The business competition environment in Pakistan has not been favorable for productivity enhancement and growth. The Competition Commission of Pakistan (CCP) has been working aggressively in the country but it remains ineffective with less than 1 percent of penalties recovered since 2008.
According to a study by the State Bank of Pakistan (SBP), CCP managed to recover only Rs. 33.3 million out of penalties worth Rs. 27,000 million since 2008.
Major penalties imposed by CCP included Rs. 150 million fine on Link-1 and Rs. 50 million to its founding members and Rs. 10 million to non-founding members; a penalty of Rs. 140 million on Pakistan Automobiles Manufacturers Authorized Dealers Association; a penalty of Rs. 100 million on Pakistan Poultry Association; Rs. 75 million on Pakistan Flour Mills Association, etc.
The commission has been facing serious legal challenges in implementing its decisions because companies under scrutiny often plead that the 18th amendment provides provinces the right of exclusion from federal laws.
As a result, any new action taken by the CCP is challenged, which inevitably results in the commission’s inability to perform effectively.
Since its inception in 2007, the CCP has taken about 127 decisions regarding firms’ anti-competitive behaviors and imposed penalties totaling Rs. 27 billion. It approved around 288 mergers and acquisitions and wrote 40 policy notes on various sectors of the economy.
So far 311 cases have been registered against CCP’s decisions of which 127 pertain to the constitutionality of its laws. Consequently, the recovery of imposed penalties becomes difficult, as the penalized parties obtain stay orders against CCP’s decisions.
Anti-Competitive Behavior Prevalent in Various Sectors
Public sector enterprises remain a major feature of the transport and energy sectors of the economy, while indirect interventions by government institutions in the manufacturing sector have also stayed persistently high. Both these developments have distorted the market structure of the economy and fueled anti-export and anti-innovation bias amongst the businesses.
Furthermore, despite the existence of a proactive competition agency (CCP), the overall competition policy environment is constrained owing to challenges that are more legal in nature than operational.
This has resulted in anti-competitive characteristics becoming more prevalent in the economy, a situation that is evident across most sectors as highlighted in the studies conducted by the CCP and the show-cause notices issued by the agency.
It is important to understand that governments in developing economies pursue multiple development goals, which may not always be compatible with each other. This represents a challenge for policymakers to balance their development strategies with preemptive and remedial measures against unwarranted spillover effects.
The latter implies ensuring that the competitive environment in the domestic market is not compromised, at least in the long term. Thus, the element of coherence is crucial to the effectiveness of different policies in the areas of trade and investment. In the case of Pakistan, the market solution may not always admittedly be the best solution in achieving development goals the economy has set for itself.
It may be argued that government interventions are needed in some of the sectors/industries where significant market failures are prevalent, including positive and negative externalities, public goods and information asymmetries, or redistributive policies that are pursued to achieve the broader development agenda. Such interventions, however, run the risk of going against the spirit of inculcating competition in the economy and generate a strong foothold of the government.
Pakistan’s economy needs a fundamental rethinking with respect to its regulatory structure. While a deliberate push might be needed to encourage export orientation, investments, and ensuring food and energy security in the country, this may not necessarily require direct interventions and heavy regulation by the public sector institutions.
Furthermore, even when government interventions are deemed necessary, such policy actions must not go beyond the initial objective of guiding business activities along a more sustainable and competitive growth direction.
If prolonged, there is a danger that dependence on public sector involvement may become a permanent characteristic of that industry/structure. In the long run, the role of the public sector should be confined to addressing market failures through structural reforms and providing broader institutional support to businesses.