Uzair Younus, director of the Pakistan Initiative at the Atlantic Council’s South Asia Center.
Pakistan’s economy is facing another crisis as the country reaches a staff-level agreement with the International Monetary Fund to resume the support program that was suspended earlier this year. The finalization of the agreement will unlock inflows of almost $1.2 billion, critical to helping stabilize the country’s economy.
This latest crisis is part of the decadeslong economic decline of the country, which has been captured by a kleptocratic elite. This system is underpinned by Pakistan’s powerful military, which operates a multibillion-dollar corporate empire across various sectors.
To many observers, the military’s dominant role in the economy must be curtailed if Pakistan is to achieve sustainable growth. But well-meaning as they might be, these efforts have consistently failed to date, meaning that Military Inc. continues to be the dominant player in Pakistan’s economy.
It is time to accept that rather than trying to cut this empire down to size, it may be more fruitful to develop Military Inc. 2.0: a corporate empire that is globally competitive.
Pakistan’s military began playing a role in the economy soon after independence. The construction of the 805-km cross-border Karakoram Highway in the Himalayas was a major inflection point. The Frontier Works Organization was formed then with the mission to construct the highway on the Pakistani side.
Today, military-run organizations have their tentacles spread across the entire economy, with the military-owned Fauji Foundation being one of the largest conglomerates in the country. The government has exempted both the Army Welfare Trust and the Fauji Foundation from income taxes, giving them an edge over privately owned companies.
The military also operates housing developments across the country, with the Defence Housing Authority (DHA) a dominant force in the country’s real estate sector. While the initial aim was to develop homes for serving and retired military personnel, DHA has since evolved into a multibillion-dollar entity with a presence in all major cities.
The military’s economic footprint, however, is indicative of broader economic issues plaguing Pakistan. For decades, Pakistan’s civilian and military elites have extracted wealth by engaging in highly protected, low-productivity sectors. As a result, Pakistani businesses are both globally uncompetitive and provide shoddy services to domestic consumers.
An example is the DHA project in Karachi, built on land reclaimed from the Arabian Sea. The predominant role enjoyed by the military meant that development of the DHA site occurred without proper access to proper stormwater drainage, resulting in multimillion-dollar homes, paid for in cash, routinely being flooded during monsoon rains.
Political volatility and instability have further compounded the problems, leading to an anemic rate of foreign direct investment, particularly in export-oriented sectors. The result: recurring balance of payments crises that require bailouts.
To emerge from this crisis, Pakistan’s military must learn from its strategic ally China. While the Chinese regime also began with military-run organizations developing public infrastructure, over the decades, it has developed companies that have a more global outlook.
In addition, China focused on improving quality by leveraging technology while also investing in global best practices. This ensured that the country built globally competitive businesses that enhanced China’s technological reach, such as telecommunications group Huawei Technologies.
Pakistan’s military would do well to mimic China’s strategy to become globally connected, competitive and innovative.
Such a reconfiguration may solve Pakistan’s macroeconomic challenges and recurring external crises, as the military is finding it difficult to muster resources required to compete with an India that is growing at a faster pace and rapidly modernizing its military. This is tilting the balance of power in the region toward India, creating national security risks for Pakistan.
The logo of Huawei Technologies on top of a building in Copenhagen: Pakistan’s military would do well to mimic China’s strategy to become globally connected, competitive and innovative. © Reuters
Critics will argue that reorienting the military’s corporate empire will only worsen the challenges facing Pakistan’s floundering democracy. This concern is valid, but Pakistan’s growing economic challenges mean that it is time to prioritize sustainable growth and socioeconomic development.
Changing the military’s corporate approach is likely to create the space for broader economic reforms that are urgently needed to end Pakistan’s protracted economic decline.
The experience of the last few years shows that there is, at least in the near term, no political party capable of challenging and dislodging the military from its dominant role.
The next best alternative is to leverage the military’s economic empire to transform the country’s economy. But the question is: Do Pakistan’s generals have it in them to reform in a way that generates wealth for their country?
With millions of younger Pakistanis joining the workforce and failing to find jobs, the time for a different approach is now.
July 21, 2022
Source: Nikkei Asia
Editor