Political clout of business groups
“THE problem with the fertiliser sector is that it doesn’t enjoy political clout like textile and many other lobbies do,” said Naz Khan, the newly inducted chief financial officer of Engro, while discussing the corporation’s plan to ask for an extension on its loan repayment obligations to banks.
Two things immediately sprang to my mind on reading this. One regards the political clout that business groups typically wield over government. And the other is the enormity of the fact that one of the country’s largest business conglomerates is asking its creditors to draw up a new loan repayment schedule.
The trick here is to understand how these two strands of the story are in fact linked.
For business groups, political clout in this country comes from being an essential link in an essential area. For instance, if you’re a large taxpayer, your position is strong and weak at the same time. You’re strong because if you drag your feet on your tax obligations you could potentially affect the government’s effort to meet an end-quarter revenue target. You’re weak because you can be blackmailed into paying more by an overzealous department official. Of course, if you’re pushed too hard, you can contest the matter in court and then all bets are off.
Or consider if you’re a major exporter and therefore a large supplier of dollar liquidity to the country’s money markets. Chances are pretty high that your export proceeds are under-invoiced to avoid taxation and the remainder of your proceeds, which are off the books, sit in dollar accounts in Dubai or elsewhere.
How and when you trickle these dollars back into the country can have an impact on money-market dynamics, and perhaps on a couple of occasions you’ve received a call from the State Bank requesting that you please play your part in helping overcome a temporary shortage of greenbacks in the market.
Whenever you hear business groups going to great lengths to proclaim how much they pay in taxes or how much foreign exchange they contribute to the country, they are in fact drawing the government’s attention to this essential role they perform in managing the country’s economy. They do this in the hope that high-ups in the government will understand that some underling somewhere is pushing on this delicate relationship too hard, and that you have options to retaliate if that underling isn’t brought to heel.
There are large business groups that have no clout of the sort mentioned above. They’re often left to their own devices, such as the polyester manufacturers who took a terrible hit shortly after this government came to power and withdrew the essential protective duty on polyester imports behind which all of them were operating. But they had little to no clout to get the government to change its mind.
Other times such groups buy their influence and keep out of the limelight. You rarely see advertisements from them in newspapers proclaiming their cause, you never see their representatives on TV arguing the case for their industry. The cement cartel comes to mind as one example, and so do the oil and gas companies, who are deprived of their clout by the overarching presence of PSO in the field.
So when the refiners were taken to task by the Bhagwandas commission’s report, for instance, you heard not a squeak from them in public. Yet somehow the moment passed without them being forced to invest much money into building the strategic reserves that the terms of their licences mandated upon them, a lapse for which they had been roundly castigated in the report.
Textile-sector groups have tremendous clout, but the whole sector is hamstrung by the politics of the business groups that comprise it. The number of internal issues that these business groups have with each other probably outnumbers any issues they have with the government as a whole. They’re divided along every line you can think off: big vs small, composite units vs specialised outfits, Wapda vs captive power, Karachi vs Lahore, spinners vs ‘value added’, factions led by the Nishat Group vs everybody else and so on.
Business clout is in fact a big topic and not enough gets written about it. The tight embrace between business and politics in this country, as in every country, is a topic that needs far more light cast upon it. But for now, I want to return to the topic at the opening.
If Engro is complaining that it cannot match the clout of the textile industry when it comes to the crucial question of gas allocations in this time of dwindling supplies, then we need to consider what business clout is and how it comes about.
The fertiliser sector, or at least that portion of it which is dependent on SNGPL for its supplies of gas, has reported dismal losses of Rs5.5bn in its half-yearly results posted earlier this month as the manufacture of indigenous urea has plummeted, reportedly by almost 50 per cent. These are staggering numbers. On the other hand the government tendered for import of another 50,000 tonnes of urea fertiliser in late July, shortly after the announcement of these results, almost as if it was mocking domestic fertiliser manufacturers.
In fact, in the outgoing fiscal year the price of urea fertiliser skyrocketed for the farmer and the subsidy on fertiliser import also skyrocketed to Rs45bn from a budgeted Rs12bn. So if the farmer, the taxpayer and the fertiliser manufacturer were all losers in this gambit — to starve local manufacturers and divert taxpayer resources towards imports while letting prices in the local market climb — the question naturally arises: who was the winner?
And this is where things start to get interesting, because this is where clout meets power and the fun really begins.