Pakistan’s competitive landscape

Between rising cases of Covid-19, FIA’s reports on sugar and wheat sectors, and the ongoing IPP inquiry saga, the central bank’s quarterly State of Pakistan’s Economy report was somehow overlooked. But anyone concerned about the state of sugar, wheat and power sector ought to read the SBP’s review of the state of competition in Pakistan published as an addendum to its recently released quarterly report.

The report reminds all and sundry of the virtues of competition; be it increased firm and labour productivity, improved innovation, lower prices, improvements in consumer welfare and product quality and overall economic development. It later spells out the list of sectors in Pakistan where competition is conspicuous by its absence.

“Other than transport and energy sectors where the direct participation of the government remains strong, manufacturing is another sector where the incidence of public institutions’ involvement remained high,” the report said. The list of these manufacturing industries includes fertiliser, pharma, refineries and oil marketing companies, sugar, wheat, tariff protection to automobile, steel, electronics, milk, meat and the whole nine yards.

Flagging the need to pursue often multiple incompatible development goals, the central bank states that “market solution may not always admittedly be the best solution in achieving development goals the economy has set for itself.” It rightly points out that “government interventions are needed in some of the sectors/industries where significant market failures are prevalent, including positive and negative externalities, public goods and information asymmetries, or redistributive policies that are pursued to achieve broader development agenda.”

The central bank adds that “competition policy will not work in the absence of effective and strong public sector institutions,” since it is these institutions which will have to craft those necessary government interventions. But here in lies the problem: Pakistan’s institutional crisis, visible across sectors, and cross-sectoral bodies such as Competition Commission of Pakistan (CCP) and the tariff commissions.

What has the PTI government done about it? Contrary to all their talk about strengthening institutions, the government has done precious little. From the visible absence of Khan’s dream team to lagging institutional reforms, examples abound; they have not even been able to appoint and retain leadership, let alone strengthen the institutions.  (Read BR Research’s ‘Khan’s dream team’ & ‘Who does what!’ published Apr 8, 2019 & Jan 30, 2020)

What can the central bank do about it? Apparently, nothing. It’s not their job to criticise the poor state of government institutions; nor is it their job to design institutional architecture and hire people for government institutions.

But there is something that it can do: conduct sectoral studies focussing on policy frameworks, market structure and size, sectoral labour productivity, sector-specific cost of doing business, comparative institutional architecture (legal and organisational) across the variety of sectors in different provinces of the country.

The idea is to simply lay out the facts and figures as they are without bashing anyone ala SBP’s enlisting of GCC or EoDB rankings or flagging of problems faced by the CCP. The rest will be up to the media and other members of civil society to take it up from there. (Relevant reads: ‘Doing business: beyond World Bank rankings’, Oct 28, 2019 & ‘Measuring FDI attractiveness’, Jan 6 2020)