Bushra Umer

ROLL NO 001
M.PHIL 2015-17

Emerging markets: Strategic role of

Governments and Private Sector
Development

Writers Introduction

Writers Introduction
Prof Boualem Chennoufi
College of Business and Economics UAE-University
Educational qualification
PhD,Strategic &Change management,University of Bradford,
Uk(1996-99)
MBA, International Mangement, University of Dallas,UK(1979-81)

Introduction

Governments 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 taxes
Increased competition
Improve efficiency and transparency
Reduce overstaffing
Recover of cost

1. Strategic changes in the role of

government
2. Private sector development

Strategic changes in the role of government

Redefinition of role of government

Most important role: provision of order in transaction

and macro economic stability

Role of govt. in provision and distribution of goods must
shrink dramatically
State 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)

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 dollars
Rank among the global leaders
Privatization 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.

Low tax revenue because

of inefficient tax system

Increased public
expenditure

Large deficit

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 equipment
Oversized workforce
Inappropriate mix of skills
Expensive social responsibilities to workforce and large
debts
Not 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).

Pakistans 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 PTCLs 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.