Political Economical History of Pakistan

8/2/2019 Political Economical History of Pakistan

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Political Economical History Of Pakistan

Teacher : Miss Sadia MansoorSec : 102A

Mustafa Saifuddin


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Political Economical History Of Pakistan

Industrialization Privatization

Martial Law Effect

Musharraf Economic Regime


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Industrialization in Pakistan

Industry is one of the vital sectors and makes the major portion of the economy of

the country. The industry gained a great boost after the Industrial Revolution. The

countries which were previously relying solely on agriculture encouraged their

industrial sector. This switch over from agricultural to industrial sector has paid the

price to these countries. The examples of developed nations like America, Germany,

Great Britain, Japan, Russia, China etc. are before us. On the other hand the

countries which did not give weight to the industry are lagging behind. With the

development of industry national income increased, the living standard improved,employment opportunities increased and the investment increased. Not only this,

but there was also a great rise in agricultural production. All such developments

opened new vistas for the countries. Countries of the world climbed out of the

poverty and became self-dependent.

The Industrial Revolution was a great phenomenon in the history of the world. It

started in England during the 18th century when machines began to replace manual

labour in many industries. It spread through much of the world starting in the 19th

century and is still continuing in undeveloped countries. The whole scenario of the

production altered with the introduction of the machinery. Machines made the work

faster and easier. The production exceeded the demand of the items. Resultantly

the prices dropped according to the supply and demand theory. With industrial

development, many other sectors of the economy also developed. In short, the

Industrial Revolution brought unprecedented changes in every aspect of life.

Pakistan got independence in 1947. At the time of partition, Pakistan had a

negligible industrial base. It got only 34 industries out of total 955, while remaining

were held by India. Such a small number of industries were not enough for a newly

born country to face the industrialized world. Pakistan had to start from the scratch

to develop its industrial sector and stand on its own feet. It had to make the most

of its limited resources in order to keep the pace with the changing trends of the

world. With the passage of time Pakistan utilized its all available resources

domestic as well as external for rapid development of manufacturing sector.

Pakistan has now attained a fairly diversified base in manufacturing ranging from

essential goods to ship building industry. Domestic production of items such as

refined sugar, steel, fertilizers, cement etc. has helped in import substitution and

has saved substantial amount of foreign exchange.


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Pakistan during its early years realized the need for development of appropriate

industrial infrastructure that included setting up industrial estates and an

engineering base. The first such estate was established beyond Lyari in Karachi at

the present Sindh Industrial Trading Estate, SITE at Manghopir road. It was

provided necessary facilities such as water, roads, and waste disposal system. To

augment the pace of industrialization, the Shipyard and Engineering Works was

created to cater to the needs of engineering material, plant and equipment.

The Pakistan Council of Scientific and Industrial Research, PCSIR was created in

1953 to develop technologies for utilization of indigenous resources, dissemination

of results of research and solving problems in processes and operations besides

those encountered by newly established industries.

The Pakistan Industrial Development Corporation, PIDC was created almost

simultaneously to serve as the recipient of technologies in heavy industries such as

cement and in those for which private investment may feel shy. PCSIR and PIDCwere charged with the responsibility of development of high level manpower which

could strengthen its technology base and assist in the process of technology

transfer.

The Landhi town ship and Landhi Industrial Area were developed almost

simultaneously. Korangi town ship developed in 1961-69 therefore considered the

establishment of industrial estates as an integral part of their planning and as the

first and necessary step to ensure employment within the new settlement for

those being shifted.

The small scale manufacturing, based on indigenous or indigenised technologies,

continued to be the main contributor to economic development, more than the

large scale industries, until the late fifties. In the mid-fifties the contribution of the

large scale manufacturing based on embodied technologies overtook that of the

small industries. The contribution of the latter was 30% of the total in mid-sixties

and continues to be approximately 25% of the manufacturing sector. Subsequently

large and small industrial complexes were established in the cities of Karachi,

Lahore, Nowshera, Hyderabad, Sukkur, Nawab Shah, Mirpur Khas and Khairpur and

later on in Baluchistan.


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Causes of Industrial backwardness in

Pakistan

The causes of industrial backwardness in Pakistan are varied and complex. The

Government of Pakistan since 1947 is trying to develop industries and

infrastructure facilities for the growth of industrial sector, yet it has not achieved

success to the desired extent. In the last over three decades the main obstacles

which have slowed and retarded industrial development in Pakistan are as follows

The first and the foremost cause of the backwardness of the industry has been the

political instability which has led to instability of policies. Each successive

government unveils its own policies and disposes of all policies of previous

government after it takes over. In the wake of such negligence from governments

part, the industrial sector is suffering a great setback.Furthermore the lack of

capital is a major hurdle in attaining self-sufficiency in industrial sector. Every

industry requires a large sum of capital to keep its wheel moving. But due to the

lack of capita and loan facilities the progress of industry is lingering.

Limited market is also the major cause of industrial deterioration. Owing to

governments indifference, our domestic markets have not expanded to an extent

to accommodate the home-made goods. The proper utilization of the capabilities of

the labour play a very vital role in the progress of the industry. By fully utilizing

labour capabilities the production can be improved and increased. But

unfortunately, underutilization of labours potential on right place is inflicting a

great loss and industry is lagging behind to compete with the world.

Communication plays a very important and vital role in industrys progress. If

communication is in disorder, industry fails to survive. Due to lack of transportation

and absence of basic infrastructure like roads, water supply, sanitation and proper

disposal of waste water and solid wastes, our industry is lagging behind. Lack ofbasic infrastructure along with the expensiveness of means of transportation and

communication is also contributing to industrial failure.

The significance of technical knowledge to industry cannot be negated. Industrial

progress is thwarted in the absence of workers equipped with technological

knowledge. The paucity of such technically experienced labour force makes the

journey towards industrialization challenging.


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Lack of technical minded workers coupled with shortage of entrepreneurs is

worsening the things. Not only local businessmen but also foreign investors are not

ready to set up new industries and make investments. They are reluctant to invest

their time and money in the country which is lacking in basic infrastructure and

where law and order situation is deteriorating day by day. All these things are

acting as repellent for industrialists and in turn industrial development.

Energy crisis is further a bolt from blue for our industry. Our country is starving in

electricity, oil and gas which are the most essential requirements to run industry. In

spite of having vast resources of gas, oil, coal etc. our country is unable to provide

uninterrupted supply of fuel to industry which is creating havoc to this sector.

Last but not the least, economic restrictions imposed by donor countries and lack of

effective exploitation of the World Market are also contributing to our industrys

failure.

How to stabilize our industrial sector

Government must unveil a solid industrial policy keeping in view the global

requirements.

Policies must be strictly implemented.

Industrialists be given loans on easy instalments, so as they could run industries

smoothly.

New markets for the local products be explored and the quality of local products

be improved to increase the demand abroad.

New technical universities and institutions be established for the guidance of thelabour and equip them with the modern techniques being used in the industry.

Means of communication and basic infrastructure required for industry like roads,

transportation etc. be improved and enhanced to make the access easy.

New and emerging entrepreneurs must be encouraged to lead the industrial

sector and make investments.

The crisis of energy must be resolved on priority basis and interrupted supply of

energy to industry be ensured.

Law and order situation be improved to allure the investors to invest their money

and time.

More attentions should be given to increase export. Import substitution products be produced to encourage people to use local

products.

Realistic and up-to-date statistics be provided to this sector.

To conclude with, the people of Pakistan perhaps already are aware that the

country had the choice of building institutions for development of technology and

other industrial infrastructure and/or a strong institution for planning. Pakistan


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opted assistance from the USA in formulating economic development plans while

both India and Korea when offered similar options opted for establishment of

institutes of technology on the pattern of Massachusetts Institute of Technology,

MIT. The KIST or Korean Institute of Science and Technology and a chain of IITs or

the Indian Institutes of Technology were offered as technical assistance to Korea

and India respectively and both countries flourished on the basis of solid and self-

reliant foundations provided by the respective institutions. Pakistan has all the

resources and a solid base to become an industrialized country. The need of the

hour is to turn the policies into action by following the examples of developed

countries in letter and spirit.

Privatization in Pakistan

INTRODUCTION

The concept of privatisation is not new to the policy makers of this country. It may

be traced as back as in 50s, when Pakistan Industrial Development Corporation

(PIDC)was established in 1952 to boost up the industrial development in the

country. This premier Corporation established over 50 industrial undertakings in the

length and breadth of the country and after their successful operation and

management, these units were transferred from the public to the private sector.

The tide of nationalisation, which swept the whole economy in the first half of 70s,

was reversed in 1977. The privatisation of State Owned Enterprises (SOE) became

an important instrument of economic policy of the government in late 80s.However, it was in 1991 that privatisation process in Pakistan became effective.

PRIVATISATION POLICY DURING LATE

1970s

The nationalisation policy of the early 70s increased the size of the public sector

toan unmanageable extent. The nationalisation process also failed to deliver whatwasexpected from it. In July 1977, the new government introduced the policies

ofdenationalisation, disinvestment and decentralisation to restore the confidence of

privateinvestors. As a part of these policies, the government announced

denationalisation ofaround 2000 Agro-based industries, in September, 1977. Apart

from that, the government offered a number of SOEs on Management Contract and


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introduced performance signaling system, in order to improve their performance

and bring efficiency in operation and management.

PRIVATISATION IN 1988 - 90

In December 1988, the new government appointed a British firm M/s

N.M.Rothschild in April 1989, as consultants, to undertake a study on privatisation

strategy and selection of prospective candidates. The consultants submitted their

report to thegovernment in May 1989, namely Privatisation and Public Participation

in Pakistan.

The report recommended privatisation on widespread ownership basis as an

appropriate strategy for Pakistan. By "Wide Spread Ownership" the consultantsmeant development of Pakistan's capital markets by bringing hundreds of

thousands of small savers into share ownership for the first time. The report,

however, warned that wide spread participation strategy should be carefully

structured so as to avoid over ambition on price or size (particularly at the start),

inadequate preparation, inappropriate regulation, insufficient marketing and lack of

communication with the workers. After analysis of more than 50 companies, the

consultants short-listed seven companies as potential first candidates for

widespread offers. These included Habib Bank, Muslim Commercial Bank Pakistan

National Shipping Corporation (PNSC), Pakistan International Airlines Corporation

(PIAO). Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC) and SuiNorthern Gas Pipelines Ltd (SNGPL).

The consultants also suggested that a new department should be established underthe Ministry of Finance, to co-ordinate the complex transactions involved in widespread offers.The establishment of the new department was also recommended onthe grounds that it would be helpful in implementing future privatisationprogramme of the Government.The report also indicated the need of financialrestructuring of the units identified for privatisation, in order to make them anattractive proposition. The report further suggested the need of adopting special

techniques, new procedures and incentives to attain wide dispersal of offers bothwithin the country as well as abroad.

The Government, following the advice of the consultants, first made efforts toprivatise SSGC that was recommended as a leading candidate. However, afterhaving done all the spade work, the proposal to privatise Sui Southern wasabandoned. Instead, it was decided by the Government in January, 1990 to


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disinvest 10% shares of PIAC, amounting to Rs 274 million, 30-40% shares ofPak Saudi Fertilizer and 60% shares of Muslim Commercial Bank (MCB) (Laterreduced to 49%) shares). The decision, however,could not be implemented in full.Only ten percent shares of PIAC were disinvested in May 1990 at par value. Againdue to lack of institutional framework, legal and other complications theprivatisation programme could not make any headway.

PRIVATISATION IN 1991 - 93

Soon after assuming power in November 1990, the then government declared

privatisation as its primary economic policy objective. The agenda of

privatization announced by the Government covered a wide spectrum of fields

like industries, banks,development finance institutions, tele-communications and

infrastructure facilities.

As a first step towards privatisation, a Committee on Dis-investment and

Deregulation was formed. The Committee in its preliminary report, submitted to

the government in January 1991, recommended the disinvestment of 118

industrial units,which included 45 nationalized units taken over during the period

1972-74. The government approved this disinvestment plan and announced the

creation of a Privatization Commission on 22Nd January 1991 to implement the

disinvestment programme within the 5 shortest possible time. The birth of

Privatisation Commission institutionalised privatization efforts in Pakistan. At the

same time, a Cabinet Committee on Privatisation (CCOP), with the Minister for

Finance and Economic Affairs as its Chairman, was constituted to approve the

recommendations of Privatization Commission.

Achievement of Privatisation

Overall results of the privatisation process in Pakistan are mixed. In certain sectorslike power generation, financial institutions, cement and automobile the

performance of the privatised units is satisfactory and the new management havesucceeded in improving the quality of product and service as well as financial healthof the units. The workers have also benefited in terms of higher salaries and betterworking conditions. In other sectors like edible oil and roti plants privatisation hasnot been very successful. The following table shows an overall privatisation picturein Pakistan:


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Sl. No. Sector Sub-sector/Units No of Units

1 Industries Automobile Unites 05Cement Plants 11Engineering Companies 07Edible Oil Factories 19Chemical/Fertilizer Plants 13Rice/Roti Plants 20Newspapers 05

Miscellaneous 07Sub-Total (a) 872. Financial Sector Muslim Commercial Bank

Allied Bank LimitedBanker's Equity LimitedHabib Credit & Exchange Bank

First Woman Bank2

Sub-Total (b) 05

3. Utilities Public Offering of SNGPL andGas

Public Offering of Pak TelecomSale of Kot Adu Power Plant

Sub-Total (c) 05Grand Total (a + b + c) 97

CONCLUSIONS

The privatisation process in Pakistan has moved from simple to complicated

sectors. It has been institutionalised with the passage of time and rules and

procedures have been defined for transparent and competitive privatisation

process. In future Privatisation Commission has a heavy task before it not only to

dispose off the remaining sick industrial units but also to privatise the large

industrial units, public utilities, financial institutions, infrastructure and

transportation facilities. Steps are being taken to expedite the privatisation process

as well as to rationalise the macro economic environment for speedy economic

development of the country.


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Martial Law Effect In Pakistan

Martial law is the imposition of military rule by military authorities over designated

regions on an emergency basis(usually) only temporarywhen the civilian

government or civilian authorities fail to function effectively (e.g., maintain orderand security, and provide essential services), when there are extensive riots and

protests, or when the disobedience of the law becomes widespread. In most

cases, military forces are deployed to quiet the crowds, to secure government

buildings and key or sensitive locations, and to maintain order.Generally, military

personnel replace civil authorities and perform some or all of their functions. The

constitution could be suspended, and in full-scale martial law, the highest-ranking

military officer would take over, or be installed, as the military governor or as head

of the government, thus removing all power from the previous executive,

legislative, and judicial branches of government.Martial law has been declared in

Pakistan three times.

Ayub Khan

The period from 1958 to 1969 during which President Ayub ruled and Mr.

Shoaib served as Finance Minister for most of these years is considered as the

golden era of Pakistans economic history. The period had strong macro

economic management and the economic indicators were extremely impressive.

Agriculture grew at a respectable 4 percent while remarkable rates were

achieved in manufacturing (9 percent) and trade (7 percent) GNP growth rates

exceeded 6 percent on average throughout the period. Economic growth was

very strong on all fronts. Pakistans manufactured exports wee higher than the

combined manufactured exports of the Philippines,Thailand, Malaysia and Indonesia.

Economic policies pursued by Ayub-Shoaib administration in the 1960s

were outward-oriented, liberal and supportive of the private sector. State played

a facilitating and enabling role by providing incentives, supplying infrastructure

(particularly in irrigated agriculture), institutions and technology. Macroeconomic

management was sound and prudent and fiscal and external balances were

managed well. Inflation remained in check and the annual rate of growth in


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prices was only 3.3 percent. However, rapid economic growth and

industrialization resulted in income inequalties and regional disparities that had

serious political repercussions subsequently. Social sectors were neglected and

industries for capital goods were not set up. Import substitution strategy had a

positive pay off but also nurtured rent-seeking and pressures for protection

against external competition thus masking the inefficiencies of domestic

industries. Exchange rate policies created distortions and arbitrage

opportunities. But the positive contribution that made Pakistan self-sufficient in

wheat and rice was the adoption and diffusion of Green Revolution technologies

that also helped uplift the living standards of the rural population.

Muhammad Zia-ul-Haq

According to WorldDevelopment Report1990, during 80-88. Pakistans GDP growth

rate was 6.5 percent. According to World Bank, manufacturing GDP grew at an

annual average r ate of 9.5 Percent between 1977 and 1986,and investment in

medium and Large s cale industry grew at an average of 18.2 per cent per

annum,while total private industrial investment expanded at 15.6 percent per

annum. Zias regime consists of three sub periods: 1977-81, which was the period

of cautious attempts at dismantling existingg overnment policies and restoring

confidence in the private sector,1982-5, a more forceful drive towards Islamizationwhich followed the regime sconsolidation of power 1985-8, the attempt to

disengage the government from direct control of the economy.

Musharraf

General Musharraf took over the reigns of power in 1999 from Nawaz Sharif with

the Pakistan economy on the verge of bankruptcy. So desperate was the situation

Nawaz Sharif toured the world visiting Pakistanis with a begging bowl requestingthem to invest in Pakistan due to the sanctions imposed on Pakistan for carrying

out nuclear tests.Both the IMF and the World Bank have consistently praised the

Musharraf government for solid macroeconomic recovery and saving the Pakistan

economy from the brink of economic collapse. They cite the $128bn generated

under his tenure.
http://en.wikipedia.org/wiki/Muhammad_Zia-ul-Haqhttp://en.wikipedia.org/wiki/Muhammad_Zia-ul-Haq


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Once the dust settled on Musharraf's coup he set about organising the nation, he

formed a small working cabinet consisting mainly of experts and technocrats in

their respective fields. Several committees, constituted with experts drawn from

both within and outside Pakistan whose job was to make recommendations on the

content, phasing and implementation timelines of the various reforms Musharraf

planned to turn round the economy. The most important committee was the Debt

Reduction Management headed by ex-Chief Economist of the World Bank. This

committee's recommendations formed the basis of subsequent actions in this area.

An Agriculture Taxation Committee, headed by a former planning secretary,

produced a consensus view on the introduction of agriculture tax by provincial

governments.

The strategy was, as Musharaf's economic team put it:

To effect a sustainable reduction in debt ratios (reduce debt)

To reduce fiscal deficit through revenue mobilisation. (i.e balance

government budgets)

To restructure key public sector institutions and stop their losses

(privatisation)

To pursue a prudent monetary policy and hold inflation down. (Raise

interest rates)

To liberalise the foreign exchange regime and allow market forces to

determine the level of exchange rate (remove all obstacles to currency

transfer)

To create a level playing field for all economic actors (removal of state

subsidies to key industries)

Such objectives were to be met with a number of reforms or changes to the way

the economy was previously run. What needs to be understood is such objectives

were all geared towards gaining credibility abroad rather then deal with domestic

woes. Musharaf's team was composed of experts from the very institutions that had

indebted Pakistan and insisted on policies that would reduce debt. They proposed a

number of reforms to achieve the above objectives, which included:


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The privatisation of the banking and financial sector

The removal and reductions of all tariffs which protected Pakistan industry

and agriculture

The privatisation of all public sector enterprises

Sale of shares to public through stock exchanges

Removal of subsidies and administered prices on agriculture commodities

The removal of all barriers on agriculture exports and imports

The removal of all price controls, leaving essential prices to market forces

Removal of domestic price controls of petroleum products and aligned with

international prices domestically

Economic Comparison 1999-2007.

Category 1999 2007

Economy $ 75 billion $ 160 billion

GDP Purchasing Power Parity

(PPP)$ 270 billion $ 475.5 billion

GDP per Capita $ 2,000 $ 3,004

Pak revenue collection Rs. 305 billion Rs. 708 billion

Pak Foreign reserves $ 700 million $ 17 billion

Pak Exports $ 7.5 billion $ 18.5 billion

Textile Exports $ 5.5 billion $ 11.2 billion

KHI stock exchange$ 5 billion at 700

points

$ 70 billion at 14,000

points

Foreign Direct Investment $ 1 billion $ 8 billion

Debt servicing 65% of GDP 26% of GDP


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Poverty level 34% 24%

Literacy rate 45% 53%

Pak Development programs Rs. 80 billion Rs. 520 billion

Public sector institutions numbers increased from 110,267 (in 1999) to become 164,579 (2006)

Private sector institutions numbers increased from 36,096 (in 1999) to become 81,103 (in 2006).

There were 2652 PhDs in Pakistan in 1999 which increased to 6405 by 2009. 3753 PhDs were produced in 10

years.

IT industry value increased to around $2 billion, including $1 billion exports and employed around 90,000

professionals.

CNG sector attracted over $70 billion investment; and created 45,000 jobs.

Telecom sector attracted around $10 billion in investment and created above 1.3 million jobs.

Industrial Parks were being setup throughout the country for the first time in Pakistani history! M3 estate, Sunder

industrial estate, Chakri, etc.

Major Mega projects like the Saindak, Rekodiq, Marble production, Coal production and Mining & Quarrying

were being pursued.

4 dams: Mirani, Subakzai, Gomalzam, Khurram Tangi dams.

Motorways completed or under construction: M1, M3, M8, M9, M10, M11.

Six major highways under construction.

GWADAR advance mega Sea port developed under his vision!

Historic 100% increase in Tax collection of $11 billion.

Large scale manufacturing is at 30 years high, and Construction activity is at 7 years high.

Newly found World class copper- gold deposits in Chagai will fetch $600 million per year.

A new Oil refinery with UAE will fetch $5 billion & will process 300,000 oil barrels a day.

Industrial sector registered 26% growth.

GDP growth was 3.1% in 1999 which was recorded 8.4% in 2005 and 7% in 2007.

Documents

Political Economical History of Pakistan