PAGE recently had a session with industrialist and business personality Majyd Aziz to solicit his views on good governance in Pakistan and the future of the foreign exchange reserves.
Majyd Aziz is a scion of the Balagamwala family that migrated from Bantva, India after Independence and settled in Karachi. Today he heads the close-knit family as well as the Group’s business ventures. The family companies are involved in imports of coal (having over 80% share), pulses, canola, fertilizer, palm kernel cake and many commodities. It is also the largest exporter of chrome ore, barite, and other minerals. It is the largest cargo-handling and stevedoring company in Pakistan. It is the largest facilitator of cement exports and also represents many global shipping lines. It manufactures value-added fabrics that are considered as the benchmark in suiting fabrics. All family members have studied in USA or UK and are actively involved in the family businesses.
Majyd Aziz is also the Chairman of the primarily government-owned SME Bank Ltd. He is a Former President of Karachi Chamber of Commerce and Industry, Former Chairman of SITE Association of Industry, and ex Director of KESC and SITE Ltd. He has represented Pakistan at various international forums and is Honorary Citizen of Houston as well as Austin, Texas, USA.
Q.No.01: How would you comment on good governance in Pakistan?
At the outset, we have to determine what we mean by good governance. A simple definition I found out is that it is the process of decision-making and the process by which decisions are implemented or not implemented. Taking that as a start and putting on my cap as a citizen of this nation, I can state with all merit at my command that good governance has become a rhetorical slogan noticeably devoid of any substance. I do not differentiate between a government that has a democratic dispensation or a regime that is under the control of non-democratic forces. In Pakistan, the element of good governance is a rare commodity.
Let me give you some prime examples. Take the last five years of the democratic environment. The major political party, one which considers its roots among the masses, blatantly demolished its own avowed rallying slogan “Roti, Kapra, Makaan” (Food, Clothing, Shelter) during its tenure. There has been a total disconnect between the politicians and the poor, the unemployed, the landless, and the disfranchised. The hierarchy of the political government spent most of the tenure in scoring political points and indulging in Machiavellian intrigues. Inspite of formidable support from other coalition partners including independents, the government concentrated on stuffing the state-owned enterprises with political appointees, ruthlessly crushed meritocracy, went on a rampage on funds in Treasury, unabashedly acted like Little Caesars, developed a fiddling Nero mindset, and politicized bureaucracy with impunity.
The Benazir Income Support Program, with all its faults, including a half-baked original vision, was regrettably utilized as a political tool rather than a pragmatic and even-handed welfare oriented project. Billions were spent on self-aggrandizement activities. Resources were spent lavishly on media to keep it from sniffing around. Foreign aid was squandered to attract voters towards the party in power. This is an example of high-profile bad governance in the previous five years.
It seems that the government was participating in a 100-yard race. It was only in the penultimate fortnight of its tenure that it made the final five yard dash at full speed to announce populist projects that would probably not see the light of the day if another party comes into power after May 11, 2013.
The Shaukat Aziz government plotted schemes enabling the banks to reap windfall profits and making the stock exchange go on a wild spree. It purposely allowed the bubble to expand and when the e.Coli hit the fan, the country went on a downward spiral that, sadly, continues till today. There was no fallback strategy designed by his government and the ensuing results proved disastrous.
The incoming government lacked a solid economic team and the performance of the economic managers during the last five years was mediocre, distressing, and seemingly lost at sea. Pakistan suffered seriously because of the lackadaisical environment prevailing in the corridors of the economic policy makers. The Monetary Policy of State Bank of Pakistan did not create any wonders and the Planning Commission wasted time, money, and expertise while its output was nothing to write home about.
The government had no pragmatic plan to tackle the energy shortages and relied on hollow promises. The Rental Power Project succumbed to outright dishonesty, chicanery and massive corruption. State-owned enterprises continue to hemorrhage scarce financial resources and are systematically being destroyed in more ways than one.
There is a sense of isolation that Pakistanis feel today. Globally, the nation’s image is at its lowest nadir due to various factors that could have been controlled but the government was unable to do it because it lacked the critical mass to catch the bull by its horns. The nation has immensely suffered from terrorism, extremism, and fanaticism.
On the home front, the Presidency was used a political tea-house with the President donning a political hat as well a constitutional cap. A continued battle raged between the Federal and the Punjab governments. The Sindh government was controlled by a non-elected nominee of the President who was considered the de facto Chief Minister. The Balochistan Chief Minister was more comfortable racing his Harley-Davidson in Islamabad rather than solving the myriad problems faced by the Balochis, especially the unrest and rebellion gathering steam in the Province. In Khyber Pakhtunkhwa, the government was in a defensive position due to the threats of the domestic extremist groups. Even the Chairman of the ruling party in KPK avoided staying in the Province.
Scandals were galore. Personalities who had access to the powers that be had their best five years. Land scams, LPG scams, Rental Power Scams, NICL, OGRA, PIA, Pakistan Railways, Pakistan Steel, etc became synonymous with the words cronyism, nepotism and corruption. Parliamentarians and politicians evaded taxes, hid their dual nationality status, forged their educational certificates and degrees, misused perks and privileges, acted like buffoons on TV talk shows but kept on espousing the slogan created by some smart copywriter that “Democracy is the best revenge”.
Q.No.02: What big challenges do you think Pakistan has been facing in terms of good governance?
Elections are round the corner and there is this hope that maybe a new government would be in a vantage position to introduce change and maybe bring about relief and sanity within the country. However, considering the distressing situation prevailing in the country, it would be an onerous task for the new government to move at a faster pace to instill confidence in the people. I foresee a period of stagnation atleast until the end of 2013. The new government would take time to settle down and in all probability it would be another coalition government. The 18th Amendment has also brought about unforeseen issues that need to be addressed as this legislation has also impacted on good governance. Moreover, the new government would be highly strapped for cash, would be still facing colossal losses in State-owned enterprises, may not be comfortable with the Benazir Income Support Program, would have to decide whether to knock at the portals of International Finance Institutions and accepting the harsh conditionalities, restore the confidence of trade and industry, and work hard in restoring the positive image of Pakistan in the comity of nations.
The new government would have to set priorities that are doable and manageable and they should give less emphasis on announcing populist measures that usually backfire largely because they either do not achieve the purpose or they become hostage to corrupt elements. The government has to announce a fast track program to revitalize the SME sector through infusion of low credit and facilitation in marketing and procurement of their products. This should be on the high list of priorities since this would provide immediate employment opportunities.
The second very important sector that the new government should focus is low-cost housing. The government should refrain from inviting foreign firms to participate in this venture. It is proposed that domestic builders using locally-made inputs are invited to develop low-cost schemes to alleviate the chronic shortage of housing that is reaching the ten million mark. The government can provide free land and zero-rate all duties and taxes on inputs used in construction of these low-cost houses.
The new government’s main challenge would be to ruthlessly go after corruption and, in the process, use all measures and means to control party members from indulging in shameless corruption practices that was the hallmark of the previous government. A concerted effort to reduce corruption would send the right signals not only to domestic investors but also to foreign entities desiring to invest in Pakistan.
It would be a big challenge for the incoming government to refrain from excessive politicking atleast for three to four years and instead it should divert all energies towards improving the quality of life and thus earning plaudits from the people. Of course, a strong stand must be taken to ensure that coalition partners, if any, do not continuously demand their pound of flesh. That, in itself, is the biggest challenge.
Q.No.03: Your views on foreign reserves:
A country’s foreign exchange reserves position is also an indicator of its macro-economic status and sustainability. Usually the benchmark is that a country must have enough to pay its import bills for atleast two months. At the beginning of fiscal year 2011-12, Pakistan’s Forex reserves exceeded $ 18 billion while today it is only $ 12 billion. In July 2011, the government’s reserves were nearly $ 15 billion out of the $ 18 billion. Today the figure has shrunk to a little over $ 7 billion. Pakistan’s monthly import bill hovers around $ 4 billion while half-yearly exports during this financial year are a shade over $ 14 billion. Of course, exports have grown by 7% compared to last year. Taking the precarious Forex situation into consideration, it can be rightly stated that Pakistan is between a rock and a hard place. The alarming factor is that the incoming government would have to deal with the electricity issue and would have to prove that it will reduce load shedding. Thus the bill for furnace oil would escalate and that would also put pressure on the reserves. Another distressing factor is that the government has to shell out $ 1.3 billion between July and November 2013 to pay off IMF. Moreover, foreign exchange reserves of banks and private citizens have remained constant between $ 4 and 5 billion. One more moot point is whether the $ 7 billion figure contains any “deposits” parked by friendly countries such as China. One point that I dispute is that the Forex reserves of banks and private sector should never be included in the country’s total reserves and only official figures must be highlighted.
It is to some extent commendable that foreign remittances are exhibiting a positive growth. It is estimated that remittances may touch $ 16 billion by end June 2013. Notwithstanding this positive situation, it is to be noted that there is going to be a formidable shortfall in revenue collection inspite of reduction of over Rs 250 billion by FBR from its earlier estimates. Will the Caretaker government negotiate a new Standby Arrangement with IMF? That remains to be seen. Furthermore, the government is still playing hide and seek in settling the Circular Debt in the energy sector.
Q.No.04: How has the issue of inflation been tackled in Pakistan recently?
The State Bank of Pakistan resorted to a tight Monetary Policy to handle the inflation issue. This text-book approach made life miserable for private sector as it made bank financing an expensive alternative. The high discount rates coupled with the excessive bank spread proved to be disastrous for trade and industry and one outcome was the exceedingly burgeoning Non-Performing Loans. Furthermore, the downslide of the value of the
Rupee also impacted severely on the inflation rate. The government professes that it has brought down the inflation rate to about 10% but this is highly debatable. Pakistani is an import-based country and with the Rupee reaching the 100 mark against the Dollar, it is improbable that inflation has drastically reduced.
The government routinely increases the rates of electricity, gas and petrol. The cost of social services continues to rise. Imported raw material is paid in foreign exchange. Land prices keep escalating. Cement and other inputs in housing construction are getting expensive too. The State Bank of Pakistan as well as the Finance Ministry have relied on theories to tackle the inflation issue rather than taking concrete steps to mitigate the sufferings of the citizens. There is zero likelihood of the new government being in a position to bring down either core inflation or food inflation. If the oil prices in the global marketplace start rising again, well, the inflation rate may zoom up to about 20% and we may see a repeat of the half-hearted measures that SBP and Finance Ministry undertook in the past.
Q.No.05: How would you comment on good governance in Pakistan as compared to its neighbors?
Pakistan is not the only country accused of bad governance. Each neighboring country has its own dynamics. Each neighboring country has its own policies and mindset. Corruption is rife in nearly all these neighboring countries. Civil liberties are targeted while human rights laws are flouted by the state. Each neighboring country is facing economic, social, and political difficulties and each of them are endeavoring to address these issues. The setback for Pakistan is that her international image has been battered by inimical external and internal forces that do not want to see Pakistan moving towards economic prosperity. Pakistan is unfortunately suffering immensely because of this negative perception. Although the populace is peaceful, save for some misguided elements, the prime dilemma is that the successive governments in Pakistan have never sincerely formulated implementable policies to make life better for the 190 million denizens. This is the tragedy that Pakistanis face, and worse than this tragedy is the apathy of these 190 million to forcefully demand their rights, to agitate for their safety and security, and to express their aspirations and demands through judicious use of their right to vote and their right to speak. The Constitution guarantees them these rights. Sadly, they do not take advantage of what is enshrined in the Constitution. Thus, bad governance is their ill-fated lot. I take solace from Martin Luther King Jr who very rightly said: “Only in the darkness can you see the stars.” I hope my fellow Pakistanis heed this advice and move ahead