Hail Mary: Pakistan’s Economic Option

Majyd Aziz

Pakistanis consider their friendship with China as higher than the Himalayas and deeper than the Pacific Ocean. Pakistanis get overly excited whenever a Chinese dignitary of even lower governmental hierarchy visits Pakistan. Pakistanis look towards Beijing for trade, for investment, and for financial support. However, Pakistanis do not learn economics from their close neighbor. This is one prominent reason why successive governments in Islamabad have not been able to effectively get the nation out of an economic quagmire. What should be learnt from Panda Nation?

China has had a continuous GDP growth averaging nearly 10% for the past 33 years. China’s foreign exchange reserves rose to a record $3.66 trillion and continue to grow. China’s 2012 exports crossed $2.05 trillion and imports $1.85 trillion. How did all this happen in just over three decades? China based its strategy on the Beijing Consensus rather than the much-followed Washington Consensus. China’s three-prong strategy was, firstly, no dependence on loans from international development financing institutions; secondly, to focus on home grown policies; and thirdly, all citizens adopting these policies as their own. Inspite of Western accusations of human rights violation, labor exploitation, and artificially maintaining a cheaper currency, the fact is that China transformed from a regimented, state-owned and centralized economy to a liberalized and progressive economic supremo.

The above narrative has been presented as a source of inspiration for Pakistan’s economic managers. After the imposition of Martial Law by General Musharraf in October 1999, Pakistan witnessed a remarkable period of economic growth for about four years, essentially due to pragmatic and far-sighted economic policies of technocrats in the Cabinet. Much of the mess generated by the disastrous policies of nationalization and fiscal mismanagement of the political governments was cleared and the confidence of trade and industry restored. Sadly, the next five years of the Musharraf tenure, plus five years of the Zardari-led regime, and then the past six months of the Nawaz government, have again been periods when the economy went down in the boondocks.

The grave economic crisis reflects the misguided thinking of policymakers and is a manifestation of self-interest, blatant corruption, and adherence to quixotic populist schemes and projects. Today, the foreign exchange reserves are technically less than a month’s import bill, the exports are stagnant, the currency has made a nose dive, and the economic team was outside the portals of IMF with a bigger begging bowl. The country is facing an electricity demand-supply gap of over 5500 mw, while natural gas supply is regularly curtailed for CNG filling stations, industries, and power plants. Inflation is in double figures, government is printing money 24/7, and the menace of terrorism, extremism, and negative image looms large on the country. 

The way out is for the private sector to be assertive and aim for a Grand Slam home run to get the country out of this economic quagmire. The government, however, is lost at sea and has this notion that it can score a touchdown by depending on the Hail Mary option. Alas, Prime Minister Nawaz Sharif is no Roger Staubach, Quarterback of Dallas Cowboys, nor is Finance Minister Ishaq Dar, the Wide Receiver Drew Pearson. The Hail Mary option worked for Staubach against the Minnesota Vikings in December 1975. It is not going to work for the Sharif Administration.

Originally published in Sharnoffs Global Views. 

http://www.sharnoffsglobalviews.com/pakistans-economic-option-227/ 

Commercial Diplomacy: Private-Public Partnership

Majyd Aziz

                                                                                                        

There have been many instances where Pakistan lost out on opportunities to establish a formidable presence in the global marketplace. More often than not, it was, and still is, the lackadaisical mindset of the private sector, especially the well-set entrepreneurs who have not positioned themselves to be latter-day adventurers seeking new markets, new products, new ideas and new channels. At the same time, government’s economic managers and representatives in distant lands have also displayed a lethargic and nonchalant approach whenever economic initiatives have come their way. Notwithstanding the hyperbole spewing out of corridors of power or from the cubicles of Press Information Department, the bare fact is that national leaders have rarely been instrumental in ushering a long-term vision of economic affairs that must be truly implemented.

The prime reason for this sorry state of affairs is the blatant disconnect between private sector and the government when it comes to international trade and investment. The scorecard of common government-private sector initiatives is remarkably pathetic. The government negotiators usually prefer to go solo and, in case it is imperative to solicit private sector opinion, a perfunctory exercise is undertaken at the eleventh hour to consult trade and industry leaders. However, this is merely a charade perpetrated by these officials and, as expected, the agreements have nearly always been negative or insignificant for Pakistani private sector.

It is important to note here that the various Bilateral Investment Treaties, the Free Trade Agreements, the Preferential Trade Agreements, or even the plethora of MOUs that government officials negotiate, agree and sign have generally never enhanced trade and investment in the manner and spirit in which these were negotiated in the first place. Though accusations should not be made here, but, as has been so often witnessed, the caliber and skills of the Pakistani officials in economic affairs have been sadly wanting.

This attitude also does not absolve the private sector from this cheerless position. The Pakistani situation has its own complex set of dynamics.  The game starts with these well-set entrepreneurs who have created a byzantine grid to keep themselves insulated from policies that would upset their apple cart. Their stranglehold of essential sectors in Pakistan’s economy, whether financial, industrial or mercantile enables them to be exclusive as well as to design the framework that would be first and foremost, beneficial to them. Therefore, power is achieved and sustained through linkages with the military, bureaucracy and politicians. Money makes the mare go, and this is magnificently manifested in perpetuating strong bonds through open-ended funding whenever required. However, this is where transparency ends and a monopolistic grip is ensured because these comparatively few players have intensive and remunerative contacts and relationships with diplomats, foreign corporations and financial institutions, and more importantly, they have influence over the media.

It is imperative that Pakistan’s commercial and economic representatives in Embassies and Consulates must be from trade and industry and must be proficient in their fields of activity. The disregard for meritocracy and the heavy influence of political parties has vitiated the environment and so, in most cases, the Commercial Consuls have been disasters from day one. Most of them have, during their tenure at a foreign post, become protocol officers rather than dedicated commercial officers. Many of them have limited contacts with important business leaders, with prominent members of media, and with high government officials. That is why it is important to send trained, competent and knowledgeable Commercial Consuls who would not be mere public relation gofers with more knowledge of restaurants and plane timings and less information about the host country’s economic policies.

The Federation of Pakistan Chambers of Commerce and Industry, Karachi Chamber of Commerce and Industry, or for that matter any of the other Chambers and major trade Associations, should undertake a study to determine the golden opportunities lost by Pakistan due to the government and private sector not singing the same song in a harmonious tone. Did Pakistan truly benefit from the emergence of Central Asian Republic when these nascent nations opened themselves for business? The trade figures are nothing to write home about. These five countries have a trade regime of $ 180 billion while the Pakistan-Central Asian Republics bilateral trade in 2012 was a measly $ 35 million. When rebuilding of Iraq commenced, where was Pakistan? Except for some individual private sector efforts, nothing much came out because Pakistan was fixated on USA, Europe and China. If the Commercial Consul or even the Ambassador in Baghdad had done some research and had been up to date with information, maybe, just maybe, a joint venture could have been done with Chinese oil exploration firms who were not able to penetrate Iraq but through the diplomatic position Pakistan had at that moment in time, a breakthrough could have been achieved and the ensuing profits would have been substantial.

Today, Pakistani and USA leaders are talking of a long-term, mutually beneficial economic, diplomatic and military relationship but then there is no word out on the Bilateral Investment Treaty that is supposedly ready for signing. Most of what was heard during Premier Nawaz Sharif’s visit to Washington was the mantra of drones, drones, and drones. Was any headway achieved on the economic front.? Did Congress give some positive indication of legislation that would economically benefit Pakistan? How much spadework was done by the commercial officers in the Embassy and at various Consulates in advance preparation of the trip? Was the Prime Minister apprised of the pitfalls and bottlenecks prevalent in Washington? And what happened to the Most Favored Nation status to India? Why is the inevitable being deferred and for what reason? Is it economic or does it has to do with the border skirmishes? Has there been realistic feedback from the High Commission in New Delhi? Or is the government getting cold feet, like in the decision to remove ban on YouTube?

Therefore, for the future of Pakistan’s economic prosperity, it is crucial that a joint private-public approach is institutionalized if Pakistan has to become a noteworthy global player. It is the private sector that can provide current and reliable market intelligence, that can effectively attain beneficial networking with foreign counterparts, than can pragmatically promote the nation’s image internationally, and at the same time that can forcefully support and reinforce the government’s economic strategy and national concerns far much better than the bureaucracy. Private sector is the major stakeholder in any country and this is the critical mass that is so essential to navigate the outreach that is so desperately missing in the commercial diplomacy sphere of Pakistan’s leaders, planners and implementers. For Pakistan, Economic Diplomacy as well as its component Commercial Diplomacy, are both akin to passengers of a rudderless ship on high seas on a stormy and moon-less night. For Pakistan, the present “business as usual” approach must be replaced by the “business with determination” resolution.

Inclusive Economic Growth: Pakistan’s Inadequacy

                                          Majyd Aziz

The Asian Development Bank’s Strategy 2020, which is its long-term strategic framework, has adopted inclusive economic growth as one of the strategic agendas to achieve its vision of an Asia and Pacific region free from poverty. Inclusive growth in ADB’s Strategy 2020 is about economic growth with equality of opportunity. High, efficient, and sustained growth; social inclusion to ensure equal access to opportunities; and social safety nets to protect the most vulnerable and deprived are the three critical policy pillars supported by good governance and institutions for an inclusive growth strategy that aims at high and sustained growth while ensuring that all members of the society benefit from growth. (Asian Development Bank. Key Indicators for Asia and the Pacific 2011: Framework of Inclusive Growth Indicators, special supplement.)

Successive Pakistani governments have, either in their manifestos or in actual policymaking, always parroted the mantra of alleviation of poverty, breaking the proverbial begging bowl, announcing unsustainable social safety nets, and hyping various measures to reduce unemployment. It is so comical when government Ministers as well as an array of advisors and political hanger-ons, with scant knowledge about the dynamics of economics and global fiscal thinking, routinely start singing their rallying songs about the march to economic prosperity. What is agonizingly disconcerting is that the political leadership very casually lose track of their avowed destination and meander into another course. This, primarily, is because of half-baked ideas and projects as well as the sad fact that corrupt elements very convincingly hijack the desired vision and policies. The dependence on those who are not attuned to the positive thinking of the policymakers or intellectuals is a well-established root cause that has left high and dry many workable policies, initiatives and projects.

Every installation of a new government, whether through the yet to be fully developed democratic process or whether through the barrel of the gun, brings about some kindling hope that deliverance is just a matter of months away. Citizens wait with baited breath for resolution of their problems, even though the government in place is still wobbly and trying to find its bearings. Woody Guthrie once said that “Everyone talks about the weather but nobody does anything about it”. Same is the case with Pakistan’s economy. After more than six decades, economy is in the oratory of the leaders but then why is it that things seldom work and the economy is dangling over a quagmire? Are the fundamentals soundly in place or is there this quaint sense of despondency that precludes attainment of objectives in letter and spirit.

There are clear cut aspects of this situation and these must be understood to structure an answer to the deficiencies and shortcomings. There are three basic reasons that have not been seriously addressed over the past many decades and these have manifested into a cheerless syndrome. The sad fact is that inspite of all serious or populist efforts and inspite of countless opportunities to provide quality in life, there is still an obvious environment of disconnect between those in the corridors of power and the general populace. Then there is this feeling of resignation among citizens that their lot will not improve and so they disregard or ignore to take advantage of whatever opportunities come their way and thus the much-needed impetus is missing. The other essential reason is that successive governments, prodded by people who exert influence, do not initiate or pursue measures to shield the citizens, especially the marginalized and disenfranchised, from the onslaught of inflation, either domestically generated or externally influenced, through sustainable, transparent, and egalitarian social safety nets. During the past decades, there have been some initiatives such as Benazir Income Support Program, Yellow Cab Scheme, Benazir Bhutto Shaheed Youth Development Program, Sasti Roti Scheme, etc that were target-oriented, intended to yield immediate benefits, and ensuring some long-term developmental progress. However, while these projects managed to bring some change in the lives of the target groups, most of these projects fizzled out due to mismanagement, corruption, non-transparency, and lack of political goodwill.

The ideal combination of assuring, affording, and more significantly, sustaining the programs and initiatives should usher in dynamic developmental dimensions by reducing the vulnerabilities of marginalized citizens, effectively ensuring formidable government-people connectivity, and endeavoring to provide meaningful and beneficial opportunities for all. Notwithstanding this preferred idealism, it has to be understood that the colonial mindset is still rampant in nearly every tier of government and those who wield power and influence have ensured that a Raj like aura hovers over them. Good governance has generally been very nonchalantly sacrificed at the altar of the high and mighty. The Dalai Lama very rightly said that “since early age, I have thought that power in few people's hands is always dangerous." In today’s Pakistan, with citizens availing the opportunity to elect their democratic representatives from the union council level to Parliament, there should have been a paradigm shift in the lives of these denizens. It is still a pathetic scene in the Assemblies and Senate to hear the elected representatives carping and crying lack of physical and social infrastructure and employment opportunities for their constituents. This litany is morosely highlighted each time the Parliamentarians get a chance to speak.

Government schools are turned into stables or drawing rooms of those who wield power in the area, schools are either without furniture or teachers or in many cases minus both, and schools are churning out useless graduates who pass out with scant hopes of advancement. Government hospitals provide shoddy medicines usually procured through non-transparent means or through a tendering process that compels the institution to purchase from the cheapest supplier. Since many hospitals lack life-saving drugs, the family members of poor patients have to source these on their own or watch their loved ones suffer and die in agony. Hospitals have doctors who go on strikes, beat up patients and law-enforcers, and run their own private clinics while still on-duty and still on-call in the hospitals. Each passing day the shortages of electricity, gas, and water get worse and expensive while governmental agencies run out of funds to even fill up a pothole on a busy avenue. Justice is still blind, still delayed, and still a rarity.

There is certainly no comfort for the 190 million people when every global economic and social index depicts a downward trend for their nation. There is certainly no solution in sight to control and eliminate anti-people elements from roaming around brazenly and indulging in deadly criminal activities. There is certainly no rationalization for the juvenile attitude, display of insouciance, and ridiculous utterances of politicians on a daily basis. People-care is never on their agenda. It is always self-interest. This, then, is the time someone reminded Pakistan’s political and non-political leaders of the 1992 campaign slogan of President Bill Clinton, “It’s the economy, stupid”.

Sethnomics

Majyd Aziz

Forty years ago in October, I boarded a plane at JFK International Airport, New York City, after spending one year at Tri-State College, Angola, Indiana and three years at Ball State University, Muncie, Indiana, and headed for my home city, Karachi. Honoring the wishes of my paterfamilias, I successfully completed by BS in General Business Administration and my MA in Management. Despite the mocking of quite a few relatives who were ready to place bets that I would be home after within six months in USA, my parents knew in their hearts that I would not let them down. Lo and behold, all five brothers (and also our boys and girls) came back armed with US degrees. Within days of landing in Karachi, I was told to report to the factory textile mills and given an office and the title of Director Administration, Accounts and Finance. 

The above narrative takes on special meaning to manifest my transformation from a student in an alien land to a boss in a family venture. Overnight, I became, what the entrepreneur, owner, and investor of a business or industry is referred to in Pakistan --- SETH. A culture of Sethnomics began while textbook Economics ended when I sat on the Director’s chair. For forty years, I have been routinely called Seth. So much so, that even internal mail as well as vouchers and bills are addressed as Majyd Seth instead of Majyd Aziz. For forty years, I have always been contemptuous of this honorific and I hate this word every day of my life. Much to my chagrin, our next generation is also referred to as Seth and even when my son was less than ten years old and would at times accompany me to the factory, he too was called Aly Seth. Today he is 34 but the title has struck to him like an albatross.

Notwithstanding my personal attitude towards this title, Sethnomics is very much present in trade and industry. It is not exclusive to mega tycoons or the nabobs of business. Even the owner of a micro-enterprise is a Seth. Mian Mansha, officially the richest man in Pakistan is a Seth. Probably, the guy who runs the seedy gambling parlor too is a Seth. However, before trying to ridicule this title or before trying to sound presumptuous, it is pertinent to understand and comprehend the role played by the Seths in building the economic base of Pakistan and whether their progeny have adopted the same vision, the same passion and the same powers. Yes, the first two decades were a different era as during that period, the country saw the advent of a monopolistic class of a comparatively inward-looking, elitist, smaller group who controlled the main essentials of wealth – finance, real estate, industry -- and who resisted a broad-based economy because that would have directly jeopardized their exclusive situation. This group consisted of what Dr Mahbub ul Haq derisively called the ’22 families’. It was Z A Bhutto, the ultimate rabble-rouser, who introduced his Islamic Socialism slogan and managed to break the stranglehold of this privileged group.

The so-called ’22 families’ were the original Seths but when they faced the onslaught of Bhutto and his Politburo, most of the families split but, after a prolonged sojourn, were back on the driving seat. So, many more Seths were created. It is important to mention here that during the dark days of Islamic Socialism, a new cadre of Seths was created. This cadre earned their wealth in whatever way through their presence in the corridors of power or got rich by milking financial institutions dry and then ensuring that loans were written off forever. As time went by, Seths were aplenty. The original concept of Seth was ceding to this new persona of a Seth. Still, to paraphrase the words of a Baloch politician, “A Seth is a Seth, whether hereditary or whether nouveau riche.”

One sector that is primarily dependent on Sethnomics is the textile processing industry. SITE Karachi has over 35% of the nation’s dyeing and printing mills in the organized sector. Invariably, except for a few that one could count on fingers, these mills are micro-managed by the Seths. The customers are not comfortable in dealing with marketing managers or sales representatives. Yes, they would like to be reassured by the technical ‘masters’ but their focus is on the Seth. Thus, many owners of these units are in their factories most of the time.

Another example that would reflect the Seth-vs-Professionals is the tea industry. The two major brands are Lipton and Tapal. The former is a professionally managed entity where decisions are taken by a remunerative management team while the latter is a third-generation family-owned enterprise. Both brands are popular and both have their own dynamics. However, is Tapal a global brand, considering the fact that its owners have deep pockets to finance and market the brand? Is Sethnomics at work here too?

A recent phenomenon in the clothing retail sector has been the proliferation of outlets of well-known apparel brands. As the creator and owner of Hustler, an innovative apparel brand, I used to advice other garment manufacturers to set up their own retail outlets and not to depend totally on existing retail shops. That was in the Nineties. Nearly all of them rejected my advice and in turn suggested that I have my head checked by a shrink. Well, when these brand owners faced non-payments from retailers and when they discovered they were not in control of the marketing at retail stage, they made the paradigm shift and desperately set up outlets all over the country. Although controls and systems are in place, the Seth syndrome is very much there because all these brands are family-owned. Not a single unit is listed on the stock exchange. Decision making is concentrated in the hands of owners in much the same manner it was when the brands were placed in non-owned retail shops. Sethnomics!

Ironically, family-owned businesses or Seths are never given the importance they deserve. Foreign supported programs for entrepreneurship development are targeted towards a new breed while nominations from applicants who already work in family businesses are shunted aside. What is conveniently forgotten is the fact that this new breed of entrepreneurs would eventually become Seths. At the same time, it is worthwhile to pinpoint here that the newcomers in established family concerns are more often than not technocrats and have their own fresh ideas and motivation. They are far more inclined to introduce innovation and establish corporate social responsibility than their elders did. They are also more disposed towards ensuring the continuation of their business and that in future, these businesses should not be just depending on family members. They are also keen to utilize all available business development tools, including participation in exhibitions, delegations, and Chambers and trade Associations. Sethnomics works, but at an open, formal and higher level. 

Muhammad Ali, former Chairman SECP, in a recent op-ed very aptly stated that “This requires a paradigm shift in Corporate Culture away from the largely prevalent ‘Seth Culture’ where companies would be required to invest in the longevity of the business leading to institutionalization/corporatization of the company.”