Political Economy of Sugar

Political Economy of Sugar
The Commission of Inquiry Reports into the sugar and energy industries have educated us in the wanton ways of crony capitalism and selected or guided democracy in Pakistan. Therefore this is the right time to ask some hard questions about the way the ruling elites (“ashrafia”) of politicians, bureaucrats, generals and even judges have abused the economy to serve personal or political interests.

The Independent Power Producer (IPP) policies of the 1990s and 2000s were rigged by ruling politicians and crony capitalists to extract substantial profits, kickbacks and commissions that pushed up the rates at which energy was bought by the government. And electric power was subsequently sold to the public at the highest cost in the South Asian region. When some attempts were made to redress the balance, the judiciary stepped in, sometimes to protect the IPPs and sometimes to censure them with disastrous results as in the Karkey case -- but never to convict the criminals in private and public life who had pocketed the commissions and defrauded the public. This is one major reason why the circular debt of the power sector has sky rocketed.

The sugar industry better illustrates the powerful nexus between the ruling elites who quickly recognized its potential for state largesse and private profit to secure political advantage. Starting in the late 1950s and continuing until 1990, 28 sugar mills were sanctioned by the civil-military oligarchy to the old landed aristocracy that was always on its right side or to its new urban political allies under Generals Ayub Khan and Zia ul Haq. The objective was to harness the various Muslim Leagues (Convention, Qayyum, Pakistan, etc) to do its bidding against the secular NAP and then the PPP opposition/regimes of the times. During this period, the Saifullahs, the Ittefaq Group, the Chaudhries, etc., and similar political allies were thus endowed. From 1990 to 1998, the PML and PPP helped themselves directly to the cake by sanctioning 31 new mills. Subsequently, the Jehangir Tareen “model” was introduced by General Musharraf who went one better and added Khusrau Bakhtiar, etc., to his cartel of cronies, both coming good in recent times to select the Imran Khan regime.

In this model, the government sets the cane price for the farmer, then allows the sugar mills to set the sugar price calculated by the cartel on the basis of jacked-up production costs and politically manipulated export subsidies for the federal and/or provincial government. The model is so rigged that, on average, the total tax paid by the industry (on the basis of fudged accounts and out of book cash transactions) is often only a fraction of the subsidy received from the government. Indeed, this industry is probably the single largest source of money laundering in the country while the sugar barons openly pull political strings and operate ATMs at the behest of their subsidizing political masters.

The truth also is that this is one industry that Pakistan does not need at all. The sugarcane crop guzzles scarce water resources that could be more profitably exploited by cotton and wheat for genuine export forex purposes. The international price of sugar is invariably lower than the Pakistan price too, which means the public and national exchequer is being ripped off on both counts.

It may be instructive to note the salient points of the sugar inquiry report to further understand the economics and politics of the issue. The report highlights the crooked economic manipulations of the cartels and indicts them for forensic audit by regulatory bodies. But it doesn’t squarely pin federal responsibility for sanctioning export at a time of impending scarcity, nor the granting of a hefty subsidy by the Punjab government when exchange rate depreciation had already enabled windfall profits to exporters. At best, the FBR will huff and puff before a battery of high powered lawyers employed by the cartel to thwart the tax collectors and regulators. Meanwhile, the Miltablishment will protect its own Tareens, Khusraus, Chaudhries, etc. for political manipulation in the future, and Imran Khan and his cabinet colleagues who share responsibility for the recent crisis will shrug their shoulders and move on under its umbrella.

Of course, the sugar “crisis” shouldn’t end this way. If Imran Khan were a man of his word – unfortunately, the record on that front isn’t good – he should seize this opportunity of public outrage and set things right. He should immediately move a Bill in parliament or a Presidential Ordinance to indefinitely outlaw federal or provincial subsidies to domestic sugar manufacturers; allow free imports of sugar in the private sector without protectionist duties; and let the market decide which crops are to be cultivated by farmers and which finished goods or raw materials are to be exported by businessmen on the basis of competitive international trade and commerce. This will end cartelization, hoarding, artificial shortages, price hikes and money laundering. It will also lead to a more efficient and productive use of land and water. That is the only way to end the hegemony of sugar barons who have devastated the political economy of Pakistan.

Najam Aziz Sethi is a Pakistani journalist, businessman who is also the founder of The Friday Times and Vanguard Books. Previously, as an administrator, he served as Chairman of Pakistan Cricket Board, caretaker Federal Minister of Pakistan and Chief Minister of Punjab, Pakistan.