Role of Public and Private sector in industrialization edited

Industrialization refers to process of manufacturing consumer goods and

capital goods to create social overhead capital in order to provide goods and services to individual and

businesses.

Public Sector Private Sector

Organizations owned and operated by government

Organizations owned and operated by private owners

The beneficiary is general public The beneficiary is consuming public who uses good and services

It is not profit-driven It is profit oriented

No competition is involved between organizations

Competition is involved for profit

Policy decisions are bound by the law It is managed under the rules of shareholders

Examples : KESC, PIA, Pakistan Railways

Examples : Retail stores, charitable organizations, credit unions

When Pakistan came into being, industries

remained neglected by private sector due to:

• Lack of expertise

• Experience

• Capital & Technical know how

In such a desperate situation PIDC (Pakistan Industrial Development) made a breakthrough

• The corporation started functioning from 1952

Main function of the corporation: to establish preferably those industries in

which private sector did not show interest

Or In such industries which were of vital

importance from security and economic point of view

• Originally made responsible to promote 15 specified industries.

They included Jute, paper board and newsprint, Heavy

engineering included iron and steel, Ship building, heavy chemicals, Fertilizers, sugar, cement, Textile, chemicals, pharmaceutical, natural gas, Petro chemicals, coal & peat, and Exploitation of marine fisheries

• In the development of large and small scale industries is very laudable

• In a short period of one decade1957-1967, all round development in industrial sector emerged

• The country became self sufficient in most of the agro based industries

• The period 1960-1970 proved to be the best period of economic history of the country regarding industrial investment made by private sector

Such a good performance of the private sector was also the result of appropriate government’s industrial, commercial,

fiscal and trade policies

Main features of government’s helpfulpolicies are: Extended liberal tax concessions Protection to infant industries Required infrastructure facilities were full provided

for the growth and expansion of industries Introduction of export bonus scheme Export bonus vouchers stimulated imports of

consumers as well as capital goodsCont….

Import of industrial machinery against liberal issues of licenses helped a lot to the growth of industries

Commercial banks and insurance companies, established in private sector

• In June 1972,Pakistan Industrial Development Corporation (PIDC) had successfully established 60 industrial units.

• Fertilizers• Shipbuilding• Jute Mills• Cement factories• Chemical plants• Heavy Mechanical Complex• Electricity Complex• Sugar industries• Textiles• Paper Board and Newsprint• Woolen mills• Distribution of Natural gas etc.

• The nationalization of basic industries discouraged private sector investment.

• The absence of consistent policy towards the private sector by the Government.

• Nationalization disturbed the investment climate in the private sector.

• The industrialists who had already lost assets in the former East Pakistan were not ready to invest even in small industries.

• The nationalized industries were not paid full compensation.

• The Government gave repeated assurance in 1972 that no further industry would be nationalized.The promise was not kept and to the contrary,Life insurance was nationalized in late 1972.

• Vegetable ghee were nationalized in 1973.• Commercial banks and Shipping were

nationalized in 1974.• Flour milling, rice husking and cotton ginning

were nationalized in 1976.

• The increasing demands of labour, the social and political unrest ,resulted in low level of investment.

• The Foreign investors were reluctant to invest in Pakistan due to political uncertainty and fear of further nationalization.

• The Government is not satisfied with the profitability,operational efficiency and the quality of products of the public industrial unit.It formulated and implemented an industrial policy wherein the private sector was to play the major role.

• Privatization is a process by which the Government of a country transfers the state owned enterprises to the private sector.

• To reduce the drain of government resources caused by the losses of the state owned enterprises.

• To create greater opportunities for the private sector to expand and modernize these enterprises.

• To improve productivity, efficiency and profitability of these assets.

• To develop a viable capital market.

• To release resources of the government for the development of social and physical infrastructure.

• To facilitate economic activities rather than to complete or interfere unduly with economic activities.

• To produce goods according to the satisfaction of the customers.

• To relieve public enterprises from repeated political interferences.

• Decreasing the number of existing employees or reducing the size of staff employed in an organization and still maintaining and promoting the efficiency of the enterprises.

• Downturn in business• Improved technology• Merger• Transfer of work• Reduced funding• Overstaff• Preparation for privatization

• Public and Private Sector –An Introduction

• The Private Sector in Pakistan

• The Golden years ; 1947-1967

• The fall of Private Sector

• The Public Sector in Pakistan

• The Ascendency of the Public Sector ; 1972-1977

• Post Ascendency Period

• The private industrial sector in Pakistan was progressed through the efforts of Pakistan Industrial Development Corporation(PIDC).

• It set up industries in the field like fertilizer, cement, chemicals, sugar and textiles.

• A number of industries were established in joint venture with Iran, China and Russia.

• After laying a firm industrial base, PIDC makes disinvestment in some of the projects and transferred them to the private sector.

• The Government set up 10 industrial estates and provided infrastructure facilities .

• Protection was given to infant industries like electrical cables , paints ,steel rerolling etc.

• The State Provided technical training.

• Export Bonus Scheme in 1959 helped to boost the exports of Pakistan.

• The commercial banks and insurance companies in the private sector helped in financing industrial development.

• The government gave liberal tax concessions to industrial undertakings.

• Machinery and spare parts were imported on a large scale which helped in the expansion of industries.

• Major industrial units that included jute, paper and sugar mills were divested to the private sector.

• Heavy Mechanical Complex at Taxila and Machine Tool Factory at Landhi were established in the machinery sector.

• Nationalization of industries in 1972 was the biggest cause of the fall of private industrial sector in Pakistan.

• The total investment in private sector dropped from Rs.1358 million in 1970-1971 to Rs.650 million during 1976-1977

• The basic industries including iron and steel, basic metals , heavy engineering, electrical equipment, locomotive assembly and manufacture and chemicals were transferred to the public sector.

• The nationalized industries were not paid full compensation.

• The foreign investors were reluctant to invest in Pakistan due to fear of further nationalization.

• The ever increasing demands of labor, social and political unrest resulted in low level of investment in private sector.

• The devaluation of currency to the extent of 131% raised the cost of machinery which resulted in rapid cost inflation.

• Despite the repeated assurance of the government to stop nationalization in 1972 life insurance, banks and shipping and flour mills were nationalized during 1972-1974.

• The public sector of Pakistan has its roots from 1972 when private industrial units were nationalized.

• To eliminate the concentration of wealth in few hands, raising the volume of production, increasing employment were the core reasons of nationalization.

• The share of public industrial sector increased from 7% in 1972 to 71% in 1977.

• In 1972, 32 basic industries and 3 life insurance companies were transferred to public sector.

• During the period of 1973-1974, petroleum and shipping companies and private sector banks were nationalized.

• The control of the state extended to SME sector in 1975 & 1976 with flour mills and cotton ginning factories nationalized.

• In 1977, the process of nationalization faded as no big industries were brought to public industrial sector of Pakistan except rice husking units.

• General Zia-ul-Haq came in to power in 1977 and immediately took measures to promote Private Sector in Pakistan.

• Most of the industrial units were denationalized and brought back to their respective owners.

• The private sector was further encouraged by the introduction of fiscal incentives in 1982-1983 such as tax holidays and rebates in custom duty.

• The sixth Five Year Plan (1983-1988) specifically adopted privatization as a central theme.