Daily Times

With the launch of the privatisation initiative by the PML-N government, memories of the early 1990s have come back to haunt many. In the 1990s, the then PML-N government carried out the privatisation of national assets, which left many question marks on the transparency of the process. Many also have serious issues with how the PML-N government chose to spend the proceeds from privatisation on projects that did not offer a good return on investment. So much so that at the end of that eventful term of the PML-N, the national exchequer faced a serious cash crunch and, as per some estimates, the country was on the brink of default, despite a large privatisation drive.

Privatisation, in a free market economy, is a necessary activity that states embark on to make the market more competitive, to enhance national productivity and economic efficiency, and to fund growth and development initiatives for the future. Privatisation, however, also has a risk attached to it: if carried out in a non-transparent, crony-capitalist manner, privatisation leads to concentration of capital, cartelisation and the rise of a crony-capitalist oligarchy that hampers the prospects of creating a competitive, innovation-driven economy and leads to greater income inequality. The prime example of such counter-productive privatisation is the privatisation carried out in Russia, post-Soviet collapse, which led to the creation of economic oligarchs and has contributed to stagnation of the Russian economy in the years that followed.

Russia-like doubts exist about the first round of privatisation carried out under the PML-N government of the early 1990s. Many of the units were privatised in a process that many deem as being not so transparent. The biggest objection to the process was that, rather than opting for an open public market privatisation, the government opted for privatisation through a bidding process to pre-qualified entities. The process of bidding has room for manipulation through information asymmetry. A party having access to more insider information is in a position to better analyse the value of a deal than others. So, to ensure transparency in such a process, the government has to go the extra mile. Another objection to the PML-N’s privatisation of the 1990s was that the proceeds from privatisation were used in black-hole schemes like the Yellow Cab Scheme.

With these doubts still lurking in the minds of many, the PML-N government has embarked on the next round of privatisation. This time too, rather than offering shares in the open market, the government again opts for the block sale of minority stakes in entities like United Bank Limited (UBL). This raises doubts about the transparency of the process. The appointment of shady characters like Arsalan Iftikhar for Reko Diq only adds to the speculation about the sale of assets. Many are saying that because of its proximity with Iftikhar Muhammad Chaudhry’s court, the PML-N stalled any key privatisation/asset-allocation deals under the last PPP regime, thus tightening the noose around the last government and also ensuring that the PML-N could privatise/allocate the assets on its own terms. This may simply be a matter of perception but it raises serious doubts about the process of privatisation.

With the privatisation of PIA and other large public sector enterprises looming, many fear the process will be an exhibition of crony-capitalism. To quell the fear, it is imperative that the PML-N government ensure the transparency of this process. There are steps that the government can take to ensure this. For one, it can allow for extensive parliamentary oversight and, in some cases, approval, of the process. Secondly, the process of privatisation should be carried out through open public market operations as much as possible. Thirdly, the ‘fire sale’ of national assets is neither needed nor desirable. So, rather than selling any and every asset the government can get its hands on, it should devise a long-term, 10 to 15 year strategy for privatisation of national assets through national consensus via the National Economic Council (NEC). The same measures should be taken for the sale/lease of other national assets like Reko Diq.

Above all, the government needs to take measures to ensure that any proceeds from privatisation are used in line with a coordinated economic development agenda through the NEC or are used to retire foreign debt to allow for financial flexibility in the years ahead. Spending the proceeds on mindless initiatives like laptop schemes, youth employment loans and metro buses will give short-term popularity and will appease the urban middle classes in the short-term but will make the nation pay heavily in the future. More importantly, mindless spending or a dubious privatisation process can add to socio-political disturbance in an already fragile Pakistan.

I hoped that the PML-N would have learnt its lessons from the past but, so far, my hope seems misplaced. I also know of Mian sahib’s ability to surprise us. So, let us hope for a pleasant surprise in the form of a transparent privatisation policy. Till then, be watchful all!

The author can be reached on twitter at @aalimalik