For a long time, various Pakistani governments have aspired to privatize state-owned enterprises to prevent national losses due to poorly performing institutions. The demand for the privatization of public entities has consistently been a priority of international financial institutions. Though numerous state institutions have been privatized across different administrations, the state and government haven’t significantly benefited, while private buyers have often gained considerably.
The government faces legal challenges in realizing payments from private investments. Major national enterprises like Pakistan Steel Mills, Railways, and PIA are frequently cited as needing privatization. This reasoning may be valid, yet it’s also evident that local investors lack both the financial resources and the capability to manage such large networks. However, if the goal is to offer these to selected favorites, then perhaps anything is possible.
Global creditors press for their loans to be repaid, placing the government under pressure, and thus prompting the sale of national assets. The government is actively searching for international investors to purchase these significant national entities but, so far, no foreign investors have expressed practical interest in investing in Pakistan.
The Pakistani government, under the leadership of the Prime Minister, has invited various allied countries to invest and has promised to ease conditions for privatization. Unfortunately, the government has yet to successfully attract any foreign investors. There are various reasons why foreign investors avoid investing in Pakistan, including economic, political, social, extremism, and terrorism-related issues.
The IMF’s suggested reforms to stabilize Pakistan’s economy likely shape foreign investors’ views. They may question the future of their investments should Pakistan be unable to meet IMF conditions. The country’s economy has been unstable for years, with continuous currency devaluation, high inflation, and current account deficits making Pakistan less appealing to foreign investors. Frequent changes in democratic governments and legislative barriers also cause anxiety for external investors.
In Pakistan, there is no continuity in privatization policies. Different governments change their policies and sometimes use privatization for political objectives. Foreign investors expect a stable, long-term government policy, but in Pakistan, each administration has a different perspective on privatization, leading to uncertainty. Although security conditions have improved, foreign investors still seek reliable protection for their capital and rights, a system that is currently weak in Pakistan, often leaving investors to deal with unexpected government actions, tax issues, and delays in returning investments.
Moving to PIA’s privatization, it is currently the top priority in the government’s privatization plan. However, the main concern remains the lack of interest from foreign investors, who, despite recognizing the potential profitability of PIA, are still hesitant to participate. This reluctance is due to several major reasons.
The financial and managerial challenges facing PIA are a significant concern for investors. Although PIA faces annual losses, it boasts a strong brand image and a large base of loyal passengers, estimated in the millions annually. Due to government neglect, this institution has deteriorated over time. Delays in acquiring new aircraft, offering discounted or free tickets to bureaucrats and influential figures, and high operational costs for staff and facilities have led to PIA’s downfall.
Foreign investors are cautious about investing in financially unstable entities burdened with debt. Since PIA is a state-owned enterprise, the government makes key decisions, but foreign investors seek independent and impartial management. Political interference in PIA’s operations further deters investors. Additionally, outdated and fuel-inefficient aircraft significantly increase maintenance costs, affecting both performance and revenue.
Investors fear that even with significant investment, it may be challenging to modernize the institution effectively. PIA faces intense competition from well-established international airlines. Recently, the aviation industry has been struggling financially; though there has been some improvement post-COVID-19, factors like rising fuel prices, decreasing global passenger numbers, and high operational costs have made investors cautious about new ventures in this sector. They may perceive long-term investment in a financially weak organization like PIA as a risk.
These factors explain why foreign investors show limited interest in Pakistan’s privatization policy. If the Pakistani government can address these issues and provide a secure, transparent, and stable environment, foreign investors might be attracted to these opportunities.