Pakistan has two primary and permanent bases of power, no matter which political party may control the reigns. Power of one institution is well-established in both public and private imagination, and every stakeholder attempts to secure its support. It is very often that this institution exerts its full strength both implicitly and explicitly. The other group is big business houses whose commercial interests are intertwined with the country’s, and who exert significant influence through the power of their finance. The need of the hour is for big business families to rise to the occasion.
Pakistan’s macroeconomy essentially ran on geopolitical rents since its creation. One institution remained the controller of these rents, which came in the shape of national security, including war on terror. Big businesses made hay while the sun shone – extracting economic rents emanating from the geopolitical rents. The model was never sustainable. Now, the party has come to its logical end. Geopolitical rents have dried up. And there is no further space for economic rents. The whole economic model is falling apart like a house of cards. Business leadership of the country needs to step forward to help steer the country out of the frequent boom and bust cycles.
The business community needs to get rid of its rent seeking habits. No doubt, the model has yielded significant economic returns in the past, helping big businesses create strong asset bases – usually concentrated in the hands of sponsor families. Now, it is time to protect the asset base by changing the structure of the economy and make it work on a sustainable model basis. Business community has become complacent as they have been making money easily. There is no incentive to innovative or improve productivity. That thinking needs to change.
Most big businesses in Pakistan run on autopilot. They have certain protection (in the shape of tariffs, low-cost energy provisioning, concessionary loans etc.), and they lobby to keep those rents intact. The business community is lazy. So are the banking folks. Innovation is far and few. Very few local business groups in Pakistan are in the consumer business. Not one is in telco. There is no one to challenge multinationals. The situation is starkly different in India.
Pakistani businesses are not enterprising, to say the least. They lack entrepreneurial and risk-taking abilities. One reason for Pakistani businesses lagging behind was the nationalization of the 1970s, during which a lot of business groups vanished or lost power. Then, new business groups started emerging out after the privatization and deregulations of the 90s. Those who got banks had a party. There is no competition among commercial banks. They secure low-cost deposits and lend to the government. It’s easy money. Some groups took risks and have become big. However, anyone who becomes big in Pakistan also starts becoming pessimist about Pakistan. This mentality must change.
There are examples of risk taking, innovation and unconventional thinking. For example, Service Group entered partnership with Chinese sponsors in tyre manufacturing. Similarly, a Middle East-return brother-duo has become one of the top textile exporters in a short time with healthy margins. However, most business groups aspire to secure guaranteed returns through power plants in IPP(Independent Power Producer) structure. They focused on import substitution by lobbying to keep import tariffs high. They want to become big in real estate. They make the government formulate policies that only suit their short-term interests. And whenever sunset clause comes due, they lobby to let the status quo continue.
And when it comes to exports, almost all concessions go to traditional textile; and exports diversification could never take place. Business houses are too inward looking. Foreign exchange generation has been left to workers abroad (remittances), while looking towards state institutions to continue generating geopolitical rents.
Businesses should move away from the mindset of guarantees and protection. They should think of ways to play an active role in policy formulation - beyond rent seeking. They must work on export-oriented projects. The economic pie is growing while the share of exports is falling, which is comparable to African countries today. Business houses should help in attaining a tax policy where every sector pays its fair share of taxes. They should come up with solutions and become partners for regulating and privatization of energy sector and compel the government to do so.
Narrative-building should be done by using the media. Unfortunately, even this industry is dominated by government influence and rents. Government advertisement remains the lifeblood of media organizations. Compare this to India where private sector wields power. The business community at large should engage the media constructively and regularly to secure course correction in economic policymaking.
Whenever there is a crisis, businesses look towards the government for bailouts. The government is bankrupt, but the private sector is not. In fact, the latter has the balance sheet or the required capacity to bail the former out.
They are not leveraged. Banks have liquidity; but they lack the capacity to loan it out. Why do businesses always look towards the government to bring in FDI? Why do we always look towards the government to provide external financing? There are economies where private sector takes the lead role. Now it’s the job of the private sector in Pakistan to roll up its sleeves to get the job done, as the government, as a going concern, is no longer sustainable.
There is no foreign exchange risk on the private sector (apart from one big group); they can and should get foreign financing. They should venture out to bring FDI. They should work to create clout in the western world to make things easier for Pakistan. They should connect to the right nodes. They should learn from India where big businesses are the core strength of the country. There is no other power base that comes even close. Its’ time for Pakistan’s big businesses to get their act straight.
Copyright Business Recorder, 2022