ROLL NO 001M.PHIL 2015-17

Bushra Umer

Emerging markets: Strategic role of Governments and

Private Sector Development

Writer’s Introduction

Writer’s Introduction

Prof Boualem ChennoufiCollege of Business and Economics UAE-

UniversityEducational qualification

PhD,Strategic &Change management,University of Bradford, Uk(1996-99)

MBA, International Mangement, University of Dallas,UK(1979-81)

Introduction

•Government’s role in helping private sectors to flourish•Purpose of privatization•Defining rules for transition of economy from planned to market•The rule of law for this cannot be created by decree rather•Requires a lot of structural reforms •Newly emerging markets will need capital to grow and adjust •Great responsibility on governments shoulder to assist them by providing them with a suitable environment and macroeconomic stability.

Privatization

Convenient ability of better good and services at affordable prices to general public.

Increase tax revenue: corporate taxesIncreased competitionImprove efficiency and transparencyReduce overstaffingRecover of cost

1. Strategic changes in the role of government

2. Private sector development

Redefinition of role of governmentMost important role: provision of order in transaction

and macro economic stabilityRole of govt. in provision and distribution of goods

must shrink dramaticallyState intervention is justified only where markets fail

i-e defence,education,taxation and some social insurance

Governments focus should be on macroeconomic stability and provision of institutional and legal environment that supports private sector development and competition(both domsetic &international)

Strategic changes in the role of government

Social protection should be confined to those who need it most.

Removal of arbitrary barriers to entry(licences , permits, regulations , cartels and other restrictive practices).

Regulation of financial institutions to protect breaches of trust and manipulation.

Educating public about necessity and process of reforms is crucial in building consensus and mobilizing support for reform.

Governments everywhere find it difficult to reduce their own involvement in economy.

Development of professional civil service: concentrated in wrong parts of government, wrong skills, poor incentives

Public administration in many emerging countries suffers poor morale, absenteesism,low productivity, loss of able staff to private sector

Political consideration over emphasized in professional and career decisions.

No quick fix, flexible pay, recruitment and layoff policies.

Leading examples of succesful transition: Australia and New Zealand

Privatization raised billions of dollarsRank among the global leadersPrivatization injected needed cash into government

coffers and freed government to focus on their core missions.

Injected life into both nations markets.Main reason being that businesses often achieve

better returns where they are no longer being managed by government.

(Source: Privatization raises billions in Australia and New Zealand, Wall street journal

By Gillian Tan)

1.1)Better and slimmer governments

1.2)Setting spending priorities

1.1)Better and slimmer governments

The size of government an all economies depends directly on the role and functions assigned to it.

Trend of government spending depends:level of income,demograhics and politics,pressure for social spending,financial constraints

Large governments hurt economic activity.Inefficient: contribute less towards growth,

subsidies and social transfers, weak implementation capacity, high staffing ratios.

Increased private participation and cost recovery: urgent priorities.

Increased public expenditure

Large deficit

Low tax revenue because of inefficient

tax system

Excessive borrowing to finance expenditures

High inflation

Slow growth

1.2)Setting spending priorities

Restructuring of government expenditures towards market economy patterns

Composition of expenditures consistent with tasks of government in market economy and conductive to long run growth.

Budget an instrument of economic policy during transition: efficient use of public resources, expenditure control, improved budget management

Requires complex institutional and organizational changes that constitute unfinished business even in advanced stages of transition( health, education, social protection, restructuring state owned enterprises)

2) Private sector development

There remain many difficulties in private sectors establishment and numerous obstacles and impediments to its growth.

Private sector needs guidance provided by sound examples of successful private investment projects together with a policy and administrative environment that will allow it to develop in a strong and rational manner.

Financial institutions

Evolution of financial institution: obstacle to private sector development

Availability of external finance requires collateral and track record, most enterprises have little to offer on either count.

Bad loans and macroeconomic instability – banks reluctant to lend beyond short term.

Financial institutions themselves are new and embarking on a learning process

Deficient in providing adequate support to economic expansion.

Enterprise restructuring

Saddled with a product range for which there is little or no demand

Obsolete equipmentOversized workforceInappropriate mix of skillsExpensive social responsibilities to workforce and

large debtsNot easy to find finance, long term debt specially.The problem in transition countries are much

deeper than those of a single industry in an advanced industrial country.

Corporate governance

Challenge to establish viable corporate governance.

Managers and workers are responsible to owners of the firm.

Transparency ,clear rules of game, structures through which owners can express their preference and dissatisfaction.

Irresponsible behavior with shareholders can curiously undermine both foreign and domestic investment.

Infrastructure

Modern telecommunications are crucial for viability of enterprises.

Sound and reliable electricity, water supplies

Cost effective investment in market oriented infrastructure on a large scale, involving both private and public sectors is an important factor.

Transition will take many years and one of the best strategies is through public/private partnership.

Pakistani context

 As our country is getting financial aid from IMF ( International Monetary Fund ) whose philosophy is that Government should not own business. So, they are insisting Pakistani Government to do privatization process in the country otherwise they will stop giving loan to them.

Under the IMF programme, the government is bound to sell at least 26% shares of PIA to a strategic investor. But it is facing resistance from opposition parties, particularly the Pakistan Peoples Party (PPP), which is opposed to the privatization of PIA and Pakistan Steel Mills (PSM).

Pakistan’s government is pursuing an ambitious privatization programme in the power sector and is exploring various means of private sector participation in its thermal generation companies (Gencos) and distribution companies (Discos).

We can take the example of PTCL; before privatization PTCL’s monthly losses were in billions. Today it is not only a profitable organization but also providing excellent services to the customers.

Conclusion

There is no unique blueprint for government to follow.The transition from a purely growth oriented

development strategy to one emphasizing the elimination of poverty and the reduction of inequality will require major political, economic and cultural transformations.

Government can promote private sector, along with all economic activity by providing a stable macroeconomic environment.

International financial institutions can also help by providing a combination of lending, equity and technical assistance.