Prime Minister Nawaz Sharif until his government was ended in 1999.

The Third Phase (1999-2012)

After Nawaz Sharif's reign, Mr. Pervez Musharraf invited Mr. Shaukat Aziz to take the responsibility of sluggish growth in the economy of Pakistan. There was a great decline in the GDP rate from 10.0% in 1980s to 3.6% in 1999

with foreign debt getting

increased to 44% as compared to 1986. He emphasized the strengthening of industrial sector through restructuring so that it can be made available to the private sector. His major economic reforms are as under: 1. Enforcement of sales tax mostly on import duties. 2. Consolidation of patronage based industries. Mr. Shaukat Aziz wanted to create a major boost to economic growth of Pakistan. For that, there was 100% privatization of state-owned corporations while

managed to

privatize 85% of banking sector. From 2003 to 2007, he successfully did which is already mentioned while also privatized Pakistan International Airlines and other megacorporations. Mr. Aziz’s privatization programme brought the following changes: country’s growth rate grew by 6.4%— 8.6% a year

1.

The

2.

Inflation rate dropped to 3.5% in last 3 years as against 11-12% in 1990

The end of 2007 initially halted the privatization programme in the country. The Supreme Court issued an order for the denationalization of Pakistan Steel Mills. This put an end to Mr. Aziz's intensified and aggressive privatization programme at the end days of his tenure.


How privatization is actually perceived? Though, it can be said that privatization enhances the profit seeking business but it also disturbs the worker’s environment while creating discontent among the workers and

this results in unemployment.

How it was opposed?

The privatization programme was not welcomed by those who favored nationalization. This meant that privatization has deteriorated the social status of workers and has destroyed the balance of the workers environment and their work. In 2012, the government of PPP made an attempt to privatize the three mega state corporation like WAPDA, TESCo and PEPCo as proposed by the Finance Minister which resulted in major worker's discontent and strikes were initiated by the labor union due to which the government ended the privatization programme of energy sector and did not hesitate to nationalize the remaining power sector due to increase in revolts and public pressure.

Conclusion There should be a strategy to promote Privatization in Pakistan. There should be strong elite commitment for privatization at political and bureaucratic level. Then this commitment should be translated to vision and mission as to why Privatization is needed in Pakistan. The main intention would be strategic sale and management control while also serving the rights of workers and consumers. There should be awareness campaign about the privatization of an entity to the public and inform them of the pros of doing so. Sale should be made of certain percentage of shares to public to create


private ownership. Hence there should be transparency to be the cornerstone of privatization process by strengthening the regulatory framework.

Nationalization and Privatization in Pakistan

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