Failed Generations (A reserch thesis on failed transformation of family businesses of Pakistan in to Capitalist institutions)

Failed Generations

M u h a m m a d A r s a l a n A h m e d

G l o b a l & S o u t h A s i a n

B u s i n e s s D e v e l o p m e n t I I

M B A 2 0 1 5 , 0 0 4 8

T e r m P r o j e c t

5 / 1 9 / 2 0 1 4

A study on why family enterprises

are failed to continue legacy in

Pakistan and unable to found

institution of capitalism, in the light

of detail political and socio-economic

history.

Studied the overall political and social history making

the Dewan Mushtaq Group a case study and studying

major hindrances in Pakistani economy and drawing

some of remedial measures.

GSBD II Term Project Submitted to: Dr.Imran Ali By Muhammad Arsalan Ahmed (M150048)

1

Table of Contents The Crash _________________________________________________________________________ 4

First democratic era (1947–1958) ____________________________________________________ 5

First Coup d'état and military era (1958-1971) _________________________________________ 6

The Bhutto Era (1971 – 1977) _______________________________________________________ 8

Zia Era, 2nd coup d’état (1977-1988) ________________________________________________ 10

Third Democratic Era (1988-1999) __________________________________________________ 11

The Musharraf Era ,3rd coup d’état (1999-2008) _______________________________________ 12

Fourth Democracy,2008-onwards __________________________________________________ 13

The Case _________________________________________________________________________ 17

Dewan Mushtaq Group_____________________________________________________________ 17

Fight against Might for Right ________________________________________________________ 18

History in Making _________________________________________________________________ 19

Increasing the Trouble by Government _______________________________________________ 20

New Fuel _________________________________________________________________________ 22

This was never thought to be an end _______________________________________________ 23

Stuck in between Nowhere by poor practicing CEOs _________________________________ 24

Moving On _______________________________________________________________________ 25

One last attempt. __________________________________________________________________ 27

Moving forward with our analysis ___________________________________________________ 28

Economic Obstacles ________________________________________________________________ 29

Social and Cultural Obstacles: _______________________________________________________ 30

Remedial Measures for Economic Development _______________________________________ 31

To the DMG case Again ____________________________________________________________ 33

Family business Hierarchy and Trust problem: ______________________________________ 33

Uncertain governmental policies: __________________________________________________ 33

Institutional Cover: ______________________________________________________________ 33

Corrupt Leadership: _____________________________________________________________ 33

The DMG; from Glory to Ashes: _____________________________________________________ 34

APPENDIX _______________________________________________________________________ 35


2

Bibliography _____________________________________________________________________ 37


3


4

The Crash It was a usual trading day of 2008 on the trading floors of Karachi stock exchange and KSE 100 index was floating on its market averages, but there was something waiting, not everything was going normal, a storm or black Friday of Pakistan based firms was waiting. It all came just with the announcement of the 2nd quartile reports of Dewan Mushtaq Group when they announced

the largest bank default in the history of Pakistan, just In June 2006; Dewan Mushtaq Group’s

(DMG) sales were over $665 million. It was under a long term debt of $175 million on the books

and posted a net profit of $5.8 million. A year later it announced its first net loss ever recorded,

and a year later who would say that they will come to such a miserable fate.’

The scale of DMG1 was remarkable. It was the biggest

maker of polyester, prepared cotton yarn, ran the greatest sugar plant, and amassed Kia Classic,

Hyundai Santro autos and Star bicycles. It claimed a concrete organization that had plants in

south and north and its Dewan Petroleum was sitting on 235 billion cubic feet of gas stores. The

gathering was a wholesaler of Bmws and Rolls Royce and ran numerous organizations on the

sideline including DMART shops. Sixteen thousand representatives were on its payroll.

Dewan had at no other time defaulted on any credits. Its lead Dewan Salman Fiber was the best

evaluated privately owned business in the nation all around the 1990s. Regarding modern

assorted qualities, few Pakistani bunches verged on matching them. They had nine recorded

organizations.

"The inquiry is if the intense reduction in the gathering's turnover 2007 onwards, which set

off the defaults, came about because of its disappointment to offer the produce or its failure

to purchase crude material," commented the ex CEO of a bank.

In order to find the answer of this question we are going to take down our research on multiple

angles starting from the political and economic changes of Pakistan to the some insights of life

cycle and phases of DMG and lastly figuring some ideas of what are the real Obstacles and there

remedial measures for Pakistan as whole so that it can be the state which also enjoys the benefits

of allowing to grow institution of capitalism and the family businesses here can turned to be the

capitalist institution rather than drowning after one or two generations as we saw in the case of

DMG.

The Pakistan

On August 1947, the British Empire partitioned the British Indian

Empire into two autonomous and sovereign nations, India and

Pakistan. Instantly after the autonomy, both countries joined the

British Commonwealth. The autonomy of India and Pakistan made the

between religious viciousness of such greatness that trade of populace

along religious lines turned into a need in every nation. More than two

million individuals moved over the new fringes and more than one

hundred thousand kicked the bucket in the spate of mutual brutality,

that spread even past these Territories. Significant brutality emitted

succeeding the division of Punjab, Bengal, and Kashmir

which raised into prompting the first war between India and Pakistan.

1 DMG: Dewan Mushtaq Group


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With aid and further United Nations (UN) and Soviet Union's contribution finished the war

however it turned into an until now uncertain Kashmir question.

Taking after the freedom, the Pakistan got included in nonstop regional debate with India (in

east) over Kashmir and Bengal and with the Afghanistan (in west) over the tribal line. Its

political history has been portrayed by tyrant military standard and the short vote based rivalry

between conservative preservationists and left-wing gatherings all around its history.

First democratic era (1947–1958)

In 1947, the Founding fathers of Pakistan concurred upon to choose

Liaquat Ali Khan as nation's first Prime pastor with the organizer of

Pakistan, Muhammad Ali Jinnah, tenuring as both first Governor-General

and President-Speaker of the State Parliament.his Finance secretary

Victor Turner declared nation's first fiscal arrangement by securing the

State bank and elected authorities of detail and income to enhance the

measurable fund, levy, and income accumulation in the country.[92]

Ideological and regional issues emerged with neighboring communists

states, Afghanistan and Soviet Union over the Durand Line in 1949, and

with India over Line of Control in Kashmir which was a theater of first

war in 1947.[91]

Strategic distinguishment got testing issue when Soviet Union headed by Secretary-General

Joseph Stalin did not welcome the division which made Pakistan and India. Iran was the first

nation to perceive Pakistan in 1947.[93] In 1948, Ben-Gurion of Israel sent a mystery messenger

to Jinnah to build the conciliatory relations, yet Jinnah did not given any reaction to Ben-Gurion.

Throughout the huge political rally in 1951, Prime clergyman Liaquat Ali Khan was killed in

Rawalpindi, and Nazimuddin turned into the second prime minister.in 1954, the dubious One

Unit Program was forced by the last PML Prime pastor Ali Bogra isolating Pakistan on the

German geopolitical model.[100] that year, the first administrative decisions were held in

Pakistan, which saw the Communists picking up the control of East-Pakistan and master

american republican gathering in west pakistan.

Hussain shaheed suhrawardy turned into the Prime

Minister and Iskandar Mirza the president in 1956

from the samee gathering which passed 1956

constitution and likewise named Pakistan as Islamic

republic.

Suhrawardy's remote arrangement was controlled

towards the enhancing broke relations with the

USSR, fortifying and creating relations with the U.S. furthermore China in the wake of paying

first state visit to both nations. Egoistic issues developed between the two Bengali pioneers

further harming the solidarity of the nation, which soon constrained Suhrawardy whose political

http://en.wikipedia.org/wiki/File:Mujib-Suhra.gif


6

position in his gathering lost an edge in a developing impact of

minister, Maulana Bhashani resigned under a risk of Mirza's release,

Suhrawardy was succeeded by II Chundrigar in 1957.

Inside two month, Prime Minister I.I. Chundrigar was rejected; trailed

by Sir Feroz Noon, who turned out to be an inadequate PM. The

backing of Pakistan Muslim League headed by Nurul Amin started to

get its backings which debilitated President Mirza who was

unapproved by people in general. In under two years, Mirza rejected

four chose head administrators, and was progressively in

extraordinary weight for calling for new decisions in 1958.

First Coup d'état and military era (1958-1971)

The parliamentary framework arrived at an end in 1958, succeeding the

inconvenience of military law. Stories of debasement in common

organization and open organization had censured the fair process in the

nation as general society appeared steady towards the moves made by

General Ayub Khan. Real land changes were done by the military

government and implemented disputable Elective Bodies

Disqualification Order (EBDO) which at last excluded Suhrawardy

from holding the general population office. Presenting another

presidential framework called "Essential Democracy", which offered

the Local government framework in West-Pakistan and proclaim a

1962 constitution,ayub Khan worked nearly to make a collusion with

the United States and the Western world to picked up help and

continued to join two formal military collusions, the CENTO in

1955;and the SEATO in 1962, against the Soviet bloc.during this time,

the private-area picked up more power to control the national economy, instructive changes,

human advancement and investigative accomplishments picked up a considerable measure of

worldwide evaluation from the worldwide community.in 1961, the space system was propelled

with the continuation of atomic force program then again. Military help from the U.s. developed

remarkably yet the nation's national security was extremely bargained succeeding the

introduction of the mystery spy operation propelling from Peshawar to Soviet Union in 1960.

That year, Pakistan marked Water settlement with India trying to standardize the relations. The

relations with China further reinforced after the Chinese war with India, and both nations

consented to a limit arrangement which moved the equalization of the Cold War by bringing

Pakistan and China closer together while slackening ties between Pakistan and the United States

in 1963.in 1965, after Pakistan continued with its vital air-borne mission code named the

Operation Gibraltar, India announced a full-scale war on Pakistan. The war, which finished

militarily in a stalemate, was basically battled in West as just mellow operations were directed in

East by India. A fruitful mediation of USSR prompted consenting to of Tashkent Arrangement

between India and Pakistan in 1965.

Conveying a rankling discourse at the UN General Assembly in 1965, Foreign Minister Zulfikar

Ali Bhutto with the nuclear researcher Aziz Ahmed present there for great measure, Bhutto made


7

Pakistan's plans clear and uproariously reported that: "If India constructs the (atomic) shell, we

will consume grass, even go hungry, however we will get one of own ... We have no other

decision".2

Contradicting the consenting to of Tashkent arrangement, Zulfikar Bhutto was expelled from the

service on individual orders of President Ayub Khan in 1966.dismissal of Bhutto prompted a

spontaneous mass showings and open annoyance against Ayub Khan, prompting significant

mechanical and work strikes in the country.within weeks, Ayub Khan lost the energy in the West

and his picture was devastated at the general population rounds. Pakistan People's Party (PPP)

was established with Zulfikar Ali Bhutto turning into its initially chosen executive. The Peoples

Party's pioneers, JA Rahim and Mubashir Hassan, eminently advertised to "thrashing the

extraordinary tyrant with the force of the individuals."

In 1967, the PPP tapped a wave an of displeasure against Ayub Khan and effectively called for

real work strikes in the country.criticism on the United States and Ayub Khan further harmed

Ayub Khan's power in the country.by the end of 1968, Ayub Khan sent the Agartala Case which

headed the captures of a large number of Awami League pioneers, however compelled to

withdraw after genuine temporary uprising in East. Under influenced from PPP, open disdain,

and annoyance against his organization, Ayub Khan surrendered from the presidency in

weakness and giving over his power to armed force commandant, a less-known openly and

substantial liquor consumer, General Yahya Khan, who forced military law and suspended the

constitution, hence dissolving the presidential republic.one unit was broken and nation went to 4

territories once more. Yahya khan proclaimed the first ever general decisions in Pakistan and the

result were not all that astounding as by Mobilizing backing for Six Points declaration, the

Awami League secured its constituent backing in East-Pakistan.the PPP attest itself significantly

all the more thickly; its communist justification, "Sustenance, Cloth, and Shelter, and gathering's

communist proclamation immediately promoted the gathering in masses. Electoral results

demonstrated the Awami League, with accomplished a staggering triumph in East, yet with no

seats in West. The PPP picking up lion's share in Western unexpected yet none in East.

Deliberations were made to begin a sacred dialog however Awami League stood firm on its Six

Points arrange and declined to bargain on that issue. the PPP's scholarly people kept up that

Awami League had no order in Western unexpected and Six Points did not so much allow a real

federation. Although President Yahya Khan welcomed Awami League to for a National

Assembly session in Islamabad, yet did not gave over the forces to structure the legislature

because of consistent weight by PPP. With no united concessions were appeared to be arrived at,

President Yahya Khan subsequently designated Bengali against war extremist, Nurul Amin as

Prime Minister with extra office of nation's first and final Vice-President.

Sheik Mujibur Rahman then propelled civil defiance development which successfully deadened

the state hardware of East. Gathering a round-table meeting with Bhutto and Rehman in Dhaka,

the discussions caved in and President Yahya Khan requested an equipped movement against

Awami League. Operation Searchlight and Barisal, prompted a crackdown on East Pakistani

legislators, regular people, and scholar activists in everywhere throughout the East. A captured

2 Sublettle, Carey (2 January 2002 (original date: 15 October 1965)). "Historical Background: Zulfikar Ali Bhutto". Nuclear weapons archives. Federation of American Scientists (FAS).


8

Mujibur Rahman was remove to Islamabad, while the whole Awami League authority got away

to India to set up a parallel government. Prominent guerrilla revolt was started by the Indian

composed and upheld Mukti Bahini (lit "flexibility fighters"). A large number of Bengali Hindus

and Muslims took the shelter in Eastern India prompting Indian Prime pastor Indira Gandhi

proclamation to backing for the liberation war, giving immediate "military aid".

Depleted, outmaneuvered and overpowered, the Eastern high order could no more proceed with

its battle against the extraordinary guerrilla insurrection, lastly surrendered the East to Indian

Army. Nearly 90,000 warriors taken as detainees of war and the result was the defacto rise of the

new country of Bangladesh,thus consummation 24 years of turbulent union of the two

wings.president General Yahya Khan surrendered and Bhutto was initiated as president and boss

military law overseer on 20 December 1971.

The Bhutto Era (1971 – 1977) Period beginning from 1971 until 1977 was a

time of left-wing popular government, the development of national

soul, monetary nationalization, incognito nuclear shell ventures,

advancement of investigative, artistic, social exercises and the left-

wing communism. Viewed as the time of reproduction, recovery, re-

foundation, and the ascent of the left-wing circle of the nation, the

new modern, labor improvement, and the work approaches were

proclaimed in the consummation weeks of December 1971. In 1972,

the nation's top brainpower administrations gave an evaluation on

Indian atomic project, referring to the confirmations that: "India was

near creating an atomic weapon under its atomic system". Leading a mystery winter workshop

in January 1972, which came to be known as "Multan gathering", Bhutto energized an expansive

numbers scholastic researchers to manufacture the nuclear shell for national survival. The

nuclear shell venture united a group of conspicuous scholarly researchers and architects,

headed by hypothetical physicist Abdus Salam to create atomic gadgets. Salam later won the

Nobel Prize for Physics for creating the hypothesis for unification of feeble atomic strengths and

solid electromagnetic powers. The nationalization project was actualized without precedent for

the historical backdrop of Pakistan and it was proclaimed through three separate stages. On

January 1, 1972, on a broadcast discourse to the country, Bhutto and the people groups party's

legislature declared the three-organized system, under "Nationalization and Economic Reforms

Order (NERO)", which nationalized all significant metal businesses, including iron and steel,

substantial designing, overwhelming electricals, petrochemicals, concrete and open utilities

aside from materials industry and lands.the first phase of the nationalization project

incorporated roughly 31 real modern megacorporations, mechanical units and undertakings,

under immediate administration control of the legislature under 10 separate classifications of

essential commercial enterprises. The project planned to affirm open responsibility for


9

mechanical megacorporations, and to fulfilled the worker's parties keeping in mind the end

goal to keep the industrialization peace in the country.the first phase of the nationalization

system incorporated the specific commercial enterprises affirmed by the people groups party's

administration and the nationalization system gave the iron and steel, fundamental metal

businesses, substantial building commercial ventures, overwhelming electrical businesses, get

together and assembling of engine vehicles, tractor open utilities, including the power era,

transmission and dissemination, gas and oil refineries, under the administration of open

sector.after Bhutto getting Prime Minister in 1974, the disaster protection, vegetable oil industry,

banks, shipping organizations, oil organizations and wheat, rice and cotton preparing units

were likewise nationalized strongly.

After the achievement of the first stage, the nationalization project ventures into the second

stage when it was propelled on 1 January 1974, proposing to nationalized the keeping money

and fiscal industry and division in Pakistan. Passed by the parliament, in excess of 13 significant

banks, over twelve insurance agencies, two petroleum organizations and 10 transportation

organizations were mightily nationalized. The third program soon propelled in July 1, 1976

when more or less 2,000 cotton, ginning and rice husking units, went under the nationalization

program. This program met with managerial bad dream and boundless open disdain.

3

3 The GDP growth rate stood between 3.88% until being dropped to 2.84% after the completion of nationalization program.


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Zia Era, 2nd coup d’état (1977-1988) As the nation entered 1976, the communist collusion of Bhutto breakdown, constraining his left-

wing partners to structure a partnership with conservative traditionalists, to test the force of

Peoples Party. In 1977, the general races were held which denoted the Peoples Party as

triumphant however this was tested by the resistance, which blamed Bhutto for gear the race

process. An escalated political issue occurred against Bhutto and in a nexus of head of armed

force staff general Muhammad Zia-ul-Haq and head of maritime staff Admiral Mohammad

Shariff, took control in a bloodless upset. Taking after this, Bhutto and his liberal partners were

dragged into a two-year long dubious trial in Supreme Court. Bhutto was later executed in

1979, in the wake of being indicted approving the homicide of a political rival, in a disputable

4–3 part choice by the Supreme Court. This time of military principle, enduring from 1977 to

1988, is regularly viewed as a time of extraordinary cleanse and development of state-supported

religious conservatism. In spite of the fact that, President Zia's long eleven-year tenet period

emphasizes the nation's first fruitful technocracy, yet other side, it additionally offers the tug of

war between far-radical drives in immediate rivalry with populist far-right rounds. President

Zia made solid utilization of introducing prominent military officers from joint administrations

of joint drives in regular person posts, running from focal government to temporary

governments. Step by step, the communist impact in general society strategies were

disassembled disbanded, rather another arrangement of a free market system was resuscitated

with the presentation of corporatization and Islamization. the mother of Coincidence occurred

for the second time when precisely after the two years of military takeover US entered into the

war with USSR through First Afghan war, that opened up the stream of war store and help to

pakistan and pakistani economy got support from it and saw a development rate of up to 6%. A

greater part of Afghan Pashtun took a shelter in the nation escaping the Soviet occupation.

Throughout this time, it was the biggest outcast populace on the planet, which had an

overwhelming effect on Pakistan and its belongings proceed right up 'til today. Issues with

India rose up when India struck and took the Siachen glacier, inciting Pakistan to strike once

more at India. under influenced by President Ronald Reagen, General Zia at long last lifted

military law in 1985, holding non-factional races and handpicking Muhammad Khan Junejo to

be the new Prime Minister, who promptly broadened Zia's term as Chief of Army Staff until

1990. Junejo however progressively dropped out with Zia as his authoritative autonomy

developed; for example, Junejo marked the Geneva Accord, which Zia incredibly glared upon.

General Zia released the Junejo government on a few charges in May 1988 and called for

decisions in November 1988. Be that as it may, before the races could ever happen, General Zia

passed on in a perplexing plane crash on 17 August 1988.


11

Third Democratic Era (1988-1999) Democracy returned again in 1988 after the general elections which were held after the demise

of President General Zia-ul-Haq. The decisions denoted the

reappearance of Peoples Party go into the force whose pioneer,

Benazir Bhutto, turned into the first female Prime clergyman of

Pakistan and additionally the first female head of government in a

Muslim-lion's share nation. This period, enduring until 1999,

presented the parliamentary framework and focused two-gathering

popular government in the nation, offering a furious rivalry between

focus right progressives headed by Navaz Sharif and focus left

communists administered by Benazir Bhutto. the financial

circumstance intensified when the state cash of Pakistan lost the

money war with India. The

country significantly

entered in era of stagflation during this period, and

governments were thrice dismissed by the Presidents

first two by Ghulam Ishaque and third by Farooq

Leghari which was a real setback to democracy but at the

same time it was a consequence of the corruptions and

theft held by both of the parties. The governmental

corruptions in all of this era was at its peak, kickbacks

and contracts giving to their own men was normal

practice and almost all of the big government contracts

were highly in doubt for corruption and it was being sensed by people that the two parties thinks

that it is their right to do corruption. Although there were some major projects for infrastructure

were also made by two of them like Motorways and IPPs licensing but they were also quite

doubtful regarding corruption and later that was re-veiled too. Thus the 3rd democratic era was

the slowest era regarding growth and highest corruption era in the then entire history of Pakistan.

On 12 October 1999, Prime clergyman Sharif's challenging endeavor to release General Pervez

Musharraf from the posts of administrator joint boss and head of armed force staff fizzled after

the military administration declined to acknowledge the errand of ISI executive Lieutenant-

General Ziauddin Butt as director and armed force chief.a counter overthrow was started, the

senior officers of the military authority removed Sharif's government.the Military Police seized

the Prime Minister's Secretariat and ousted Sharif, Ziauddin Butt and the cupboard staff

members who tuned in this expected intrigue, moving set him in scandalous Adiala Jail. A brisk

trial was set in Supreme Court which gave Sharif a life sentence, with his advantages being

solidified focused around a debasement embarrassment, and he was close accepting capital

punishment focused around the capturing case. Under pressure by the US President Bill Clinton


12

and King Fahd of Saudi Arabia, Musharraf succumbed to extra Sharif's life in an assentation

encouraged by Saudi Arabia. Withdrew to Saudi Arabia to be settled in a Jeddah in King Fahd's

private living arrangement, Sharif was compelled to be out of governmental issues for almost ten

years.

The Musharraf Era ,3rd coup d’état (1999-2008) The presidency of Musharraf features the coming of liberal forces in the national power for the

first time in the history of Pakistan.4 Earlier activities taken

towards the continuation of investment liberalization,

privatization, and flexibility of media in Pakistan in 1999.the

Citibank official, Shaukat Aziz, came back to nation upon

Musharraf's solicitation to take the control of the national

economy in the wake of securing the errand in Finance service

in 1999.and at the end of the day the mother of occurrence

arrived and directly following two years of overthrow US got

into second Afghan War and ties with the United States were

replenished by Musharraf who embraced the U.s. attack of

Afghanistan as reactionary to 9/11 strike in the United States, in

2001.attempting to legitimize his presidency and guaranteeing its

continuation after the looming decisions, Musharraf held a

questionable choice in 2002, which permitted the broadening of his

presidential term to a period finishing five years.[157] The LFO

Order No. 2002 was issued by Musharraf in August 2001, which

made the protected premise for his continuation in office. The 2002

general decisions denoted the liberals, the MQM, and antiextremist

Pml(q), winning the larger part in the parliament to structure the

government.he legitimized his 1999 activities through seventeenth

amendment.simultaneously under musharaf control Aziz's

macroeconomics strategies managed political soundness and

conservative advancement in Pakistan, in this manner finishing the "period of stagflation" in

4 Abbasi, Ansaar (21 April 2013). "Kaiani's timely reminder about Islamic Ideology". The News International, 2013.


13

2001. Heightened privatization and investment liberalization projects were by and by started by

Aziz, privatizing all state-possessed companies and reinforcing the nation's financial base, which

headed the change of the nation's development rate by 6.4% for every year. Lessening of

neediness and expansion rates dropped to 3.5% in the most recent 3 years, contrasted with 11–

12% in the 1990s. Without precedent for Pakistan's history, all objectives and income gathering

targets were met in his residency, and allotment for advancement has expanded by about 40%. In

addition, notwithstanding an arrangement of interior and outside bothers, budgetary circumstance

of Pakistan enhanced altogether and stores expanded to Us$ 10.5 billion on 30 June 2004,

contrasted with Us$ 1.2 billion in October 1999. As PM, Aziz administered the substantial scale

development of military changes and police changes, and huge financing in the nation that

prompted the blast of the auto business, vitality megaprojects, atomic industry, and the port

business, and directed the extraordinary GDP development. Aziz's arrangement stretched the

web and telecom benefits, and changed the private media of Pakistan as his vision to

internationalize the picture of the nation.

Musharaf proclaims his second decisions and Benazir Bhutto and later Nawaz Sharif landed to

Pakistan however on 27 December 2007, Benazir Bhutto was killed by a shooter who shot her in

the neck and set off a shell. because of the assassination,the races, which had been booked for 8

January 2008, occurred on 18 February.ppp, and traditionalist PML, won greater part of seats

together in the race and framed a coalition government; the liberal partnership then at long last

blurred. Pervez Musharraf proclaimed in a short since a long time ago broadcast location to the

country to publish his acquiescence, finishing his nine-year-long rule on 18 August 2008.5

Fourth Democracy,2008-onwards After the elections, Yousaf Raza Gillani managed the nation as the Prime clergyman and headed

the aggregate government, with the champ gatherings of the four regions. Gillani proposed the

thought of aggregate administration with the portion real gatherings of the four territories in the

legislature; complaints raised by preservationist PML-N was supplanted with antiextremist,

Pml(q). Managed by Gillani, a significant conversion in a political structure was completed to

supplant the semi-presidential framework into parliamentary majority rule government

framework. The Parliament unanimously passed the eighteenth alteration to the Constitution of

Pakistan, which connotes the parliamentary majority rule government in the country. and his first

days of government, Gillani endeavored to proceed the Privatization system of Shaukat Aziz,

however the project was suddenly ended after the worldwide retreat took a sharp climb, and a

serious budgetary emergencies hit the nation's economy. Gillani acknowledged the abdication of

two Finance pastors and shockingly named the previous pastor privatization and speculation in

the administration of Shaukat Aziz, Dr. Abdul Hafeez Shaikh as another Finance Minister.early

5 "Musharraf announces resignation". Thenews.com.pk. Retrieved 31 January 2010.


14

endeavors were to cease the nationalization program by Gillani's legislature and rather

supplanting it with another framework focused around state capitalism.the state-claimed

partnerships were embarked to privatization menu and his administration affirmed another menu

of privatization focused around open private organization (PPP) with exchange of administration

control and 26% shares of 21 state possessed ventures (Soes).no timetable was given rather his

administration advertised that the privatization procedure might be finished when global business

sector might be doable. Throughout his first years of government, Gillani's legislature acquired

exceptional credits from International Monetary Fund which expanded the level of neediness in

the country.according to the figuring performed by Transparency International (TI), Pakistan has

lost an incredibly high sum, more than Rs8,500 billion (Rs8.5 trillion or Us$94 billion), in

defilement, charge avoidance and terrible legislation throughout the last government residency.6

Figuring performed by the Pakistan Institute of Development Economics, it called attention to

that the "country's cash available for use as a rate of aggregate stores is 31%, which is high as

contrasted with India", where 40.0% of the populace fell under the line of destitution, with

16.0% ascent in the expansion throughout his four years of managing the nation. The new strict

and tight fiscal strategy couldn't tame the taking off expansion, it did stagnate the budgetary

development. One economist kept up that stagflation occurred when the tight money related

approach did not support the solid private segment to have key impact in development.

Examining the stagflation issue, the PIDE watched that a real reason for persistent time of

stagflation in Pakistan was absence of coordination between financial and fiscal powers.7

The Rule of PPP came to an end after the elections of May 2013 in which PPP shrinked and

restricted to rural Sindh only and PTI under Imran Khan and PML N under Nawaz Shareef

emerged as two major parties of Pakistan.

6 "Rs 8,500 bn corruption mars Gilani tenure: Transparency" 7 23 February 2012 (23 February 2012). "Steps urged to boost bank deposits". Dawn Newspapers,


15

8

9

8 The GDP growth rate dropped down to 4.19% (2009) as compared to 8.96% in 2004. 9 After 2008, the value of US Dollar increased as compare to state currency, indicating the country's return to "Era of Stagflation" (a virtual period faced by Pakistan in 1990s).


16

10

10 The dependence on crude oil to produce general electricity increased at an exponential rate after 2004–08.


17

The Case

Dewan Mushtaq Group Very nearly every fruitful Pakistani business has had ties with some prepartition exchanging group. Memons, Bhoras, Khoja Ismailis and

Isnasheris, Chiniotis and Punjabi Sheikhs. The Dewans had a place with none. They hailed from India's east Punjab locale of Patiala. The family's most established enlisted organization, Sh Dewan Muhammad Mushtaq, goes over to 1912. It was created by gathering author Dewan M Mushtaq Farooque who exchanged utilized articles of clothing. He might purchase garments in Karachi and offer in Delhi. The family moved to Karachi not long after partition and, in 1948, made Dewan Mushtaq Sons, housed in a little shop at the North Napier Road. The Family founded their first factory in 1968. On August 7, 1970, the foundation stone ceremony of Dewan Textile Mills, their first cotton spinning unit, was held in Kotri, but shortly after some time following a family tragedy The whole obligation to take care of the family and its diversions fell on the shoulders of 36-year-old Dewan Umar Farooque, the second eldest child. After high school, he couldn't seek education and helped run the shop. He indicated business intuition by turning into a real merchant of second-hand garments and tea inside a couple of years. In the end, he rose to the highest point of the Pakistan Secondhand Cloth Merchant Group and Tea Traders Association of Pakistan. Between 1970 and 1978, Dewan Umar alongside his more youthful sibling Dewan Salman set up two more material turning units in Kotri and Hyderabad. They additionally set up Pakistan's biggest sugar plants with a creation limit of 5,000 tons in Thatta. By December 1988, the DMG's four recorded organizations had a consolidated income of Rs1.5 billion. Dewan Textile's offer cost was at Rs62. There were zero obligations on the three material units, which together were among the five biggest turning organizations in the nation. It was the ideal time for DMG to set out on the most yearning undertaking — the biggest polyester stable fiber (PSF) plan. 1978 to 1988 was the same time when US was in romance with Pakistani establishment and due to it there were quite relaxation given to textile industry specially and overall exporters generally of Pakistan to exports in to the US markets and Europe. The utilization of man-made fiber had developed in Pakistan as cost of cotton shot up because of deficiencies. Between 1981 and 1988, interest rose on a compound yearly development rate of 23% to 78,000 tons. Half was met through imports. DMG charmed Japan's Mitsubishi Corporation and Sam Yang Company of Korea to be value accomplices in a polyester fiber plant with a yearly limit of 52,500 tons. Mitsubishi gave the majority of the financing. Chip away at the undertaking was finished in a record 19 months and processing began on January 1, 1992. The PSF was marked Salsabil, which in Arabic implied the pool of heaven.


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It was a mechanical undertaking never seen in the private division previously. At first dedicated as Salamese Fiber, it was spread in excess of 140 sections of land. It had a staff and official lodging state including a visitor house and lone rangers' inn. There was a work state that incorporated a games focus. The undertaking was found in a separated spot called Hattar, in locale Haripur of North West Frontier Province on account of assessment absolutions on speculations made in the range. Exactly when deal with Dewan Salman Fiber was being finished, DMG began to feel the high temperature from other PSF producers who were not in the motivator range and did not delight in tax breaks. Minimal in excess of three months after preparation started, PSF makers assembled a conference to examine the issue. Dewan Umar Farooq endured an acute myocardial infarction throughout the gathering, succumbing a couple of hours after the fact, not living to see even the first budgetary articulation of his most loved accomplishment.

Fight against Might for Right

Nawaz Sharif assumed control in

1990. Privatization project was going

full speed ahead. MCB Bank, Millat

Tractors and Maple Leaf Cement had

as of recently been given over to

private moguls. More selloffs were in

the pipeline and moguls looked for

security.

The statute ensured private possession

and halted the administration from

assuming control privatized

associations. An alternate

procurement, which was especially

critical for mechanical wanders, was

insurance of financial motivators

given to support venture.

The two key elements for making PSF

– unadulterated terephthelic corrosive

(PTA) and mono ethylene glycol

(MEG) – had reveled in deals charge

exception since 1981. Both of them

were foreign made. On May 14, 1992, deals assessment of 12.5% was forced on them.


19

Dewan Salman Fiber was placed in Hattar Industrial Estate where the foreign made crude

material arrived at in the wake of crisscrossing 1,435 kilometers. The closest clients were 400km

away.

The motivating force bundle for Hattar included deals charge exception work 1997 and salary

duty occasion for nine years from the begin of generation. At the same time deals tax reduction

was on the offer of PSF and not the crude material.

Its burden weakened the motivation for spotting the plant far from turning organizations in

Karachi and Faisalabad. DSF's rivals had won the first fight since they could balance the

assessment on polyester fiber against what they paid on crude material under the duty discount

administration.

Notwithstanding the setback, the DMG under the authority of Dewan Umar's eldest child Dewan

Ziaur Rehman was en route to do something that will go down in the history books.

To recapture the DSF's expense advantage over contenders, it was chosen that an alternate unit

might be included with a limit of 56,000 tons. Unit II required a venture of over Rs2.5 billion.

There was no chance neighborhood banks could support that, particularly as the administration

had restricted the part of state-supported advancement monetary foundation.

History in Making To raise reserves, DSF went to worldwide capital markets with Pakistan's first and final Euro

Convertible Bond11

issue by a privately owned business to date.

Citicorp International and Hong Kong's Crosby Securities approached as guarantor and chiefs.

Barclays, Bears Stearns, Baring Brothers, Nomura International, Societe General and others were

a piece of the consortium. Roadshows and gatherings were held in Hong Kong, New York,

Boston, Geneva, Zurich and London.

The convertible bonds were glided on May 5, 1994 with a mind-boggling reaction from universal

moguls. The organization effectively raised $45 million.

This deed moved Dewans to the world stage. DSF had the second most astounding capitalisation

at the Karachi Stock Exchange, truly choosing the destiny of the day by day file.

A couple of months after the fact, DMG sorted out Pakistan's first Euromoney Conference in

Karachi. It took Dewan's notoriety significantly higher. Delegates from far and wide took part,

including the best private value firms, which stood prepared to work together.

11 A convertible bond issued by a company outside its home country.


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Handling at the new unit started on June 15, 1995 succeeding finish of work in a record 12

months. This took DSF's general ability to 108,500 tons, making it the biggest PSF maker in

Asia — even in front of India's Reliance. The unit additionally appreciated expense exclusion

including the pay duty occasion work 2004.

Increasing the Trouble by Government

The noose around DMG's fiber

venture was getting tighter.

One after an alternate such strategies were presented by progressive administrations of Pakistan Peoples Party and Pakistan Muslim League-Nawaz that deals charge concession was diluted.sales expense of 12.5%, which was forced in 1992 on crude

material, was expanded to 15% in 1994. At the point when creation from Unit II started an alternate blow came fit as a fiddle of a change in official approach. The deals assess on the PSF was lessened to 10% and extract obligation of 5% was demanded. The move was particularly pointed at DSF as it disintegrated organization's benefit. Hardest financial hit came in the 1996-97 funding as deals expense was forced on the material business. DSF clients were currently request an assessment receipt. The organization grudgingly surrendered its entitlement to deals charge exception. "Your organization has been deliberately abused and put into a huge inconvenience contrasted with other PSF players," the organization told shareholders in monetary proclamations of 1995-96.


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"This is continuously done at the command of contenders under the lead of an alleged

multinational source organization which is celebrated in depicting itself as the most reasonable,

moral and expert player," it composed in an alternate.12

Whole achievability of the DSF was focused around the preface that it won't need to pay charge

on crude material or PSF. Everything from its money related close, premium rate, operational

expenses including the valuing was focused around it.

By December 1996, import of PSF was tackling neighborhood makers yet new players – Dhan Fiber and Ibrahim Fiber – were entering the business sector. ICI had likewise extended ability to take nation's aggregate yield to 400,000 tons, no less than 100,000 tons more than the interest. Dhan, which implies riches, was likewise placed in Hattar. From the begin, this wander of Lahore-based Chakwal Group stayed under assault from savage financial specialists who pointed for a dangerous takeover. The organization approached DMG with a buyout proposal. After extended transactions, which continued for several years, Dewan Zia at last chose to purchase Dhan in 2000. At the point when DMG purchased Dhan Fibers in the wake of paying Rs4.2 billion for a 67% stake, it was the biggest takeover in Pakistan's corporate history. The joined limit of the united element was near 200,000 tons a year. More cash was used to take it up to 245,000 tons that year. In that year, the organization had additionally used significant cash on building a 25,000-ton for every year acrylic fiber and tow plant to make premium engineered items. "This was a botch. The plant was old and the business sector was not huge enough for acrylic," said a previous DSF official. Indeed as far once again as 1999, interior money administrators at DMG were raising warnings. "There were individuals who opposed the development," reviewed a fund executive. "They were wanting to undercut the opposition in polyester fiber business by having economies of scale. Anyhow cash was being used in numerous other non-center organizations." By June 2001, Dewan Salman Fiber had offers of Rs17.9 billion with net benefit of Rs630 million. It had a long haul obligation of Rs5.4 billion. That year it settled whole outside obligation taken to back the Unit II.

12 Was mentioned in company’s financial reports annual.


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Three years after the fact Dewan Zia set up Dewan Petroleum, 30% of which was possessed by DSF.

New Fuel

By 1998, Dewan Yousuf had grew up and needed to have influence in adding to the gathering's esteem. He imbued new life into DMG. A staunch devotee that the automobile business drives genuine monetary development, he joined Dewan Farooque Motors Company Limited (DFML) in December 1998. "In Europe its similar to each other individual is connected with the automobile business," he says. In terms of autos, Pakistanis have had restricted choices. Encountering different producers, especially Korea's Kia, had been upsetting. Naya Daur Motors was the first to present Kia in 1994. As per court filings, the organization assumed control Rs800 million as booking expenses from 16,000 individuals. Just a couple of hundred vehicles were conveyed before the organization went bankrupt. Be that as it may Yousuf entered the business on a solid balance. Named after his father, the Dewan Farooque Motors had concurrences with Hyundai and Kia to collect and offer their vehicles in Pakistan. The plant implicit provincial Sindh's Sujawal zone at an expense of Rs1.8 billion was finished in seven months. It was the first automaker in the nation to have automated paint machines. After a tumultuous decade, Pakistan entered a time of budgetary development in 2001. Low investment rate and expansion of customer account shot up interest for autos. With the ability to make 10,000 vehicles a year, DFML transformed 95,429 vehicles between 2000 and 2011 which included Kia Spectra, Sportage and Hyundai's Santro. It additionally sold 50,000 Shehzore trucks, which still rule the one ton-truck classification.

The deals income of Rs3.3 billion in 2001 might go up to Rs10.6 billion in 2006. It will post a net benefit of Rs840 million for six-year period.


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"Generally, Pakistan's for every capita use of autos has stayed low," Dewan Yousuf says. "From 1993 onwards, auto deals stayed stagnant at 30,000 units a year. It goes to our credit that we helped resuscitate an industry." DFML was the first to present auto renting through Askari Leasing. 13 Industry individuals say this was the time for DMG to ease off and combine. Yet there was no halting Dewan Yousuf. He had enormous arrangements. He needed to set up Dewan City at Sujawal where merchants would in the end limit each auto part. In 2003, DMG put resources into Dewan Farooque Spinning Mills — work then the most progressive turning plant with 28,800 shafts to be set up in Kasur, Punjab Dewan Yousuf continued to have expansion and bought Allied tractors for the production of star motocycles he later bought three more sugar mills khoski,AlAsif and Bawany. Anyway in 2004, Dewan Yousuf took a step which might set him against numerous agents, including his own particular sibling – Dewan Zia.dewan Yousuf purchased the Pak area bond organization in 2004 for Rs1.1 billion in money. He did that against his sibling's advice.yousuf did the good thing — he paid a reasonable cost for the advantage. What numerous individuals don't know is that in the wake of assuming control Pakland, he had submitted a request for Loesche's bond process in 2006. The effective vertical factory, which is significantly more productive than any current plant in the nation, might have made it fantastic in Karachi. By 2008, the plant was prepared to be introduced. Be that as it may by then it was past the point of no return.

This was never thought to be an end

Shockingly since its origin, Dewan Salman Fiber declared a misfortune in financial 2005. Simply a year prior, it had netted Rs327 million in benefit. The misfortune was an aftereffect of different variables. In the last few years, DSF's duty concessions had lapsed and it was paying all the more in logistical expense on account of its plant area in Hattar. Worldwide PTA and MEG costs had likewise shot up, crushing the edges of PSF producers. Be that as it may the misfortune ought to have been an one-off occasion acknowledging the measure of the organization and the climbing interest for polyester fiber. Rather it might course into issues for the whole gathering in only 24 months. DSF brought about a further misfortune of Rs119 million in 2006. Its deals additionally took a hit, dropping to Rs16.7 billion from Rs21 billion only two years prior as it confronted trouble in persuading banks to loan cash to purchase crude material.

13 Dewan Yousuf signing a technical agreement with Hyundai Motors in 1999.


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Financiers had begun to express their uneasiness over the various organizations. Before the end of next financial year in June 2007, DSF's misfortune bounced to Rs808 million, apparatus was running at just 20% limit as other PSF makers consumed into DSF's business sector share.contrary to what is for the most part accepted, the long haul obligation of the nine recorded firms was still Rs12.47 billion, a significant lump of which – Rs7.5 billion – originated from the securing of Pakland Cement, while gathering's aggregate deals were Rs38 billion. This was additionally a tumultuous year for Pakistan. President Pervez Musharraf had sacked Chief Justice of Pakistan Ifthikhar Muhammad Chaudhry in March and legal advisors were conflicting with police in distinctive urban communities. This harmonized with contrasts between Dewan siblings that now moved in the open. A couple of years back, Dewan Zia had moved to Islamabad from where he was running DSF and Dewan Petroleum, removing himself from the various firms. "It was their mother who held the siblings together," said a family companion. She passed away in 2007. That year Dewan Zia gave over the gathering's chairmanship to Dewan Yousuf and vanished from open life. Promptly in the wake of assuming responsibility, Dewan Yousuf set upon re-profiling liabilities of the gathering organizations. He confronted two prompt difficulties of arranging a plan to concede current liabilities of DSF and refinancing the obligation of Pakland Cement. Dewan Yousuf was feeling the vibes of what might happen if time was squandered. In the last few months, banks had declined to reserve Pakland's second preparation line in spite of duties. There was no decision yet to occupy working money to finish its development. After conferences with the investors, the order for rebuilding DSF's obligation was recompensed to Global Securities on July 2. Banks had at first consented to change over transient obligation of Rs7.5 billion into long term liabilities.

Stuck in between Nowhere by poor practicing CEOs

In the meantime, scaffold financing of Rs2 billion for the working capital was to be organized.

This cash should hail from five banks by November 2007.

DSF even collateralised its most significant holding –30% experience Dewan Petroleum worth

around $100 million – against the scaffold financing office. Just Rs1.1 billion were discharged

and that too after a postponement of four months.


25

The postponement brought about all the cash being devoured with money misfortunes. With no

new credit lines, there was no crude material. All the settled expense implied misfortunes.

"A humongous measure of cash is required to run the PSF operation. Case in point, if the

organization was devouring Rs100 worth of crude material, it required credit lines for Rs500 to

keep the inventory network in place," said an organization official.

But since of monetary misfortune of Dewan Salman Fiber, working capital lines to the various

organizations including cars, bond and material were crushed. Dewan Yousuf was trapped.

Perceiving how things were coming to fruition, DMG had begun arrangements with Goldman

Sachs and Merrill Lynch to refinance Pakland Cement's obligation.

By late 2007, the $120 million refinancing assention was primed to be agreed upon.

"Arrangement was canceled finally after the Ceos of a couple of banks influenced Dewan

Yousuf against it. They guaranteed him that nearby banks might re-profile the whole obligation

of the concrete business," said a DMG official.

"He shouldn't have believed them. Then again at any rate he ought to have made them put that

dedication in composing."

14

Moving On

14 As per annual data of DMG, data source ET.


26

Anyhow the refinancing couldn't be shut as one bank, having little presentation, hauled out right

before a potential default in promptly 2008.

Some of them say bankers lost confidence in Dewan’s ability to run the business. Some say

Dewan Yousuf shouldn’t have cruised around in a Rolls Royce Phantom when so much money

was stuck.

“There is always a risk with consortium lending,” said a former president of one of the top three

banks. “There was no need for the Dewans to strike a deal with 20 banks. Seven or eight are

enough. Otherwise banks start to manage business.”

He also insisted that a conglomerate like DMG should have hired more professionals. “Dewans

thought they could manage everything themselves.”

This reasoning is far from reality. Even as far back as 2006, DMG has 16 chartered accountants

and some of the best professionals on key positions.

Some industry people point to shift in ownership structure of the banking industry as a reason

behind group’s trouble as well. Up till late 1990s, the state-run banks were dominant lenders but

by 2007 local private banks had 72% of the banking assets.

“There is no denying that some owners of large banks are carnivorous. They methodically create

problems for their competitors in other industries,” said the banker. “But I am not sure if that

happened in Dewans’ case.”

Dewan Yousuf’s faith in bankers was not without a good reason. He had grown up seeing many

of them spending hours with Dewan Zia. Some were like family.

Another banker suggested Dewan Yousuf should have parted with some of the assets to settle

part of the debt and

come out of the

crisis.15

16

15 The reporters of ET of which article we referred took the interviews from bankers. 16 Negative profit (loss)


27

One last attempt.

However there was an alternate alternative which might have finished the emergency instantly.

As opposed to being compelled to offer the units modest, Dewan Yousuf approached a heading

private value firm to safeguard the gathering in mid-2008.

Under the assention, a duplicate of which The Express Tribune had seen, DMG was to move its

shareholding in a holding organization to be together possessed by the two gatherings. The

private value firm was to contract individuals to run the organizations while infusing $150

million.

The prior weekend the assention was to be marked, DMG hauled out. This time political impulse

was included. A powerful lawmaker in Sindh had asked Dewan Yousuf to handover the concrete

organization and sugar factories – rejecting the debt.dewan Umar with his children and nephews

in promptly 1990s. Photograph: FILE

Under these circumstances it was not feasible for the arrangement to experience. It's not like

Dewans didn't have associations. The gathering has profound ties with the military. Salman

Farooque, a long-term PPP stalwart, is a relative. In any case that wasn't sufficient.

In July 2008, Dewan Yousuf composed an extensive letter to bank presidents Ali Raza, Khawaja

Iqbal Hasan and Zakir Mehmod specifying everything that had happened over the past year. He

needed replies. None answered.


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Dewan Mushtaq Group defaulted. Many recuperation suits were documented against the

gathering in a matter of days. The amazement and stun met expectations. Dewans would in the

end be announced the defaulters of over Rs40 billion.

Moving forward with our analysis

As we have already studied the political changes and quite deeply studied all of the journey of Dewan Mushtaque group now we further take our analysis to the last stage of research which will be the Obstacle and Remedial measures to avoid such mishaps in Pakistan with the giant business corporation contributing so much in to the national economy but due to few mistakes of them but lots of societal and political and governance problems couldn’t realize the Pakistani dream of setting up some Multi National Organizations like West and even Gulf and India. Taking a skim through analysis to economy of Pakistan first.

Pakistan inherited an extremely narrow economic base at the time of Partition in

1947 since then; the Government of Pakistan is making rigorous efforts to build up infrastructure and productive potential of the economy through the process of development planning. The start for preparing the country for future advancement was made by launching a Six Year Development Programmer (1951-57) named as Colombo Plan. The Plan was suspended two years before its completion due to the repercussions of Korea War. In addition to the Colombo Plan, Five other Five Year Development Plans were drawn up and implemented. The Sixth and Seventh Five Year Plan are complete. The 8th Five Year Plan (1993-98) has been implemented. If the economic performance since 1947 is evaluated, the overall results are not very encouraging. The GDP per capita (ppp adjusted) is only 2900 dollars in 2013 in Pakistan. The major portion of the population is just above the poverty line (poverty line 23.9%) The disturbing feature of the economy is that whatever economic growth has been achieved, it is accompanied by unequal distribution of wealth. |This has created social tension in the country and has slowed down the rate of economic growth. Pakistan has devised various strategies to quicken the tempo of economic development but it has not been able to break the vicious circle of poverty and enter into takeoff stage. The main obstacles which have affected the rate of growth in Pakistan are grouped under following heads. (1) Economic obstacles (2) Social and cultural obstacles (3) Administrative obstacles.


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Economic Obstacles

(a) External debt: There was a rising trend in external debt which posed a

serious threat to the economic future of the country. During the last five years, not so serious

efforts were being made to reduce the external liabilities as far. The external debt now stands at

$ 66.4 billion in 2013.

(b) Fiscal deficit. Another serious constraint in economic development is the higher levels of

budget deficits. The overall budget deficit was 8% of GDP in 1990-91. It was brought down to

5.4% in 1999-2000. The government has succeeded in bringing its down to 4.2% in 2006-07 but

now it is 8% of GDP a part from government target of 4.7% for fiscal year 2012-13. The large

fiscal deficits reduces the capacity of the government to spend on key development activates.

On the revenue side, the tax GDP ratio stands at around 9.5% during the last several years now

dropped to miserable 8.5% despite of government’s vow of taking it to 15%. It is mainly

attributable to narrow tax base, inelastic tax system, complex tax laws, heavy reliance on foreign

trade taxes, large tax exemptions and incentives, tax evasions, weak tax administration etc. On

the expenditure side, defense and debt serving are taking a very major share of the current

revenue.

(3) Banking and Financial Sector in Crisis. The second major economic impediment to

economic development was that the public sector banks and development financial institutions

(DFI's) were mainly in crisis. Excessive bank credits, large scale defaults in payment of loans

were great fault lines of the economy. The poor performance of the financial sector had

adversely affected development in various sectors of the economy till 2000. However, due to

rapid economic growth from 2000 onward, with some decline of 2009 recession the banking

sector is earning profits. The investment of the banks is mostly on consumer products.

(4) Persistent deficit in balance of payments. Another important obstacle to economic

development is the persistent deficit in the balance of payments over the years.

(5) Financing the budgetary gap. One of the serious factor distorting the fiscal system and

obviously economic growth is the huge amount of borrowing to finance the budgetary gap. The

budgetary gap is financed through three sources (1) External borrowing, (2) Domestic non-bank

borrowing, (3) Borrowing from the banking system. Excessive bank borrowing creates

inflationary pressure in the economy.

(6) Deficiency of Capital. Deficiency of capital is an important obstacle in the way of

economic development. If a country is to achieve rapid rate of economic development, it must

save at-least 25% of GDP each year. In Pakistan, the rate of national saving is very low. It is

about 16.1% of GDP which is hardly able to maintain current per capita level in the country.

(7) Scarcity of Foreign Exchange. Pakistan, like other developing countries, is foreign trade

oriented. It is concentrating mainly on the export of cotton, carpets and manual labor leather,

rice, sport goods. The excessive dependence on export of a few items has made the economy

unstable and is a great obstacle to economic growth, which are mainly primary commodities. The

increase in the prices of imported goods and their rising flow in the country is a big strain on the

foreign exchange resources. (8) Rapidly Growing Population. The population is growing at the rate of about 1.8%

annually in Pakistan. As a result of the rapid increase, the proportion of dependants below the


30

age of 15 years and above the age of has gone up to 73% which is a great burden on the meager

resources of the country and a big obstacle to economic development.

(9) Low Level of Technology. One of the obstacles to economic development in Pakistan is

the use of low level of technology in various sectors of the economy. We do not stress and even

do not recommend that Pakistan should adopt most modern and sophisticated technology. The

technology to be applied in Pakistan should be appropriate to the conditions prevailing in the

country. For instance we should preferably use cheap sources of energy, simple farm equipment,

smaller plants and scale of machinery etc suitable to the local conditions.

(10) Dualistic Economy. Dualism is an another important obstacle to economic development

in Pakistan. There is a vast regional disparity in income. The use of technology differs from

sector to sector and region to region. There are differences in the social customs, habits and

attitudes towards work of the people living in different provinces of the country. The occurrence

of dualism stands in the way of optimum utilization of factors.

Social and Cultural Obstacles:

The socio-cultural attitudes of the people also stand in the way of economic development of our

country. In Pakistan, more than 50% of the people are illiterate. They are ignorant of the

development taking place in their own country as well as in the world & Society. The people are

mostly conservative in their habits. They feel pride in the native culture and are generally not

receptive to foreign methods of production. People lack self-confidence and initiative. The joint

family system, though on the decline, has also killed the sense of initiative and the incentive to

work. The caste system functioning mostly in terms of occupation tailors, carpenters, goldsmiths,

etc restrict occupational and geographical mobility. The occupational classification which is

mostly village centered impede the economic development. The religious beliefs of the people

condemning the accumulation of wealth, dependence upon fate and the will of God only are also

obstacles to economic growth. People forget here that God has also said, ''Your duty is to do and

then put the result in the hands of God.''

The unnecessary expenditure on marriages, deaths, births, litigations, class pride etc. has reduced

domestic saving and has adversely affected economic progress. About half of the population

comprises women folk. Our social taboos and customs prevent them from working and

improving the standard of living. The basic needs of the people remain largely unsatisfied. We

do agree here that socio-cultural factors have impeded economic progress. We should not forget

here also that the adoption of socio-cultural attitudes of the West have brought down the quality

of life as well.

3. Political and Administrative Obstacles: For accelerating the rate of economic development, there should be political stability in the country. If there is a change in the government set up due to elections, or of dictatorship, the planning job done by the previous government should not be altered altogether.


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The planning machinery and all others involved in administration should be loyal to the country. They should be competent sympathetic and honest in the performance of the duties assigned to them. In Pakistan, since its inception, there are rapid changes in governments. Each government which came into power condemned the planning work done by the previous governments. They framed their own plans, formulated their own strategies of development and left the claim without achieving the targets of the Plans. The history of planning show that with the exception of the Faith Five Year Plan, all other Plans have failed to achieve their targets. The overall line of the planning machinery in Pakistan is bureaucratic rather than professional. The administration working in various departments is generally weak, incompetent and unsympathetic. Self-interest is dominating over national interest which is a great barrier to economic development. Another administrative obstacle line the way of economic development is that we have not so far been able to decide about the nature of economic system to be adopted in Pakistan. Mixed economy, Socialistic economy. Islamic economy all are talked about but nothing concrete has actually been practiced. There should be clarity on this fundamental issue so that planning is drawn up according to the socio-economic objective of that system and a path of development lay out.

Remedial Measures for Economic Development

We have discussed the major obstacles to economic development. The practical means of setting

aside the barriers to economic development are now to be stored out. It is a big challenge to the

planners. We are of the opinion that if following measures are right earnestly applied, the rate of

economic development can go up.

(1) Expanding the tax base. For expanding the resource base, it is necessary that the coverage

of indirect taxes be reduced. In designing the tax reforms, care has to be taken to minimize

burden on the common man. The share of direct taxes has also to be increased.

(2) Tax on agriculture income. The government can raise more revenue by bringing the

agriculturist’s income in the tax net on proper footings.

(3) Self-reliance. Pakistan is knee deep in foreign debt. If we are really desirous of increasing

the rate of economic development, we shall have to lessen our dependence on foreign assistance.

The strategy of self reliance, as far as possible, should be followed for financing development

projects.

(4) Export led growth. For the rapid development of the economy, the strategy of export led

growth should be carefully chalked out. The production of value added goods on large scale,

having comparative advantage in production will greatly solve the problem of limited size of the

domestic market. The production of import substitutes at home will save the precious foreign

exchange.


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(5) Industrialization. Another approach to development planning within the framework of

mixed economy is to give priority to the establishment of those industries which meet the basic

needs of the various sectors of the economy. The production of improved basic agricultural

implements will greatly help in raising the agricultural production.

(6) Strategy of self management. In communist countries, the development planning is being

decentralized. Development planning is declared a right and obligation of the planning agents.

The system if adopted in a coordinated manner shall help in quickening the tempo of economic

development in this country. (7) Development of agricultural sector. The Government of Pakistan, in view of the

importance of agriculture in the national economy, is attaching high priority to the development

of this sector. Expanded credit facilities, provision of fertilizer, pesticides and improved seeds

are the right steps in improving agricultural production which contributes 20.9% of GDP and

accounts for 46% of foreign exchange earnings in Pakistan.

(8) Improvement of the infrastructure. A great deal of improvement in the means of

transport, power, roads, banking, education, etc. has to be made for economic development.

. (9) Constitutional cover. The state owned industrial units which are being privatized and other

private units should be given Constitutional cover. The state of uncertainty of their

nationalization again be removed once for all. (10) Stable fiscal and monetary policies. In order to accelerate the rate of economic

development, the fiscal and monetary measures should be carefully chalked out There should not

be frequent changes after a few months in the import and export policies, revision of taxes etc.

(11) Promoting Technology. For economic take off, it is very essential that we take effective

steps in promoting science and technology. The technological development will help in keeping

our products and exports competitive in the world market.

(12) Administrative Reforms. There should be far reaching administrative reforms in the

country. The professionally qualified personnel should be inducted and assigned specific targets

to be achieved in the allocated sectors. There should be reduction in the administrative

expenditure also.

(13) Development of physical and human capital. Development of physical infrastructure,

roads, railways etc. and increased investment on education, health and nutrition etc. can play a

dominant role in increasing economic development in the country.

(14) Slowing the rate of population growth. High rate population growth (about1.8%) is

also intensifying constraint on the development of savings, foreign exchange and human

resources. If we want the qualities of human life, prosperity in place of poverty, education in

place of ignorance, health in place of illness, environmental beauty in place of deterioration, we

shall have to take measures to control the family size.


33

To the DMG case Again

Keeping in view the above mention obstacles we can further narrow our conclusion to Four big

reasons of fall of Dewan’s, while only one of them belongs to them other three belongs to socio

political and governance problem in Pakistan.

Family business Hierarchy and Trust problem: Unlike in USA or other western

and developed economies the failure of not turning the business enterprises in to institution of

capitalism is lies in themselves, they feel reluctant to hire effective professionals and

management in their companies of 2 basic reasons (a) Incentives & (b) Trust

Pakistani business families don’t want to pay more nor want to incentivize properly to their

employees and that is the reason the best practicing professionals do not give there effective

advice to them regarding their new business moves and strategies nor they usually ask them via

consulting.

Hierarchy is also linked to trust factor as most of the family business are run by the Bod

including the brother, cousin and even sometimes underage teenagers of the family.

Uncertain governmental policies: As discussed and mention during the case and also

the initial brief history of Pakistan it was clearly can be observed that the governmental policies

in Pakistan are not in line with investor’s or businesses encouragement. Any good step took by

previous government is always been drawback by its successors. Keeping investors in confusion

about the policies and whether to invest or not in any specific venture, and probably this is the

biggest reason of investors and businesses supporting the military governments as they think it is

safe as they are usually for longer terms than civilian government and with more stable policies

and regulations, so this confidence also get reflected in the economic progress during the Martial

laws and specially the last martial law of General Pervez Musharaf.

Institutional Cover: There is no statutory satisfactory institutional cover to businesses

working in Pakistan nor any government is taking any sort of steps towards it which is also a big

reason of big business houses getting in to situation like we saw in the case of DMG with

bankers and due to ditch faced by bankers and no governmental institutional cover Dewan

yousuf was unable to force banks to perform their promise which they held while taking him

back from the tables of fund managers.

Corrupt Leadership: As we saw in the test case of DMG one of the influential political

figure of Sindh forced him to surrender his assets to him for free and even loans also were

excluded shows the downside and the deep grievances of society and political class that how

their greed for money is hindering the businesses in Pakistan to invest and even forcing them to

divest sometime their interests from Pakistan resulting in the more downward trends on economy

and increasing the unemployment rates. As well as forcing the current businesses to hide their

assets resulting in tax evasions, tac avoidance and even not getting investments for diversified

businesses in Pakistan hence no capitalist institution.


34

The DMG; from Glory to Ashes:

The Dewan’s have vanished from standard news. Dewan Salman Fiber is closed. Stock experts

no more take after the gathering organizations. Be that as it may Dewan Yousuf has held his

ground.

He didn't flee in franticness. Under him, DMG is challenging all cases. Settlements have been

arrived at with a few banks and working capital lines are interested in few firms.

The gathering still utilizes in excess of 7,000 individuals. Actually when all the units were

closed, nobody was terminated. Indeed today Dewan's magnanimous clinic in Sujawal is the

main spot other than Karachi where individuals from Sindh can have dialysis strategies.

"Brokers had an issue with my lifestyle. They needed to see me in shoes. Why if it trouble them

on the off chance that I claimed properties?" asked Dewan Yousuf amidst tasting Perrier water

throughout a late

question.

Needing to see

the organizations,

which made

billions, go to a

granulating end,

ought to have

crushed him yet

he is still in

control. It was

the notice of

Dewan Zia,

which broke his

voice.

"I might have

battled

everybody and beat each troublesomely with any establishment just if Zia bhai might have been

there," he said.

Dewan Zia exists in Dubai and couldn't be arrived at for his form.

Dewan Yousuf didn't impart much about what transpired throughout the two years from June

2006 onwards yet spoke in a matter-of-certainty route on the ascent of the combination and its

current potential. It has been five years since banks have not restored the working capital lines.


35

"We just need new lines for working capital. Dewan Salman Fiber still has potential. It's placed

in a territory from where all the gas is advancing. So it has an expense advantage over others," he

said.

"I am likewise in chats with a heading car creator. We will soon have the establishment to collect

the vehicles here."

In the wake of experiencing such a see-saw ride, one might feel that the Dewan might break. At

the same time, as it’s been said, trust is a man's greatest blessing and Dewan Yousuf still

appeared to have parts.

APPENDIX

Timeline

1970

Dewan’s first factory inaugurated

1974

Takes over a sick textile unit

1977

Another textile mill set up

1990

DMG, Mitsubishi Corporation sign agreement for Dewan Salman Fibre

1992

Polyester fibre production starts.

Dewan Umar dies hours after participating in industry meeting. 12.5% sales tax imposed on PTA

and MEG


36

1994

DMG undertakes Pakistan’s first Euro Convertible Bond issue for Unit II.

Sales tax on PTA, MEG increased to 15%

1995

Unit II starts production

1996

DSF grudgingly forfeits sales tax concession

1998

Dewan Farooque Motor’s foundation stone ceremony

2000

First Kia Classic car rolls out.

DMG takes over Dhan Fibre in Pakistan’s biggest buy out till then

2003

Work on Dewan Farooque Textile Mills starts

2004

DMG acquires Pakland Cement.

Takes over Khoski, Bawany and Al Asif sugar mills.

DSF invests in Dewan Petroleum

2006

First attempt to restructure DSF’s debt fails

2007

Banks start to choke working capital lines.

Dewan Zia hands over chairmanship to Dewan Yousuf.


37

DMG books first net loss mainly because of DSF

2008

All the companies post loss. DMG defaults.

Bibliography

1. Raza, Syed Rasul; Sani Panwar (2008). "5: Nationalization" (webbook). Zulfikar Ali Bhutto: The

architect of Pakistan. Los Angelos, Karachi (Pakistan)

2. Qutubuddin Aziz. "Muslim's struggle for independent statehood". Jang Group of Newspapers.

Retrieved 4 December 2007.

3. Mahmood, Shaukat (1966). The second Republic of Pakistan; an analytical and comparative

evaluation of the Constitution of the Islamic Republic of Pakistan. Lahore: Ilmi Kitab Khana.

4. "Martial under Ayub Khan". Martial Law and Ayub Khan. Retrieved 18 April 2013.

5. Pakistan Affairs CSS Exams syllabus book by Gul Shahzad Sarwar.

6. INDOPAK History II book of CSS syllabus by Jehangir Publishers.

7. Dawn Report (18 December 1999). "Musharraf's economic package gets mixed response". Dawn

News records, 1999. Retrieved 15 April 2013

8. "System is to blame for the 22 wealthy families". Human Development Center, Originally published

on London Times. Human Development Center. 22 March 1973

9. Baxter, Craig (2004). Pakistan on the brink: politics, economics, and society. Lanham, Maryland:

Lexington Books.

10. Express tribune story article rise-and-fall-of-dewans by saad hasan

11. www.scribd.com/doc/76299983/FINANCIAL-ANALYSIS-OF-DEWAN-MUSHTAQ-GROUP

12. http://old.thenews.com.pk/08-12-2010/business/19286.htm

13. http://wiki.answers.com/Q/What_is_Euro_Convertible_Bond?#slide=5

14. http://tribune.com.pk/story/624337/corporate-results-three-dewan-group-companies-lock-in-

profit/

i i All figures were taken from Statistics bureau website and finance ministry website. While analyses were written by own. ii: Timeline drawn from ET article.

http://www.scribd.com/doc/76299983/FINANCIAL-ANALYSIS-OF-DEWAN-MUSHTAQ-GROUP

http://old.thenews.com.pk/08-12-2010/business/19286.htm

http://wiki.answers.com/Q/What_is_Euro_Convertible_Bond?#slide=5

Failed Generations (A reserch thesis on failed transformation of family businesses of Pakistan in to Capitalist institutions)

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