Sale of National Assets
By
Masood H. Kizilbash
THERE is an obsession with governments to use indicators of growth in the national income as their success story. This is precisely what our government keeps on trumpeting.
But nobody tells us whether or not, this growth is sustainable in the long run when privatisation of our national assets to foreign private investors is in progress, in a typical global economic order.
• In a national economy, assets consist of agricultural produce from land resources beneath or over the land, fauna and flora, industries, infrastructure, financial institutions, dwellings/buildings, human capital etc. These assets when put to use produce goods and services which when valued in money terms are called `gross domestic income’. Any addition from year to year to this income is called growth. This growth accrues from either more efficient use of existing assets or through creation of new assets during the year. The effort of a state is to create more assets either from domestic resources or from foreign resources.
• The indicators of growth rate in the GDP/GNI in the new economic global order has become less significant on account of unleashing of market forces not only at the domestic but also at the international level, allowing unencumbered flow of trade and capital across the borders and shrinking of the role of the government in production, distribution and management of the economy.
The global model working under the framework, is well defined by Joseph Stiglitz in his book, "Making Globalization Work". "There was a large set of dos and don'ts: do privatise everything from factories to social security; don't have the government involved in promoting particular industries; do strengthen property rights; don't be corrupt. Minimising government meant lowering taxes but keeping budgets in balance."
• The havoc the model of development has caused in the developing world in the shape of growing poverty and unemployment is already subject to world wide discourse, aimed at reversing or drastically modifying it. This discourse, besides other features of the model, seriously questions the soundness of across the board privatisation, ranging from publicly owned enterprises in the production sector to financial sector. Yet, we in Pakistan continue to offer at top speed our domestic assets not only to domestic private investors but also to foreign investors.
• The privatisation of public enterprises started in the year 1990-91 in Pakistan. According to the Report of the Privatisation Commission, 2005, total sale proceeds realised from these assets aggregate Rs534.2 billion between 1990 91 and 2005 06 (July- December) as per table.
• As will be seen from the Table, the share of foreign investors/ companies stands at Rs236.9 billion or 44.4 per cent. From 1990 -91 to 1999 2000, the assets privatised fetched Rs74.8 billion in which the share of foreign private investors/companies was just Rs1.9 billion or 2.5 per cent. This compared with assets privatised of the value of Rs459.4 billion and the share of foreign private investors/companies as high as Rs235 billion or 51.2 per cent.
• A spurt in foreign direct investment would have been beneficial for our economy had it been creating new assets. However, the data shows that as against an aggregate foreign direct investment of Rs432.5 billion most of it to the tune of Rs234.6 billion or 54.2 per cent went in acquisition of existing national assets by foreign investors between 2001- 2002 and 2005- 2006.
• The question is, whether under the circumstances when we are transferring ownership of our national assets, the growth in the GDP has any significance. For, as the foreign investors acquire more and more national assets, most profits accruing from them would be transferred overseas, thereby reducing the net domestic income of those within the country.
It is for this reason that Joseph Stiglitz poignantly remarks that "a country with a high GDP may actually be getting poorer and poorer" and goes on to suggest that "countries need to create capital accounts that look at both assets and liabilities and make especial note of situations where asset sales (including sales of natural resources and privatisations) are misleadingly being used to make deficits look lower than they otherwise would be.
Countries can reduce their deficits by cutting down forests, selling national assets, giving away their natural resources at a fraction of the full value." Unfortunately, this is precisely what we are doing and this is leading to a situation where we would have GDP growth in the economy with most income from the assets going overseas and a little left from the income for those who live in the country and no assets left to sell for meeting the deficit. Cannot we be more prudent as some other countries have come to be?
http://www.dawn.com/2007/04/16/ebr9.htm