Dissecting the capital erosion

A business ecosystem facilitates the growth and prosperity of firms by providing access to finance and an efficient value chain. Its objective is to ensure fair benefits across sectors, preventing undue advantage for any one sector at the expense of others. However, the current business ecosystem in Pakistan primarily favours feudal, urban elites, and semi-government corporations. Pakistan’s economic structure has been unfavourable for the formal sector. In the 1960s, Pakistan’s ambition to become an “Asian Tiger” resulted in the consolidation of power among 22 families who controlled key industrial, insurance, and banking assets. Pakistan has heavily relied on foreign aid from the US since the 1960s, which led to the growth of rent-seeking industries. Prime minister Bhutto implemented a nationalisation process, bringing 70 industrial units under the Federal Ministry of Production. This decision raised concerns and frustrations among investors. However, General Zia’s regime returned the industrial units to their original owners. Land reforms introduced by General Ayub and Bhutto to reduce the power of feudal elites faced reversal when the Shariah court deemed them unIslamic. In the 1990s, the country faced uncertainty with nationwide bank closures and the freezing of $7 billion in foreign currency accounts due to US-imposed economic sanctions. Within a span of nine years, four governments were removed from power, further contributing to ongoing instability.