State-owned enterprises (SOEs) play a significant role in the global economy, with 22 per cent of the world's largest firms being state-owned.
State-owned enterprises (SOEs) play a significant role in the global economy, with 22 per cent of the world's largest firms being state-owned.
While concerns about market concentration are often raised, the European Commission's imposition of high antitrust fines on private firms highlights that competition issues are not exclusive to SOEs.
In fact, countries like China have demonstrated the positive impact of SOEs on economic development. China's remarkable growth, with a 10 per cent annual rate and 60 per cent market capitalization from SOEs in 2019, showcases the potential of state-led development strategies.
The Competition Commission of Pakistan (CCP) has been investigating the fertilizer industry for failing to pass on subsidy benefits to farmers. The privatization of the state-owned National Fertilizer Company (NFC) in 2008 led to market distortions, with private companies accused of price-fixing and inflating urea prices. The lack of effective regulation has allowed private firms to manipulate prices, resulting in food inflation and public hardship. This highlights the importance of SOEs in maintaining price competition and protecting consumer interests.
Historically, Pakistan's banking sector has faced challenges, with profitable banks privatized for political gain, leading to inefficiencies and cronyism. The dominance of non-institutional sources in agriculture credit reflects the reluctance of commercial banks to support rural development.
Despite government initiatives to increase credit accessibility for agriculture, private banks prioritize other sectors like real estate, known for tax evasion and money laundering. The disconnect between private banks and government development goals underscores the need for alignment in economic policies.
The Chinese model of agriculture development, supported by state-owned banks, contrasts with Pakistan's private banking sector's reluctance to invest in rural sectors. The State Bank of Pakistan's (SBP) efforts to incentivize agriculture credit have been met with resistance from private banks, opting to pay penalties rather than support rural productivity. This divergence in priorities hinders agricultural growth and perpetuates the sector's underdevelopment.
The influence of international financial institutions like the World Bank and IMF on Pakistan's economic policies has been contentious. Policies imposed in the 1990s, such as transport sector privatization, have had mixed results, with SOEs like the Sindh Road Transport Corporation (SRTC) and Karachi Road Transport Corporation (KTC) struggling post-privatization. The assumption that the private sector would efficiently manage transport services proved flawed, highlighting the importance of strategic planning and regulatory oversight in privatization initiatives.
Pakistan must reassess its approach to privatization and prioritize the role of SOEs in economic development. Strengthening regulatory bodies like the CCP and aligning private sector incentives with national development goals are crucial steps. Learning from successful models like China's state-led development and addressing the challenges of market concentration and regulatory capture are essential for sustainable economic growth.
The case of Pakistan's experience with privatization underscores the importance of a balanced approach that leverages the strengths of both state-owned enterprises and the private sector. By promoting competition, transparency, and accountability, Pakistan can harness the potential of SOEs to drive inclusive growth and address the needs of its citizens effectively.
The writer is a professor of economics at the University of Sindh. He can be reached at: rafiq.chandio@gmail.com
