NATIONALIZATION ACT1970s IN PAKISTAN

Program: BBA “D”(Ist Semester)

Submitted To:

Sir Yasir Hayat

Submitted By:

Asad Ashfaq,

What is NATIONALIZATON?

The opposite of nationalization isusually privatization or de-nationalization, but may alsobe municipalization

Industries that are usually subjectnationalization include transport,communications, energy, bankingand natural resources.

Nationalized industries, chargedwith operating in the publicinterest, may be under strongpolitical and social pressures togive much more attentionto externalities.

They may be obliged to operatesome loss making activities wheresocial benefits are clearly greaterthan social costs — for example,rural postal and transport services.

• NATIONALIZATION IN PAKISTAN

• Zulfikar Ali Bhutto took over power onDecember 21, 1971 and the nationalizationprogramme began on January 2, 1972 in avision to promote economicdemocracy, liberalization, and amainstream initial goal to put Pakistan inthe line of state of progressivism. Endedeffectively in 1977, the nationalizationprogramme was again put forward by Primeminister Benazir Bhutto in 1996, and asPrime minister Yousaf Raza Gillani in 2012who activated the programme in order tobring three major mega corporations (SteelMills, Railways and International Airlines)under the government ownership to in anattempt to improve its structure and toalleviate its profitable process.

Benazir Bhutto Yousaf raza gillani

• DID NATIONALIZATION ACT OF 70S ACHIEVED ITS OBJECTIVES?

• Government promulgated theNationalization and EconomicReforms Order nationalizing 31 keyindustrial units, completely wipingout BECO while Saigol, Dawood,Amin and Fancy lost heavily.

• In his address to the nation overradio and television, Bhutto said "Ihad made a pledge to the peopleof Pakistan to implementindustrial reforms. I am nowbeginning to redeem thepledge". It was indeed only abeginning, and big business was toreceive successive jolts during hissix years rule.

• The Nationalization Order, 1972provided for the nationalizationof industry in Iron and steelsector, basic metals, heavyengineering, heavy electrical,assembly and manufacture ofmotor vehicles and tractors,heavy and basic chemicals,petrochemicals, cements, publicutilities, power generation,transmission and distribution, gasand oil refineries

FIRST PHASE OF NATIONALIZATION:

• INDUSTRIAL WERE TAKEN OVER UNDER THE NATIONALIZATION:

• 31 industrial units were takenover under the nationalizationorder but it was allegedsubsequently that nationalizationwas selective, to pick up someand to exclude others in the samefields. General Zia privatized theIttefaq foundary nearly eightyears later on the ground thatIttefaq foundary was nationalizedwhile several others of same sizewere not. However the industrieswhose nationalization wasomitted by Bhutto were notmentioned.

31 Key industries nationalized in 1972Units taken over in Karachi

1 Steel Corporation of Pakistan Fancy

2 Hyeson's Steel Hyesons

3 Ali Automobiles Jaffer Bros

4 Kandawala Industries

5 ROK Industries

6 Haroon Industries Haroon

7 Wazir Ali Industries Packages

8 Gandhara Industries Bibojee

9 Indus Chemical and Industries

10 Valika Cement Valika

11 Karachi Gas Fancy

12 Valika Chemicals Valika

13 Karachi Electric Fancy-Jaffer Bros

14 National Refinery

15 Pakistan Fertilizer Corporation Jaffer Bros

Units taken over in Punjab and NWFP

16 BECO C.M.Latif

17 M.K.Foundary

18 Ittefaq Foundry Ittefaq

19 Rana Tractors

20 United Chemicals Saigol

21 Pakistan Cement Saigol

22 Ismaeel Cement Colony

23 Central Iron and Steel Works

24 Valika Steel Works Valika

25 Jaffer Steel Corporation Jaffer Bros

26 Pakistan Progressiv Cement Wah Colony

27Pakistan progressive Cement

DandotColony

28 Rawal Pindi Electrics

29 Modern Steel Muredke

30 Multan Electric Supply Colony

31 Karim Industries Nowshehra Nishat

Nationalized Banks and their ownership

1 Habib Bank Ltd. Habib

2 United Bank Ltd Saigol

3 Muslim Commercial Bank Adamjee

4 Australasia Bank Colony

5 Premier Bank Arag

6 Habib Bank Overseas Habib

7 Commerce Bank Ltd Fancy

8 Memon Cooperative Bank Dawood

9 Lahore Commercial Bank Dawood

10 Punjab Cooperative Bank Dawood

11 Pakistan Bank Ltd Dawood

12 Bank of Bahawal Pur Dawood

13 Standards Bank

Natioanlized Insurance Companies

1 Eastern Federal Union (EFU) Arag

2 United Insurance Valika

3 New Jubilee Fancy

4 Adamjee Insurance Adamjee

5 Habib Isurance Habib

6 Premier Crescent

7 Central Dawood

8 IGI Packages

9 Union Nishat

1 Pan Islamic Shipping Arag Industries

2 United Oriental Shipping Arag Industries

3 Trans Ocean Shipping

4 Mohammadi Shipping Arag Industries

5 Pakistan Shipping

6 East and West Shipping

7 Gulf Steam Shipping

8 Chittgong Shipping

9 Crescent Shipping Crescent

Nationalized Shipping Companies

• Leading industrialists like Ahmad Dawood,Fakhar ud Din Valika and Retd. Gen. HabibUllah Khattak were imprisoned, names of allleading industrialists were placed on the ExitControl List and they were asked to surrendertheir passports. Several leading industrialistslike Seth Habib Aragwala were “GHARAOED"(Besieged) inside their offices by workers andthere were reports that the factory owners andmembers of their families were insulted andmaltreated.

• The Steel Corporation of Pakistan was one oflisted companies controlled by the Fancy groupand it was buying its input for steel makingfrom Pakistan Industaries limited, a whollyowned by Fancy subsidiary. The products ofSteel Corporation were marketed through aselling agent, steel sales limited, another Fancycompany

• M A Rangoonwala who was the biggestmanufacturer of vegetable ghee (Cooking oil)controled Libery-American Tank TerminalCompany which had the monopoly ofimporting edible oil.

SECOND PHASE OF NATIONALIZATION:

• Bhutto’s second bolt ofnationalization came on Jan 1,1974 when he decreed thenationalization of banks, lifeinsurance, shipping andmarketing of petroleum products.13 banks, over a dozen insurancecompanies, two petroleumcompanies and 10 shippingcompanies were nationalized.Finance Minister, Dr. MobasharHasan declared at a pressconference next day that bankshave been nationalized becausethe wealth of the nation must beused for the benefit of the nationand cannot be allowed to beconcentrated in the banks of afew individuals.

BHUTTO, HE SAID

• "Banks which till Monday were the private property of a group are now public property. All our big industries in the private sector were set up largely on the basis of financial accommodation provided by the banks and the financial institutions. Because of the previous governments obsessions with GNP growth, industrial power was concentrated in the hands of few rober barons." .

Bhutto and his cabinet ministers were neverapologetic about nationalization andstrongly defended it in meetings with thePakistan Federation of Chamber ofCommerce and Industry (FPCCI) and atsimilar other forums. It was argued by themthat the government was committed to endexploitation of labor class to improve theirworking conditions and break theconcentration of wealth.

On April 1, 1973 Bhutto told LahoreChamber of Commerce and Industary (LCCI)that "activity of public sector prevents theconcentration of economic power in fewhands and protects the small and mediumenterpreneurs from the clutches of giantenterprises and vested interests".

Another important step taken by Bhutto todiscipline the corporate sector to start workon new company law and test was assignedto Rahim jan, a Chartered Accountant fromLahore. By the time Z A Bhutto was oustedin July 1977 the draft of the company lawwas ready but Zia appointed a commetteeheaded by Irtaza Husain to study the lawwhich was promulgated only in 1984

• When Bhutto called elections in 1977 he hadbuilt a strong and sizeable public sector withpriority on cement, steel and fertilizers. Itwas on account of the great importanceattached to the fertilizer sector that Bhuttocalled upon a private sector entrepreneur,Syed Babar Ali of Packages Ltd. to headNational Fertilizer Corporation (NFC). TheNFC was a little more than a name when heassumed its control but within a year helaunched work on three new plants, i.e Pak-Arab Fertilizer at Multan, Pak-SaudiFertilizer at Mirpur Mithelo and HazaraFertilizer Complex at Haripur in the NWFP. Itwas also during the same period that workstarted on Fauji Fertilizer at Got Machi,Rahim Yar Khan in Southern Punjab.

• Not a single Fertilizer factory has been setup in post-Bhutto era but the projectslaunched by his government were enough tomeet the requirements for more than adecade. Even today the fertilizer projectssanctioned by Zia continue to face officialprocrastination because of strong importerslobby

• A detailed report about lobbies workingagainst the phosphate fertilizer projectssanctioned during Zia's era appeared inthe daily, Business Recorder of Feb 4,1994.

• According to the report, these phoshatefertilizer projects namely Al-NoorFertilizer, Fauji-Jordan Fertilizer and Pak-Gul were approved in 1983 but failed tomake headway for want of protectionagainst dumping. " Should the countrybecome self-sufficient or remain at themercy of industrial giants was the mainquestion?" the report asked.

• During Bhutto's era, work started on themuch-cherished Pakistan Steel Mills, theHeavy Foundary and Forge and severalcement factories like D G Khan Cement,Kohat Cement, Dandot Cement ETC.

• Thus the number of bank branches, includingbranches abroad rose by 75 percent from 3,295in December 71 to 5,727 on November 30, 76,covering all towns and villages with a populationof 5,000 in accordance with targets set after thenationalization of banks.

• In fact one of the most radical steps taken byBhutto government, even before nationalizationof banks was the promulgation of Banks ReformAct 1972 which assigned the State Bank ofPakistan the role of increasing the flow of creditto the agricultural sector.

• Under the act, State Bank was empowered toset target for lending to agriculture, imposingpenalties for defaults and ensured a 50 percentsubsidy on losses on such lendings.

• Agricultural produce rules were promulgated in1973 which stipulated that 70% of institutionallending should be for small land holders of 12.5acres or less, 20% for farmers with holdingsbetween 12.5 and 50 acres and 10% for largefarmers.

• The document " Promises andPerformance" also observed that" the nationalization of financialinstitutions, in effect meant theend of influence over them byindustrial groups which had thepotential to establishmonopolies, in various sectors ofeconomy ". Moreover it saidMonopoly Control Authority(MCA) was keeping a strict watchover the industries to ensure thatmonopolies do not develop.

• THIRT PHASE OF NATIONALIZATION:

• The third Phase of nationalization was2,000 cotton, ginning and rice huskingunits, came under the nationalizationprogramme. This programme met withadministrative nightmare and widespread public resentment. The thirdprogramme eliminated the role ofmiddle men, and it was rumored thatthe producer as well as consumers ofcotton, rice and wheat had been at themercy of middle men trading in themilling of these commodities, with theresult that producers were deprived ofdue share and consumer got poorquality and adulterated commodities atmuch higher prices. By 1977, thepeoples party's government had hadbuilt a strong and sizeable publicsector with priority on cement, steeland fertilizers

• IMPACT OF BHUTTO'S NATIONALIZATION ON ECONOMY OF PAKISTAN?

• There are various implications thatnationalization brought amongst them ; hyperinflation, drastic fall in production & GDPgrowth which consequently led to low savings &tax collections ,resultant amassingunemployment and loss of confidence in theinvestor sentiment.

• Zulfiqar Ali Bhutto was descendant of ruralagriculturist elites who had no idea of moderneconomics and industrial development .

• He deluded the idea that business thrives onconfidence. Bhutto's socialist policies againstthe business elite was believed to be a measureto narrow the gap between the rich and poor.But rather turned out to be an dictatorial moveto save his own skin from a rising industrial classfocused on educating the masses anddeveloping their skills

• Last but not the least, by 1977 Bhutto spopularity was severely tarnished at the sametime the national elections were nearing.Nationalization brought Pakistan s economy toits knees and sank the Pakistani public deeperinto poverty.

DISADVANTAGES OF NATIONALIZATION ACT OF 70s.

• The nationalization policies had disastrouseffects on economy and had damage theconfidence of investors in the country. Thenationalization programme financiallydevastated 22 oligarch families, while oneinvestor quoting: "industrialists not just lostindustrial units to Bhutto's nationalizationpolicy, they lost the urge to invest inPakistan.". Major affect included NawazSharif who lost the major steel mill, theIttefaq Group of Industries, and ChaudhryShujaat Hussain's Gujrat Enterprises. All 25shipping companies were mergedwith Pakistan National ShippingCorporation by Bhutto's nationalizationprogramme; those who protested wereimprisoned by the government.

• At an international level, the UnitedStates fully opposed thenationalization programme andmarked it as "ill-considered" decisionof the government. Former Primeminister Nawaz Sharif, an affectee ofnationalization process, gavevehement criticism and citednationalization programme as"lamentable state of Pakistan". Whileon the other hand, the unnamed andanonymous United States embassyofficer later further noted that:

• During Bhutto's five years inPakistan's helm, Bhutto had retainedan emotional hold on the poormasses who had voted himoverwhelmingly in 1970s generalelections. At the same time, however,Bhutto had many enemies.

• The nationalization of major privateindustries during his first two years on officehad badly upsets the Business circles, an ill-considered decision to take over the wheat-milling, rice-husking, sugar mills, and cotton-gaining, industries in July of 1976 hadangered the small business owners andtraders. Both leftists— socialists andcommunists, intellectuals, students, andtrade unionists— felt betrayed by Bhutto'sshift to centre-right wing conservativeeconomics policies and by his growingcollaboration with powerful feudal lords,Pakistan's traditional power brokers. After1976, Bhutto's aggressive authoritarianpersonal style and often high-handed way ofdealing with political rivals, dissidents, andopponents had also alienated many