The Pros And Cons Of Privatization In Pakistan
Introduction:
Privatization is defined as the process of transferring control of an organization from the government sector to the private sector. This can also mean that the ownership of an organization is transferred along with its’ control. However, this might not be the case always. To further elaborate the concept, privatization means a service that was provided by the government is now sold (partly/wholly) to the public. The public then becomes the shareholders or stakeholders of the specific organization being privatized.
There are two ways to carry out this process; by sale of the organization or by leasing the organisation. The government can privatize an enterprise by either selling the 100% of the enterprise or by 51% of the enterprise
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This can be further elaborated by the example given below.
PTCL-an example:
PTCL, Pakistan Telecommunication ltd., was a state owned company. It is the largest telecom company in the country. It suffered from insignificant growth in the telecom industry in Pakistan as a whole due to government ownership and monopoly of the company in the market. This is why the government decided to privatize the organization in 2005.
The analysis done by many researchers in Pakistan, show the effect of the privatization on the company. When the company was privatized, its share price initially grew from Rs.37.55 to Rs.55.13 (PTCL financial reports). Moreover, the standard deviation was higher in the post privatization period thus suggesting that the volatility in the share price increased. Similarly, the uncertainty in the value of stock return increased, suggesting that average return on stock of PTCL decreased in the post privatization period. In addition to this it was found out that privatization had negative impact on net profit margin of the company, showing decline in the company’s financial
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