Private sector avoids taking risks

Federal Minister for Planning, Development & Special Initiatives Asad Umar has emphasised that the state should own and operate selective enterprises to support economic growth, as the private sector has time and again failed to make necessary investment in potential sectors and played safe in Pakistan.

Speaking at a webinar on ‘Role of the State in Economic Development’ organised by Institute of Policy Reforms (IPR) on Saturday, he said these were his personal views and not the policy of the government of Pakistan.

“The government has no business of being in business is a nice catchy line, but isn’t necessarily true,” Umar said.

Many of the top performing companies around the world, including Pakistan, were state-owned enterprises even at present. These include Saudi Aramco and Adnoc internationally and Oil and Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL) and Mari Gas in Pakistan.

He said that the private sector has remained shy of making risky investment in many potential areas of the economy and those that managed to grow on the business horizon used contacts to play safe in Pakistan.

“Let’s look at Pakistan’s private sector first. Private sector (large size corporates) is not one which has grown by it excellence in innovation, by risk taking, by its ability to come up with creative financial solutions, by its ability to create strong brands, nor is it a private sector which by and large is willing to put significant amount of money at risk,” he said.

The federal minister said that looking back at the last 30 years of Pakistan’s private sector investment, the single largest chunk of investment in Pakistan has gone to independent power producers (IPP) where the determination of success was not innovation and risk taking entrepreneurship.

“It was your ability to have the right connection on Constitution Avenue and be among those who were chosen to do these projects. So the private sector was willing to put in significant amount of money but it was money which was literally like a corporate bond where the yields were pre-determined and there was virtually no risk other than the execution risk.”

He added, “There are some sectors in Pakistan which require significant capital outlay where there is risk involved and those sectors despite having tremendous potential are not developing in the country.”

The minister questioned as to how many private sector companies have put in $3-4 billion investment in mineral development in Pakistan. “The answer is none,” he added.

He said that the three most profitable companies in the oil and gas exploration sector, after 30 years of complete deregulation, are all state-owned enterprises; OGDC, PPL and Mari Gas. “Significant valuation has taken place due to state interventions,” Umar said.

Citing an example, he said that during the Musharraf and Shaukat Aziz era the performance of Pakistan State Oil (PSO) was deteriorating. Its market share had been plummeting. Its profitability was under pressure. And the government decided to revamp PSO.

“Five years later, there was Harvard Business School’s case study on PSO’s transformation. It had grabbed that market share back from Shell. It had improved margins and it was a transformed company while still the ownership had not changed. So here was an example of the same competitive landscape, the same industry, the same economy and the state playing a very, very productive role.”

At the same time, Umar said, “I was on the board of Port Qasim Authority (PQA) and in the duration of my stay on the board, I can’t allude to a single step of reform that took place.”

“You can’t do in every case. In most case the state intervention, the direct intervention, is not going to be productive and hence you have to be selective about it,” he added.

“Pakistan in the 21st century should be seen a private sector led development.”

He said that the state’s most important role is to create conditions where competitive behaviour takes shape where there is risk taking, innovation and those who do innovative work in a market place and a competitive environment.

Published in The Express Tribune, July 11^th, 2021.

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