Unlocking economic value: Why it matters more now than ever

In a speech made to the House of Commons a little more than a century ago, Winston Churchill spoke of the significance of land, “It is quite true that land monopoly is not the only monopoly which exists, but it is by far the greatest of monopolies - it is a perpetual monopoly, and it is the mother of all other forms of monopoly… Land, which is a necessity of human existence, which is the original source of all wealth…” Original source of all wealth it is…a pivotal force behind economic activity, a resource for which countless battles were fought, conspiracies hatched, and pages after pages of history written. There is no denying that land would always sit at the very center of not just economic activity, but our very human existence.

The good news is that the government has ample state land. It might all necessarily not always be the most prime land, but there is sufficient state-owned land apportioned across various departments and public sector entities. We have always tended to look at this huge resource base as some static database, a ledger maintained by some clerk in an unchanging template since the colonial times (a computer spreadsheet or a paper register, doesn’t make a difference). We have never looked at it as an asset that needs to be monetized and whose Return-on-Asset (RoA) must be maximized, at least as much as possible given other social considerations where appropriate – of course a state has more to it than RoA maximization.

One of the biggest bottlenecks that investors coming into Pakistan face is identifying land. The Special Economic Zones (SEZs) help, but don’t always necessarily match the location requirements of investors; but it is not just about using land to set up industry and create jobs. There is urban land that could be put to commercial use, there is agricultural land that could be cultivated well to generate optimal yield and contribute to our food security, there is forest land that can be sustainably monetized. I underline sustainably because yes there are ways to monetize our forests in a sustainable fashion, and forests are therefore one of the favorite asset classes for large international pension funds that seek stable long-term yields. I worked on a forest investment transaction in South-East Africa, when I was part of a multilateral financial institution in the GCC. It had some of the world’s best known investors and world renowned ultra-high-net-worth (UHNWs) individuals in it.

My point simply is, when we put on our economic hat, the massive land base that we own as a state can be put to better use. Yes, when you are a hammer, everything is a nail, and there is nothing always wrong with it. Let us just agree that the current asset utilization of our land is not optimal. There is certainly a huge margin to improve. This means measuring the return on asset, a simple metric that we use in the investment world – the revenue that an asset generates every year as a percentage of its value. Put these lens on, and you start to see the huge opportunity cost of land that we are bearing. Public sector educational institutions often have stretches of land with nothing but wild grass on them, often in or near urban hubs. Fortunately, academic excellence has come to be defined by more than land size of the academic institution now, so is it time to rethink if some of that could be put to better use? This is just one tiny example of so much that could be done, provided we choose to go down the RoA path.

Why is all this important, now more than ever? The world is seeing a truly unprecedented global catastrophe, so to speak. We are unsure whether the economic rebound would be a V-shape, a U-shape or a prolonged L-shape. We need every trick in the hat to fight this one; and while we come up with ways to mobilize more resources, perhaps it is time to also think not just mobilization but better utilization of resources. We need to unlock economic value out of resources that we are already sitting on as custodians.

So here is a thought. Imagine there were a Land-Asset-Holding Company of the government, one central special purpose vehicle (SPV) of sorts that held a register of all state land, whether owned directly or via other state entities. All the land were valued transparently at its true and current market value; all the land were categorized as commercial, agricultural, urban, forest and so on…add as many categories as common sense would allow. The revenue or economic value these chunks (stretches) of land generate be measured, and the RoA on all of this land be objectively recorded; we should have objective numbers that nobody contests. Let us just have this scientific exercise, and that this exercise take place in the most transparent fashion with independent auditors overseeing the whole effort. What the government chooses to do with all the land then is a political decision – socialists can raise banners and capitalists can bring their business plans – but at least we can all then be sure that wherever we choose to give up the RoA for some other consideration, we do so consciously for our own reasons, some of which certainly would be more important than just the maximum possible return that a land piece could generate were it put to alternative use, or leased out to the private sector.

You don’t have to agree with the mechanics of the story. The word company, SPV etc. often scare people in the public sector, and sometimes rightly so. All that matters is that the objective and intent of the above be achieved. Board of Revenue can choose to do it entirely on its own for instance. A proposition from Narnia, as it may seem, to certain inhabitants of the status quo, these times must elicit forth the best in us to stand up to the challenge we face, and help put our economy on ever stronger foundations.

The writer holds an MBA from the Harvard Business school, and comes with a background in international investments. He currently serves as the CEO of the Punjab Board of Investment and Trade.