Time to establish ministry of private sector facilitation

ISLAMABAD: Pakistan exported goods and services worth $25 billion in fiscal year 2011 and in FY17 exports stood down at around $21 billion.

Exports-to-gross domestic product (GDP) ratio is also low if parallels are drawn with comparable countries. Investment-to-GDP ratio has hovered around 15% over the past decade while the ratio has been over 30% in India since 2005.

Pakistan’s ranking in the World Bank’s Ease of Doing Business indicator has dropped from 77th in 2007 to 141st in 2017 among 185 economies. Foreign investment has remained considerably low since 2006 except for a recent surge due to the China-Pakistan Economic Corridor (CPEC).

This is happening despite many export packages and initiatives to boost private sector competitiveness. Evidently, the current public sector apparatus is inadequate and unable to deliver results for development of the private sector.

First, the mandate of development and facilitation of the private sector is scattered across different ministries and organisations. Trade policy, industrial policy, investment policy, information technology policy, taxation policy, monetary policy, energy policy, sectoral regulatory policies and other such frameworks are developed in isolation, yet they deal with the same objective.

One would suggest establishing a coordinating committee or a body. Indeed, there are many – without delivering the intended results.

Second, the institutional and human resource capacity in public sector organisations is grossly constrained. Third, many of these organisations were set up between the 1970s and 2000, but needs of the private sector have totally changed now.

The investment made abroad by Pakistani diaspora and domestic investors’ investment in other countries may be greater than the investment committed under CPEC. Now, the question arises as to what sort of public apparatus is needed to enhance exports and mobilise private sector investment in Pakistan.

New ministry

The countries which have increased exports and private investment phenomenally had one thing in common: the quality of the state and its institutions supporting the private sector. The coordinating and intellectual capacity of the state machinery has played a crucial role in Japan, South Korea, China, Singapore, and in the western world.

In Japan, the Ministry of Economy, Trade and Industry and in other countries well-designed and empowered planning agencies steered private sector development agenda. Hence, there is an urgent need to establish a Ministry of Private Sector Facilitation in Pakistan.

This ministry should be established by merging the Ministry of Commerce and Textile, Ministry of Industries and Production, Board of Investment, some attached departments of the Ministry of Information Technology and almost half of the Planning Commission. Provincial governments may follow suit after piloting at the federal level. Prime Minister Shahid Khaqan Abbasi has recently reorganised a few ministries/divisions and hence the establishment of the Ministry of Private Sector Facilitation should be considered as the continuation of efforts to deliver services to the citizens.

Abbasi can leave an ever-lasting legacy by developing an innovative, effective and professional setup to support the private sector. Needless to say, the public sector is usually quick in establishing new organisations, but the government hardly designs it in a way that it can meet the intended objectives.

Proposed design of the ministry

First, the basic function of the ministry should be facilitation of the private sector. The public sector’s main job is now to create a right ambiance for the private sector to thrive. Instead, many of the facilitation bodies turn themselves into self-proclaimed regulatory bodies and then create hurdles in the way of the very sector they were created to promote.

The Engineering Development Board is a classic example of how a body created to promote the engineering sector actually hindered its growth.

While creating the Ministry of Private Sector Facilitation, a thinking process should be undertaken to avoid the usual life cycle of public sector organisations which starts with big ambitions and ends with inefficiencies and over-regulation.

The Planning Commission’s Framework of Economic Growth emphasised in 2011 to focus on the software of economic growth. This framework can become a guiding document for the new ministry.

Second, the mandate of the ministry should be to improve business environment, give policy recommendations on taxation, monetary matters and exchange rate dynamics, manage public-private dialogue, facilitate domestic and international trade, reform complex, archaic and cumbersome laws and regulations, and sponsor research on entrepreneurship, innovation and technological development.

The ministry should steer policy reforms to promote competition and innovation. These are just references to some of the important aspects of the scope of the proposed ministry and a detailed working is required to include the modalities and functions.

However, it would be essential that no taxation measure is finalised without the consent of the new ministry. The ministry will have to pay special attention to young entrepreneurs, start-ups, technology-oriented companies (not just information technology), innovative business ideas and women entrepreneurs.

Third, top quality human resource from both public and private sectors should be engaged in the ministry. Secretary of the ministry should be selected through open competition between civil servants and private sector professionals.

A panel consisting of eminent private sector representatives, senior bureaucrats, economists and politicians should select the secretary for three years. The secretary should be given all powers of the chief executive officer.

Fourth, it would be important to address the loopholes and inefficiencies in the public financial management system for the proposed ministry.

Single-line current and development budgets should be given to the ministry with all powers of appropriation and expenditures in order to steer the implementation of its initiatives.

The ministry should have a competent chief financial officer and chief strategy officer to deal with financial and planning matters. Merger of half of the Planning Commission with the ministry will provide in-house and decentralised capacity to steer the development policy.

A strong accountability mechanism should also be developed to scrutinise financial management and service delivery by the ministry. An independent panel of professionals and politicians should be assigned the task to periodically review the performance and provide direction to the ministry.

Fifth, the ministry should undertake third-party review of all attached departments/bodies of the ministries/divisions which are being merged. There are many redundant public sector organisations such as the Trade Development Authority of Pakistan, commercial attaches and Small and Medium Enterprises Development Authority which need to be either disbanded or completely overhauled to meet modern needs of the private sector.

Govt, chambers should deliberate further

Lastly, policymakers, academicians, think tanks and chambers of commerce and industries should deliberate on this issue because the country needs radical steps to reorganise the public sector to deliver the services needed by the private sector. Otherwise, we would continue to lament slow growth in exports and decline in private investment.