Foreign Policy Magazine, US, ranks Pakistan among the top dozen most vulnerable countries in the 'Failed State Index 2011' and places it in the 'Alert Zone' whereas Afghanistan, Bangladesh, Sri Lanka and Iran are placed at 7, 25, 29, and 35 respectively. In 2010, Pakistan stood at number 10 and Afghanistan, Bangladesh, Sri Lanka and Iran were placed at 10, 6, 24, 25 and 32 respectively.
This time, China stands at 72, whereas India at 76 and these countries are considered to be in the 'moderate' zone for vulnerability. The US is ranked 158, while UK at 159. The 2011 report states that Pakistan has long been dubbed the "world's most dangerous country" in Washington policy circles.
Failed State Index considers 12 different indicators as parameters. Among others, uneven development, economic decline, human flight, public services and poverty are important economic and political indicators to reflect stability of a country. This index broadly measures the political economy performance of a country. The incumbent regime is becoming the victim of poor political economy and busy in determining the cause and effect relationship, whether bad economics is causing poor governance (politics) or poor politics is triggering bad economics. Well, it may be tricky for the economic managers to understand the relationship otherwise in our case, bad economics is the root cause of political chaos, economic decline and poor law and order.
In our case, bad economics is more concerned with fiscal management that we are really bad at, facing revenue crunch, causing unmanageable fiscal deficit that is putting the economic survival of the country at stake. The only significant source of revenue we depend on is TAX that we are unable to capitalise on. The tax system badly needs a thorough surgery and the economy requires to be documented. In our case, only one and half million people are paying tax, resulting in one of the lowest Tax to GDP ratio in South Asia. Economic managers have never focused on other avenues for revenues like Public Sector Entities (PSEs). It is believed that PSEs can yield dividends for economic managers to make up revenue shortfall if taken care of.
Business corporations can provide real fiscal relief. According to Forbes Magazine, out of 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs). The combined sales of the world's top 200 corporations are far bigger than the combined economies of all the countries minus the biggest 9 (US, Japan, Germany, France, Italy, UK, Brazil, Canada, and China). WallMart is bigger than 161 countries including Israel, Poland and Greece. Mitsubishi is larger than the fourth-most populous nation on the earth: Indonesia. General Motors is bigger than the Denmark. Ford is bigger than South Africa. Toyota is bigger than Norway. So these are some glimpses to what extent, business enterprises can make a difference.
Public Sector Enterprises (PSEs), which are eating up billions of rupees annually in massive corruption and mismanagement, can give a real boost to revenue generation if they are organised systematically and governed professionally. The government is still reluctant to fulfil its commitment, made early this year, to restructure Pakistan International Airlines (PIA), Pakistan Railways (PR), Pakistan Steel Mills Corporation (PSMC), Pakistan Electric Power Company (PEPCO), Trading Corporation of Pakistan (TCP), Pakistan Agriculture Services and Storage Corporation (PASCO), Utility Stores Corporation (USC) and the National Highway Authority (NHA).
For revitalising Public Sector Enterprises, the will of the political elites and commitment on the part of economic managers is a pre-requisite. The dire need is to establish an independent authority through special legislation to take care of these enterprises instead of working under ministries. Experts from different fields with proven track record and integrity beyond doubt should form the authority. The mandate of authority should be unrestricted with a strong accountability mechanism in place. The authority should make PSEs, a real case study of good corporate governance.
For instilling good corporate governance, a Board of Directors should be the primary focus, where corporate governance emanates from. It is believed that good corporate governance can only emerge from responsible boardrooms. The corporate governance survey conducted in Pakistan in 2007 by the International Finance Corporation (IFC), Pakistan Institute of Corporate Governance (PICG) and Institute of Chartered Accountants (ICAP), envisages the board as a powerful centre of authority and control in terms of the functions it performs. The board is responsible for election, appointment and dismissal of Chief Executive (88%), approving the remuneration of the board (62%), election, appointment and removal of the chairman of the board (91%), setting corporate strategy (86%), setting remuneration of CEO (82%), approving risk management policy (74%), reviewing annual reports (81%), creating disclosure policy (89%) and succession planning (32%).
Boards of public sector enterprises should be reconstituted in the true spirit of Revised Code of Corporate Governance 2010 by Securities and Exchange Commission of Pakistan. The code requires that the Board of Directors of each listed company shall have not less than 1/3rd or 3, whichever is higher, of the total members of the board as independent directors. At least one independent director shall have the relevant experience. Executive directors, ie paid executives are not less than 2 and more than 1/3rd of the elected directors, including the Chief Executive. No person shall be appointed as a director of more than five listed companies simultaneously. The tenure of office of Directors shall be three years. The Chairman and the Chief Executive Officer, by whatever name called, shall not be the same person. The board will be balanced in terms of talent, representation, attitude, gender and power.
The board of directors shall have a balance of executive and non-executive directors, independent directors and those representing minority interests. The board should have a true balance of talent in terms of managerial, legal, financial, operational, social, marketing and industry-specific technical experts. The board should also reflect diversity of attitude. If all, or majority of, the directors are timid, complying sort of individuals with no courage to stand up to the chairman, the board will inevitably become a rubber stamp board. Similarly, if the majority of directors are radicals, with no one to mitigate the impact of their adventurous spirit, the company can land into more trouble than it can handle.
A good board requires a balanced combination of people who are motivated differently: some by profit, some by caution, some by social justice, some by excellence, some by growth, some by experimentation, etc. The board should also be balanced in terms of gender. The survey reveals that companies having women directors scored higher in corporate governance than companies with all male boards.
Addressing the above concerns, Public Sector Enterprises can be right on track, otherwise privatisation will look like a logical solution, which obviously along with several benefits, is victim of massive corruption and lack of transparency in Pakistan. There is also a strong perception that the IMF and World Bank are using privatisation as a political weapon.