Discuss the problems faced by Pakistan from Afghanistan.

The conflict and instability in Afghanistan in the aftermath of 9/11 attacks and their regional
implications had very negative repercussions for the years following the US invasion of Afghanistan
not only saw a huge influx of Afghan refugees across the border into Pakistan but also witnessed a
sudden spike in the frequency and scale of terrorist attacks in Pakistan. The cumulative impact of
these developments adversely impacted the overall growth rate in all major sectors of the economy.
Pakistan continues to pay a heavy price both in the economic and security terms due to this situation
and a substantial portion of precious national resources both men and material, have been diverted to
address the emerging security challenges for the last several years. The rise of violent extremism and
increase in terrorism in Pakistan due to instability in Afghanistan not only caused serious damage to
Pakistan’s economy but has also been responsible for wide-spread human suffering due to
indiscriminate attacks against the civilian population.

This situation disrupted Pakistan’s normal economic and trading activities which not only resulted in
higher costs of business but also created disruptions in the production cycles, resulting in significant
delays in meeting the export orders around the globe. As a result, Pakistani products have gradually
lost their market share to their competitors. Consequently, economic growth slowed down, demand
for imports reduced with declined tax collection and inflows of foreign investment. Investment
outflow and negative trends of out sourcing of capital in Pakistan has further added to the woes of
dwindling performance of the export oriented industry.

During the last 13 years, the direct and indirect cost amounted to US$ 102.51 billion equivalent to Rs.
incurred by Pakistan due to incidents of terrorism 8,264.40 billion.

Pakistan needs enormous resources to enhance productive capacity of the economy by repairing
damaged infrastructure and to create a favorable investment climate. The security situation will be the
key determinant of future flow of the investment. Pakistan’s economy needs an early end to the
conflict in Afghanistan as well as its negative impact over regions bordering Afghanistan in the form
of violent extremism and terrorism for revival of the economy and to keep stability in the system.
Issues of Concern for Pakistan

Pak-Afghan Border

To improve Pak-Afghan relations substantially, this fundamental bilateral issue must be

addressed. The Pak- Afghan border witnesses an unprecedented and unmonitored movement
of around 56,000 people daily, with more than 90 per cent of the flow originating from
48
Afghanistan into Pakistan. Successive governments of both countries have been facing
immense domestic security threats largely emanating from the unrestricted movement of
militants across the Pak- Afghan border.

Although internationally the „Durand Line‟ is accepted as a recognised border, all successive
Afghan governments, including the Taliban and the Karzai government, have rejected and
considered “irrelevant

It is also important to highlight that insurgent groups operating in both states including the
Afghan Taliban and the Haqqanis in Pakistan do not recognise the legality of the border. And
now, the Tehreek-i- Taliban Pakistan (TTP) follows the same logic.

Apart from the legal crossings, insurgent activity has also been taking place under the garb of
trade. Militant groups have often moved freely across the Pak-Afghan border by exploiting
the existing transit trade agreements, such as the Afghan-Pakistan Transit Trade Agreement
51
(APTTA), which was renewed in 2011. The selected routes through which the Pak-Afghan
trade occurs and Afghan goods are transported pass through major cities and towns such as
52
Karachi, Quetta, Chaman/Spin Boldak, Peshawar, FATA, and Torkham, where militant and
terrorist outfits such as the TTP have an active presence.
The policy of nationalization failed to achieve desired results. As a result of this policy

management of the industrial units passed into the hands of corrupt and inefficient

bureaucracy and ruling party workers and the performance of all the nationalized industrial

units badly deteriorated. Due to shortfall in the production and because of higher

production costs, prices of essential items of daily consumption like flour, ghee and sugar

enormously increased.

In order to avoid unrest of the masses, salaries were raised. This resulted in high rate of

inflation. Economic condition of the country further deteriorated when industrialists and

investors started shifting their capital out of the country.

Emoluments of the nationalized education sector employees and the cost of running the

nationalized education institutions proved to be a great burden on national treasury.

Students were allowed to travel, almost free of cost by public and private transport. Private

sector transporters were reluctant to extend this favor, this caused an atmosphere of
constant tension among students and the transporters. The liberty given to the students

made them negligent and carefree. Academic standards started deteriorating. Student's

Unions became great threat to law and order.

Discuss the failure of Bhutto’s nationalization policy.

A large number of Christian educational facilities were also nationalized in 1972. One example is
Gordon College in Rawalpindi.
After the success of the first stage, the nationalisation programme stepped into the second stage
when it was launched on 1 January 1974, intending to nationalised the banking and financial
industry and sector in Pakistan. Passed by the parliament, over 13 major banks, over a dozen
insurance companies, two petroleum companies and 10 shipping companies were forcefully
nationalised.
The third programme soon launched on 1 July 1976, when approximately 2,000 cotton, ginning
and rice husking units came under the nationalisation programme.[9] This programme met with
administrative nightmare and widespread public resentment. The third programme eliminated the
role of middle men, and it was rumoured that the producer as well as consumers of cotton, rice
and wheat had been at the mercy of middle men trading in the milling of these commodities, with
the result that producers were deprived of due share and consumer got poor quality and
adulterated commodities at much higher prices.
those who protested were imprisoned by the government.[11]

Political interference opened doors for corrupt political practices to seep into the nation's
economic planning processes. The nationalisation programme badly affected the reputation of
the Pakistan Peoples Party. Accumulated losses of up to Rs 254 million were reported with
several instances of over-staffing and inefficient productivity in heavy mechanical industries.

Nationalization in Bhutto’s era was one of those decisions. 22 Families lost everything that they had
worked for all their lives. BECO (Batala Engineering Company) is one such example.

At its peak BECO employed 6,000 workers producing tools and engines that drove forward Pakistan’s
fledgling economy. A model of Pakistani industry and the pride of Pakistan, BECO was a regular stop
by visiting foreign dignitaries.
1972 his government promulgated the Nationalization and Economic Reforms Order nationalizing 31
key industrial units, completely wiping out BECO.

In October 1977, Gen Zia-ul-Haq offered to return control of the company to Mr Latif and his
management. Mr Latif refused to accept the offer unless the same were extended to owners of all
nationalised industries.

ANSWER

The term nationalization refers to placing private sector institutions e.g. industries, hospitals,
insurance companies, banks, etc. under governmental control. In other words, it is a process in which
private ownership of assets is taken over by public ownership.

Bhutto regime adopted the policy of nationalization with an aim to:

1. take control of industrial production and promote industrialization through proper
utilization of funds;
2. enhance the living standard and working conditions of the workers, including the
provision of cheap housing for public sector employees;
3. Provide the workers with the right to form their unions to prevent anti-worker policy or
measures;
4. end the economic disparity and inequality that had enabled a handful of elite people to
own a lion’s share of industrial wealth. According to different accounts, there were twenty
industrial houses in the country that owned 65% of Pakistan’s large-scale industry. This
small yet powerful elite class influenced the successive governments as they funded other
reforms.
5. Last but not the least, Z. A. Bhutto wanted to raise the popularity of his political party
among the urban people who formed a major part of his political support.

What were the institutions that Bhutto nationalized?

Zulfiqar Ali Bhutto brought almost all major industries, schools, banks, insurance companies under
government control.
The nationalized industries included all major metal (iron, steel) industries, heavy engineering, and
electricals, petrochemicals, cement, etc. In addition, he nationalized the cotton, rice, vegetable oil, and
sugar industries. Similarly, he nationalized major banks, insurance companies, and schools throughout
the country.
In all, there were 70 major industrial units that the Bhutto brought under public control.

Favorable Impact of nationalization?

By the end of the 1960s and in the wake of the 1971 breakup, Pakistan witnessed a spike in the
inflation rate which was more than 10%. Bhutto’s nationalization policy however was successful in
bringing inflation to 6% in 1976.
The reforms were introduced at a time when the world was facing a global recession. Companies all
over the world faced declining demand for their goods due to the reduced purchasing power of people.
Consequently, major companies had to face closures as they could not afford to pay their employees
and operate at a loss

In such a fragile economic situation, the private sector enterprises in Pakistan also would have closed
but the nationalized industries in the country continued to operate. As a result of the persistent
operation of the industries, the economic growth of Pakistan also began to improve .

Failure of Nationalization

The nationalised companies were put under the management of the Board of Industrial Management
(BIM).

- The categories were defined vaguely, so that it was possible to take over some units and leave out
others. This was particularly true in the light engineering sector where small units belonging to
political opponents were taken over while much larger units were left untouched.

No assessment was made of the nature of the units which were selected for nationalisation. Some of
the units were already making huge losses. Taking over these sick units heavily burdened the public
sector and was a drain on its resources from day one.

Originally, there was no mention of compensation. Later, a compensation formula was given, but the
principle of adequate compensation was never accepted.

In 1972-73, BIM units employed 40,817 people, but the number went up 64,643 people in 1976-77,
up 58 per cent. But production did not increase correspondingly, with labour productivity declined in
a majority of units, according to government statistics.

Salaries, wages and other benefits for the BIM as a whole increased over 322 per cent .

Despite the increase recorded in sales numbers (in nominal terms because of price increases), net
earnings were negative on large capital invested in these undertakings. Among the industrial units,
profits were available only in the cement sector where repeated price increases were introduced.

A number of industrial units were set up without economic consideration. A notable example is the
sugar mill set up by PIDC in Larkana. PIDC had pointed out that a sugar factory in Larkana may not
be viable, as Larkana was not a cane-growing area. The cane had to be supplied to the factory from a
distance of 150 miles. It was established nonetheless and had incurred a loss of nearly Rs20 million in
the first two years of its operation.

In October 1977, the military government appointed a commission to review the financial position of
state-owned enterprises. The commission reported that only 15 out of 54 units were in a position to
maintain profitability in 1972-77.

Reviewing the cumulative position of the entire Bhutto years, the commission report said net
accumulated losses for the 54 enterprises taken together was Rs320.9 million.

The commission report said the labour productivity declined in 39 out of 54 units.
- The commission reported that 30 of these units were operating on an average below-70 per cent of
installed capacity.

- At the end of 1977-78, there were 12 BIM units that had a negative net worth compared to only two
units in 1970-71.

In one case, a primary schoolteacher was appointed a factory manager,. In another case, an Inspector
in Market Committee of Thari (Tehsil Mirwah, District Khairpur) was appointed deputy manager on
the orders of a minister.

(Vegetable ghee industry) In the three years following the nationalisation of this industry, number of
workers employed increased by one-thirds. Mismanagement resulted in aggregate losses of Rs24.3
million and Rs29.4 million in 1974-75 and 1975-76, respectively.

One of the rationales for nationalisation, according to the government, was to ensure stability in the
prices of everyday use. However, history shows prices rose faster than they increased in the preceding
decade.

Sharp fall in investment

- As a result, large industrial families started moving out of Pakistan with whatever they were left
with. The Dawoods moved to Texas, United States, the Saigols started investing in the Middle East
and the Habibs focused on Europe for growth opportunities.

Owing to a rapid increase in prices, export growth in nominal terms for the period following 1972-73
was 7.2 per cent per annum.

Inflation equalled 17.3 per cent per annum during 1972-77. While the government tried to blame it on
the global energy crisis in 1973-74, global statistics show Pakistan’s inflation rate was significantly
higher than the average for Asian countries (11.6 per cent) for the same period.

- The balance of payments deficit on current account jumped 795 per cent during Bhutto years —
from $100.8 million in 1972-73 to $902.5 million in 1976-77.

- Most of the deficit was financed by external borrowing. Outstanding external debt more than
doubled to $6.3 billion between December 1971 and June 1977.

- The net external borrowing in five years of the Bhutto regime was equal to the total borrowing in the
previous 25 years.