More Than A Kick-Start
Imagine Pakistan’s economy as being like a person in cardiac arrest. A monetary stimulus, such as the ones from Saudi Arabia, China and hopefully the IMF, are an adrenaline shot that aims to kick-start the heart. It revives the patient but it does nothing to cure the disease. A decade of regular adrenaline shots has built the country’s tolerance, exhausting the effect of the shots to stabilize and stimulate the economy in the long-run. Hence, Pakistan just does not only need the adrenaline shots again and again but comprehensive treatment for its ailing economy. A good cure would include appropriate structural reforms. The cushion provided to the balance of payments through increased exports to China and the oil facility from Saudi Arabia is important but not a substitute for critical reforms. The lack of structural reforms is reflected in the inefficient use of the funds injected into the economy.
Even after years of repeated reforms, Pakistan’s institutions are still weak as policymakers have been too preoccupied with politics and these weaknesses are transferred to the real economy. The PTI government has made promises to re-invent everything. Realistically speaking, the first few months set a direction for future policies. What is needed is to set a path and prioritize a clear line of action. One of the reasons for the current economic chaos stem essentially from the deteriorating performance of key institutions such as State-Owned Enterprises (SOEs). SOEs play a crucial role in employment, public service provision and overall socio-economic development.
Recently, the government removed 14 SOEs from the privatization list. It is now being suggested that something like the Malaysian transformation programme, based on the holding companies model, be used to reform the State-Owned Enterprises. The use of holding companies provides a mid-way solution between privatization and control of the current political leadership. What needs to be understood is Malaysia’s SOE transformation model to learn from its best practices and adapt them to Pakistan.
In Malaysia, most of its largest corporations are controlled by seven government linked investment companies (GLICs). They dominate the ownership structure of 35 public-listed companies that make up almost half of the total market capitalization of all listed companies. The Malaysian government turned their weak operational and financial SOEs into profitable, performance-oriented and well-governed institutions by making key structural changes.
A few important lessons can be learnt from Malaysia. Firstly, it is important to establish and actively monitor an accountable body. Such a committee should be focused on designing and implementing comprehensive policies that transform SOEs to become high performers. Evaluation studies were conducted to examine the root causes of underperformance and then international best practices were used to provide a benchmark. Policies and a legal framework was introduced that supported the new management from the private and public sectors to mend the SOEs. To improve transparency and accountability, the companies were required to communicate their strategy and performance to all stakeholders, especially the public.
Secondly, the government introduced clear, quantifiable short and long-term key performance indicators (KPIs). They covered both financial and non-financial factors that were realistic and performance-based and not just focused on the stock price. Each KPI was benchmarked with comparable international counterpart within a specific time frame. The programme also introduced performance-based contracts and compensation for higher management. This improved management practices and profitability. Thus, Malaysian GLICs experienced a growth rate of 11% annually during the transformation period.
Thirdly, the transformation programme was based on the national economic development goals of the Malaysian government. Their New Economic Model launched in 2010 provided support and clear direction for Malaysia to become a developed economy by 2020. The strategy outlined precise actions for executing the transformation, such as investment in knowledge-based and service-oriented industries and appropriate steps to increase both their regional and global presence.
Lastly, Malaysia made massive investments in their human resources that have provided them with a new generation of competent autonomous managers and leaders. Malaysian Directors Academy (MINDA) specifically equipped directors for GLICs with relevant knowledge and management skills. Unfortunately, the recent Human Development Index shows that Pakistan has failed to invest in its people. Despite experiencing healthy economic growth, if the country’s development is not making the lives of its people better than what is even the point of focusing on development? It is not just the investment in people but also the quality of investment. So how can Pakistan use its institutions as instruments to promote human development?
The real challenge for the government lies in structural reform as the financial and economic crisis is fundamentally a management crisis. If the government wishes to adopt transformation programmes for SOEs, it needs to think in terms of decades and not just quarters. Thus, to turn around the performance of Pakistan’s SOEs based on the Malaysian model as discussed here, the government needs a strong political will to outline a clear mandate and lay down goals for a government body that will formulate and track the progress of the KPIs throughout the transformation period. This, combined with the relevant accountability framework that promotes transparency and performance-oriented policies, can be counted on to deliver the desired results. It is very important to align national development goals with the transformation programme so that the government is enabled to focus on the strategic sectors as well as the SOEs, as these are essential for Pakistan’s future growth.
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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.