Shahid Hussain Raja's Blog

Introduction

Pakistan is a federation being governed under a parliamentary form of government. Being a functioning democracy, its policy formulation process, by and large, resembles any nation-state having fairly well-functioning democratic institutions. There are multiple institutions and stakeholders which take part, directly as well as indirectly, in the formulation of any public policy of Pakistan. These are as follows1.

Parliament/Provincial Legislatures

Theoretically, it is the Parliament of the Islamic State of Pakistan that is the supreme policy making institution, including the formulation of the foreign policy of the country. The two Houses of the Parliament and their Standing Committees on different subjects influences this process by making known their views on important policy issues by discussing them in its sessions or passing resolutions. The Parliament is also the supreme institution for converting any policy into a legislative act.

Similarly, at the provincial level, it is respective provincial legislatures that are responsible for public policy formulation relating to the affairs of that province

 The Constitution requires that all important policy decisions ultimately must be taken by the cabinet and formally communicated to the head of the state, usually the  President. Once a policy proposal is received by the Prime Minister or cabinet, it would be discussed in its formal meeting and adopted, rejected or modified keeping in view the country’s best national interests.

Federal Ministries/Provincial Departments

At the federal level, it is the responsibility of a Ministry to formulate a policy relating to the subjects assigned to it under the Rules of Business. The Minister in charge of each ministry is competent to approve a policy if its area of operation remains under its own domain. However, if a policy formulated by a Ministry overlaps with the other ministries domains, then it must be presented before the Cabinet for approval. Some of these are the

Economic Affairs Division, Ministry of Finance responsible for dealing with bilateral or multilateral economic and technical  cooperation, with foreign state and supra-state institutionsMinistry of Commerce responsible for increasing Pakistan exports,Ministry of Investment, tasked with attracting Foreign Direct InvestmentMinistry of Privatisation mandated to disinvest the state-owned enterprises,External Publicity Wing, Ministry of Information responsible for projecting soft image of the country,Ministry of Defence seeking to enhance the defence capabilities of the country through the acquisition of military technology and armaments etc

Similarly, in the provinces, policy formulation is carried out by the respective provincial department as per the practice described above for the federal ministries

Foreign Office

Normally, any foreign policy proposal would be initiated by the Ministry of Foreign affairs which is the focal point for the initiation of all proposals relating to the foreign affairs of a country. However, there may be cases where any issue relating to any ministry has foreign policy implications. In such a case, the Ministry of Foreign Affairs is consulted or the case itself may be routed through it to the cabinet to obviate the possibility of any proposal being accepted which is not in the larger interest of the country. 

The foreign office, while formulating and submitting foreign policy proposals to the government, would take into account views of the Parliament, the civil society, media, and think tanks. If need be, the foreign office would consult them formally. Similarly, it would also consider the views and policies of other countries and non-state actors at regional and international levels within the prevailing regional and international strategic environment.

Armed Forces

All over the world, armed forces play an extremely crucial role in the making of the foreign policy of any country for obvious reasons. However, in the case of Pakistan, they play the dominant role. There are multiple reasons for the larger than life role played by Pakistan’s armed forces in the political governance of the country, ranging from the colonial legacies, domestic conditions, regional imperatives, and global environments.

Non-state Institutions

Although public policy formulation is a very structured process involving formal institutions of the country, three non-state institutions provide important inputs in this process. These are the think tanks, media, and civil society organizations. Think tanks and research institutes play an extremely useful role in any country’s formulation of policies by providing an independent assessment of the ground realities as well as recommending a course of action. Although Pakistan is woefully shorty of such tank tanks, yet there are quite a few think tanks that have been quite active in this field

Civil society organizations are not well organized in the country and as such their contributions towards making policy are not so significant. However, lately, they have become quite active, particularly those espousing human rights causes. As opposed to the think tanks and civil society organizations, Pakistani media has been quite active in shaping public policies of the country through its role as the mirror of the social thoughts

Public Policy Formulation in Pakistan: An Assessment

Looking at the history of policy formulation in Pakistan, one cannot escape the fact that it is a mixed bag. While there have been some very good policies formulated and executed since its creation as an independent nation-state in 1947, there have been some glaring examples of poorly designed or badly executed policies. Sometimes it did not have a policy at all for a long time in the field in few crucial sectors like agriculture and industry, land use, transport etc.

Some of the main features of the public policy formulation process are as follows

Procedural Mismatch

Public policy is a dynamic but complex process through which public problems which can be of economic, social, or political nature, are identified and countered by creating new public policy or by reforming existing public policy.  Good public policy solves problems efficiently and effectively, serves justice, supports governmental institutions and policies, and encourages active citizenship.

There are diverse types of actors involved in the process of policy formulation, ranging from technocrats who provide their inputs in the form of knowledge on the one hand to multiple interest groups which represent and articulate the concerns of their respective constituencies on the other. However, ultimately, policy formulation is the exclusive domain of the elected representatives who aggregate these various conflicting demands and convert them into the form of actionable policy options keeping in view the broader national interests. 

Unfortunately, in Pakistan, the political elite, has not shown a keen interest in public policy formulation. That’s why the two Houses of the Parliament and their Standing Committees have not been as active in the consideration of policy issues as they could or should have been for one reason or another. In actual practice, it is the cabinet, headed by the duly-elected chief executive i.e., Prime Minister or the President, which call the shots.

Besides creating crises of legitimacy, such procedural mismatch also creates crises of ownership as it does not properly reflect the wishes of the people. Who will monitor its implementation if those who were supposed to make it just abdicated their role?

Institutional Overstepping

Every institution is responsible to formulate policies belonging to its sphere with suitable inputs from all the concerned stakeholders. However, in case of some very important national issues such as defence, national security, foreign policy etc., the concerned ministries have been abdicating their responsibility and allowing others to run the show. No doubt, all over the world, armed forces play an extremely crucial role in the making of the foreign policy of any country for obvious reasons. However, in the case of Pakistan, they play the dominant role. There are multiple reasons for the larger than life role played by Pakistan’s armed forces in the political governance of the country, ranging from the colonial legacies, domestic conditions, regional imperatives, and global environments.

Consequently,  the military and the intelligence agencies have had a much greater role to play in determining the policies to be adopted and equally importantly the measures to be taken on the ground through overt and covert operations. Intelligence agencies view their function as going beyond the collection of information.

Limited Role of Non-state Institutions

Although public policy formulation is a very structured process involving formal institutions of the country, three non-state institutions provide important inputs in this process. These are the think tanks, media, and civil society organizations. Think tanks and research institutes play an extremely useful role in any country’s formulation of policies by providing an independent assessment of the ground realities as well as recommending a course of action. No doubt, Pakistan is woefully shorty of such tank tanks, even quite a few think tanks we have are not so quite active in this field

Civil society organizations are not well organized in the country and as such their contributions towards making the policy are not so significant. However, lately, they have become quite active, particularly those espousing human rights causes. As opposed to the think tanks and civil society organizations, Pakistani media has been quite active in shaping the designs of the public policy of the country through its role as the mirror of the social thoughts

Policy Capture

One of the persistent allegations against the public policy formulation in Pakistan is that of policy capture” whereby public policies are consistently or repeatedly directed away from the public interest towards a specific interest. It can not only exacerbate inequalities and undermine democratic values but can also retard genuine inclusive economic growth and erode trust in government. One reason for this policy capture by the elite is lack of level playing due to vast economic inequalities. Another is lack of sufficient transparency in public policy formulation and the absence of all stakeholders

Thus to ensure that the public policies formulated are in the best interests of the majority of citizens, we should not only engage stakeholders with diverging interests to ensure an inclusive decision-making process that is more resilient to capture by narrow interests but should also promote integrity and transparency in lobbying activities and political financing. This is only possible if external actors and stakeholders have adequate access to reliable, timely and relevant information in the decision-making process. External control, effective competition and regulatory policies enable accountability in both the public and private sectors.

Inadequate Environmental Compliance

One of the common observations about public policy formulation in Pakistan particularly relating to development planning is the scant regard for the repercussions they will have for the environment. Environmental Compliance of strictly conforming to environmental laws, regulations, standards and other requirements is now part and parcel of all policies formulated anywhere in the world. Every policy document relating to a development project does have a separate chapter dealing with the environmental issues and more specifically, whether practicable mitigation and adaptation measures have been suggested to tackle these issues. However, these requirements are usually deficient and are openly flouted when the project is being implemented. Typically these errors of omission and commission pertain to the following

Managing monitoring programmes or schedules, ensuring that the monitoring required in the permit has been done, at the correct locations, for the correct parameters, and at the correct frequencyPre-processing, performing calculations and validating the data for compliance with any alert or reporting levelsGenerating routine compliance reports for authorities. Implementation Inadequacies

The existence and maturity level of their policymaking and service delivery institutions in a developing country like Pakistan has a lot to do with the underdeveloped socioeconomic status of the country. On the other hand, the greater maturity level of the institutions in a developed country is reflected in their policy formulation process. If a country’s political elite is mature and responsible and its bureaucracy is efficient, effective and responsible, it will be reflected in the quality of implementation of the policies

One of the biggest charges against the policy formulation in Pakistan has been the inadequate implementation of policies, due to its lower level of socioeconomic development, absence of commitment/lack of ownership at the political level, and capacity deficit of those responsible for its implementation.

Evaluation Failure

Each society is influenced by different public problems which can originate in endless ways and thus requires different public policy responses. Public policymaking is an interactive process that needs continuous monitoring and evaluation for taking any midterm corrective measures.  Every policy must have some clearly defined evaluation mechanism not only to gauge its impact but also to learn lessons for the future. Unfortunately, this crucial element of policy formulation has been missing in most of our policies with the result that there has been not a single case of anyone held responsible for failure of policy formulation or its implementation.

Lack of Continuity

Every policy has a champion behind its formulation. However once formulated by the elected representatives, a policy reflects the wishes of the people and should be owned by the concerned institution even if there has been a champion behind it. However, in the case of Pakistan, most of the policies are known by the name of the person who championed it and invariably go to cold storage when the personality is gone. This lack of continuity sends wrong signals to those interested to commit resources on a long term basis.

Global Influences

Globalization has resulted in larger than life role of the global state and non-state actors who are increasingly penetrating those domains which were henceforth exclusively reserved for the domestic state machinery. They not only interfere in the policy formulation but are now acting directly through their proxies in the form of non-governmental organizations in domestic policy formulation and implementation. This is all the more penetrative where the state is suffering from capacity and legitimacy deficits.

Pakistan is no exception to this wholesale blind following of global actors’ prescriptions which can be visible in almost all major policies formulated. This is not bad if the policies formulated have been in sync with the wishes of the people but not per the wishes of foreign forces with one size fits all labels.

Structural Flaws

Once a draft is presented to the Ministry by the consultants the junior officers must study it, give their inputs and then present it to their seniors for approval. However, sometimes these junior officers are not well versed with the process of scrutinizing these drafts and the public policy drafted by the consultant either remain unattended or submitted to senior officers without any sufficient inputs by them. Sometimes best-designed policies are doomed because of inadequate funding or stoppage of their execution due to change of political elite.

Suggestions to improve Public Policy Formulation in  Pakistan

To improve the performance of our public policy formulation process, here are some suggestion

Building National Consensus

One of the main causes of political instability and frequent dissolutions of the Parliament in Pakistan has been the wide gap in thinking that exist between the military establishment and the elected civilian set-up on different national issues. There is, thus,  an urgent need for a broad holistic national consensus of all stakeholders about the long term vision for the country and the formulation of a coherent public policy framework to achieve it.  Armed forces must accept that they are a subservient part of the state and not an independent state within a state. They must not regard themselves as the ultimate custodians of the national interest; multiple stakeholders must be on board while establishing the parameters of national security. At the same time, we will have to end the religious, ethnic, provincial, and political polarisation in the country as it is far more lethal to national security than outside aggression or internal subversion.

Establishing Effective National Security Forum

There is a need for an effective institutional framework to define the components of Pakistan’s national interest, their inter-se priority, and the best strategies to achieve them effectively and efficiently. The creation of such a high-level forum, suitably assisted by talented think tanks, would not only help to narrow the gap between the military and civilian establishments mentioned above but would also create a comprehensive mechanism for research, analysis, and consultation on policy options and their short and medium-term implications. However, any recommendation made by this forum must be subject to deliberation and debate either in an open session of the Parliament or, if the subject is sensitive, in-camera by the relevant committees of Parliament and become the basis of policy only after it has been approved.

Activating Standing Committees of Parliament

The Parliament serves as a policy-forming agent in direct proportion to the extent of its use of the constitutional powers which it possesses to support, modify or defeat the programme of the executive. The executive should, therefore,  make a conscious effort to consult the Parliament and its leaders on policy issues more frequently than has been the case in the past. It is imperative to activate and strengthen the Standing Committees the two Houses as they can play a major role in facilitating a wider process of consultation on a major policy issue. Keeping in view the due role of legislative committees, the committees gather data, listen to the views of specialised interest groups, hold public hearings on important issues, and carefully weigh alternative courses of action in the formulation of policy.

Parliament and the committees, by utilising the powers of investigation, carefully scrutinise the execution of policy by the executive. They can also instigate a nationwide public debate on controversial policy issues. For example, the Parliament and its Committees can play a major role in facilitating a wider process of consultation on major foreign policy issues; such a role has been very scarcely played by the Parliament and its committees, although they are constitutionally empowered to oversee the executive as well as formulate and forward foreign policy options in keeping with the aspirations of the people of the country.

Strengthen Foreign Office

The foreign office is the core state institution without which a country cannot anticipate the reaction of other states and thus cannot formulate a considered foreign policy. The terms “foreign policy” and “diplomacy” are generally used interchangeably. An efficient and professionally managed foreign office which can present well-considered options, whenever required, and can implement policies effectively, once these have been formulated by the Government. It must strengthen its Policy Planning Division by allocating more manpower and financial resources.

Responsive Feedback system

Last but not least, there is a need for a robust and responsive feedback system, consisting of internal checks and balances assisted by external stakeholders, civil society organisations, think tanks, and media. A country’s policy framework mirrors its national agenda, priorities, social attitudes, and political structure. Public policy formulation is a cumulative process; even revolutionary governments have to worry about what their predecessors, whom they condemn, had or had not done or promised to do or not to do. The feedback from the external environment is already in place before policy options are drawn. For policymakers, executive autonomy is not a license for a free choice of action, particularly in the case of relatively less strong states.

The late M. de Gournay… sometimes used to say: “We have an illness in France which bids fair to play havoc with us; this illness is called bureaumania.” Sometimes he used to invent a fourth or fifth form of government under the heading of “bureaucracy.”

— Baron von Grimm (1723-1807

Introduction

Bureaucracy or the Civil Service constitutes the permanent and professional part of the executive organ of government. Usually described as the non-political or politically neutral, permanent, and professionally trained civil service, it runs the administration of the state according to the policies and laws of the government. Upon the qualities and efficiency of bureaucracy depends the quality and efficiency of the state administration. It, however, works under the leadership and control of the Political Executive.

Bureaucracy: Meaning and Definition

The terms bureaucracy, civil service, public servants, public service, civil servants, government service, government servants, officials of government, officials, permanent executive and non-political executive are used to describe all such persons who carry out the day to day administration of the state. The terms Bureaucracy’ and ‘Civil Service’ are popularly used as synonyms.

In a narrow sense the term Bureaucracy is used to denote those important and higher level public servants who occupy top level positions in the state administration. In the broad sense, it refers to all the permanent employees of the government right from the peons and clerks to the top-level officials. Presently, we use the term in its broader dimension. Some of the definitions given about bureaucracy are as follows

(1) “Bureaucracy means the civil servants, the administrative functionaries who are professionally trained for the public service and who enjoy permanency of tenure, promotion within service-partly by seniority and partly by merit.” -Garner

 (2) “In its broad larger sense, the term Civil Service is used to describe any personnel system where the employees are classified in a system of administration composed of a hierarchy, sections, divisions, bureaus, departments and the like.” -Willoughby

(3) “Civil Service/Bureaucracy is a professional body of officials permanent, paid and skilled.” -Finer

Bureaucracy: Main Features:

In every country, the bureaucratic set up has certain common features such as

Permanent Character:  The civil servants hold permanent jobs in government departments. They mostly join their services during their youths and continue to work as government servants till the age of retirement which is usually 58 to 60 years.Hierarchical Organisation: Bureaucracy is hierarchically organised in several levels. Each official is placed at a particular level of hierarchy and he enjoys the privileges and powers which are available to his co-level officials. He is under his immediate higher-level officials and is above his immediately lower level officials. The principle of rule of the higher over the lower governs the inter-relations between various levels of bureaucracy.Non-partisan Character:  The members of the Bureaucracy are not directly involved in politics. They cannot join political parties and participate in political movements. They are not affected by the political changes which keep on coming in the political executive. Whichever party may come to power and make the government, the civil servants remain politically neutral and carry out their assigned departmental roles impartially and faithfully.Professional, Trained and Expert Class: The Bureaucracy constitutes the educated and professionally trained class of persons which helps the political executive in carrying out its functions. The members of civil service are recruited through competitive examinations for appearing in which they have to possess some minimum educational qualifications. Before their appointments, they get special trainings. During the course of their service they attend orientation and refresher courses. They have the knowledge, training and expertise necessary for carrying out their administrative work.Fixed Salaries: Each member of the Bureaucracy receives a fixed salary. Right at the time of appointment he is allotted a scale of pay, which depends upon the nature and level of his job-responsibility. All the civil servants belonging to a particular class of administrative hierarchy are placed in one scale of pay. Each job also entitles them to some allowances.Bound by Rules and Regulations: The Bureaucracy always works in accordance with ‘rules and regulations’. ‘Strict obedience to rules’, ‘Through Proper Channel’, ‘Decision-making after satisfying the rules’, are the principles which always guide, direct and regulate the working of bureaucracy. Each official works only within the sphere prescribed for him by the rules of his department.Class Consciousness: The Civil Servants are highly class conscious. They jealously work to protect and promote the interests of their class of civil servants. They are called the white-collar class because of their faith in their ‘superior status’ as government officials.Public Service Spirit as the Ideal: Modern Bureaucracy identifies itself with public service spirit. It always tries to project itself as the civil servants devoted to the promotion of public welfare through the satisfaction of public needs. They are expected to behave as ‘officers’ responsible for public welfare, with service as their motto.Bound by a Code of Conduct: The civil servants have to follow a code of conduct. They must act in a disciplined way. Their rights, duties and privileges stand clearly defined. The procedure of work is definite and settled. They can be punished for misbehaviour, incompetence or negligence or for a violation of their conduct rules. In short, Bureaucracy is characterised by political neutrality, professional competence, permanent/ stable tenure, fixed salaries and strict obedience to rules.

Role of Bureaucracy

In a well-functioning public administration, bureaucracy has four crucial roles to play

Assisting Public Representatives: In a democratic setup, policy formulation is the privilege of the elected representatives at different levels of governance. While at the federal/Provincial level, it is the cabinet which formulates the policies, in case of a federal ministry or provincial department, it is the Minister in charge who is responsible for the formulation of policies for his/her ministry and its attached departments.However, it is the Bureaucracy which plays an active role in this exercise. Bureaucrats being repository of institutional knowledge along with their experience serve as guides to their respective ministers in formulating these policies. They not only give vital inputs for this purpose but in most of the cases put up the first draft of any public policy and supply the data needed by the political executive. The Political Executive then adopts this  policy with necessary amendments  as the governmental policy for his ministry/department.Public Policy Implementation: While public policy formulation is the privilege of the elected representatives at different tiers of governance, its faithful implementation is the duty of the bureaucracy. For implementing this policy, the bureaucracy devises strategies and procedures and ensures that policy objectives are efficiently and effectively achievedPublic Management: This is the inherent jurisdiction of the bureaucracy vested in them usually by the parliament or the President/Prime Minister. It can range from collecting taxes, spending public funds, providing public goods and services (health/education/water etc) To run the day to day administration in accordance with the policies, laws, rules, regulations and decisions of the government is also the key responsibility of the Bureaucracy. The political executive simply exercises guiding, controlling and supervising functions.Redressing Public Grievances: During the performance of their duties or otherwise, if anyone is adversely affected, listening to him/her and redressing their grievances is part of the functions of a bureaucratAdvisory Function: One of the important functions of the Bureaucracy is to advise the political executive. The ministers receive all the information and advice regarding the functioning of their respective departments from the civil servants. As amateurs, the ministers have little knowledge about the functions of their departments. They, therefore, depend upon the advice of bureaucracy. As qualified, experienced and expert civil servants working in all government departments, they provide expert and professional advice and information to the ministers.Role in Legislative Work: The civil servants play an important but indirect role in law-making. They draft the bills which the ministers submit to the legislature for law-making. The ministers provide all the information asked for by the legislature by taking the help of the civil servants.Semi-judicial Work: The emergence of the system of administrative justice, under which several types of the cases and disputes are decided by the executive, has further been a source of increased semi-judicial work of the bureaucracy. The disputes involving the grant of permits, licences, tax concessions, quotas etc. are now settled by the civil servants.Collection of Taxes and Disbursement of Financial Benefits: The civil servants play a vitally important role in financial administration. They advise the political executive in respect of all financial planning, tax-structure, tax-administration and the like. They collect taxes and settle disputes involving recovery of taxes. They play a vital role in preparing the budget and taxation proposals. They carry out the function of granting of legally sanctioned financial benefits, tax relief, subsidies and other concessions to the people.Record-Keeping: The Civil Service has the sole responsibility of keeping systematically all government records. They collect, classify and analyse all data pertaining to all activities of the government. They collect and maintain vital socio­economic statistics which are used for the formulation of Public policies and plans.Role in Public Relations: The era of modern welfare state and democratic politics has made it essential for the government to keep close relations with the people of the state. The need for maintaining active and full public relations is a vital necessity of every state. The civil servants play an active role in this sphere. They become the Ears and Eyes of the State by keeping the political elite informed about issues needing formulation of public policy. They are the main agents who establish direct contacts with the people. They serve as a two-way link. On the one hand, they communicate all government decisions to the people, and on the other hand, they communicate to the government the needs, interests and views of the people. Thus, Bureaucracy plays a vigorously active and highly important role in the working of the government.

Why Bureaucracy enjoys such power and control

Throughout history, there has been a constant complaint against the increased role and influence of the bureaucracy in almost every country. There are several reasons for this tendency of the bureaucrats to play a larger than life role in the country

Structural Strength: Structural foundations of bureaucracy, based on the Weberian organisational model, is inherently very powerful. Its hierarchical structure leads to a concentration of power in few hands. Specialization mixed with long experience makes the bureaucrats experts in their respective fields which further enhances their power and control. Web of networking, their mutual respects for one another, and appointment of their senior colleagues as the head of administrative courts/tribunals to carry out their accountability frustrate any effort of the elected representatives to take them to the task. This is further exacerbated by the fact that career bureaucrats are tenured civil servants who can be removed only by a lengthy and cumbersome procedure.Bureaucracy is State: No doubt, it is the public representatives who formulate the policies, but it is the bureaucracy that implements those policies for which they have the power to interpret the rules on the point of its implementation and use force if needed. Thus, for the man on the street, bureaucracy is the state-the regulator, the facilitator, and the service provider. They become the Ear and Eyes of the State by keeping the political elite informed about issues needing formulation of public policy. They serve as a two-way link. On the one hand, they communicate all government decisions to the people, and on the other hand, they communicate to the government the needs, interests, and views of the people.Weak Oversight: While the bureaucracy becomes powerful because of its accumulated experience and professional expertise, its handlers, the political representatives fail to provide a strong oversight for one reason or another. They come into the picture for a short period, always worrying about their next elections for which they need the assistance of these very bureaucrats in their respective constituencies.Weak Civil Society and Media: Although they are under great scrutiny by the civil society organisations on the one hand and the media on the other, yet they can outmanoeuvre them by sheer dint of their dexterity, control over information and finances, and their proximity to the political elite who protect them for their own vested interest

How to control Bureaucracy

Keeping in view the above mentioned increased role of modern civil servants in statecraft and public management, every nation-state tries to have strict control over its bureaucracy to prevent the civil servants from abusing their powers as well as for ensuring their active and positive role. For this purpose, there are usually two types of controls in vogue all over the world. 

Internal Control: Being a hierarchical organisation, it is convenient and cost-effective to apply internal controls on the working of the bureaucracy by judiciously and prudently using various tools available. These tools of control are budgeting, accounting, auditing, reports, inspections, efficiency surveys, personnel control, code of conduct, and discipline and leadership control. In particular, regular internal inspections, auditing of accounts, and evaluation of the performance of each civil several acts as the main means of internal control over BureaucracyExternal control: Notwithstanding the convenience and effectiveness of internal controls to ensure the efficiency and effectiveness in the working of the bureaucratic machinery, there is always a need to have effective checks and balances on bureaucracy from outside. In this respect, parliament is the best institution to exercise this control through its various committees. It could be supplemented by the media and the civil society organisation. Lastly, the judiciary is the ultimate external control on the misuse of authority by the bureaucracy.

“To be an enemy of America can be dangerous, but to be a friend is fatal” ~ Henry Kissinger

Although the USA was one of the first countries to recognise Pakistan soon after the latter came into existence in 1947, bilateral relations between the two countries have always been very complex, and unstable changing with the changing geopolitical environment and the requirements of the USA foreign policy in this part of the world. In fact, the entire history of Pakistan’s foreign policy is the history of this love-hate relationship between the two countries. And they will remain so because of the difference of perceptions of their respective policy making elite about the geostrategic dynamics of South Asia.

A recap of the history of Pakistan’s foreign relations is enough to understand the nature of bilateral relations which have been always at the tactical and not strategic level. While USA was looking for allies to counter communism in this part of the world, Pakistan had no choice. Its decision to befriend USA was shaped primarily by several historical imperatives, geopolitical compulsions and sheer objective realities of the day.

Historical Path-determination: Soon after independence Pakistan tried to cultivate good relations with the USA. Quaid-e-Azam Mohammed Ali Jinnah stated in an interview  “America needs Pakistan more than Pakistan needs America. He, in fact,  sent his personal emissary to the USA for financial and military assistance which was not accepted by the Americans, but it did give a hint of future trends of Pakistan’s foreign policy. His successors followed suit and showed ample evidence of their tilt towards emerging super power.Dominance of West-oriented elite in policy formulation: After independence, many of Pakistan’s key policy making institutions were either headed by the Britons or those, including the nation’s founding father, Mohammad Ali Jinnah,who had studied in Britain. Despite disillusionment at what Pakistanis perceived as Britain’s failure to treat Pakistan fairly in dealings where India was involved, Pakistan remained in the Commonwealth even after the country became a republic under the constitution of 1956. However, it was the warmth and bonhomie between the military brass of the two countries which further cemented the close relations. Pakistani generals were already hooked to greater cooperation with the West which, in their opinion, was more advanced in economic and technical fields and had sufficient resources and determination to support its allies.External Security Compulsions: An outbreak of war between India and Pakistan over Kashmir soon after their independence acerbated the already sour relations between them in the wake of the blood-soaked partition of the British Indian Empire was a forerunner for a long-term hostility between India and Pakistan. Afghanistan’s hostility on the eastern front made this sense of insecurity more accurate; hence the need on its part for the latest weaponry to put up a credible defence in case of external aggression necessitated the friendship with the West.Budgetary Solvency: The deepening economic crisis in the 1950s due to the falling prices of jute and cotton once the Korean War was over, and the food crises also contributed to this decision. Timely offer of the USA of one-million-ton wheat sold the policy makers to the USA. It helped to overcome food shortages and built a lot of goodwill in Pakistan for the donor.Need for Resources for Economic Development: Pakistan was a typically underdeveloped country when it came into existence but its population was expecting too much from a state which was faced with myriad challenges. Economic development was the biggest among these challenges, requiring huge resource-financial and human-both in acute short supply. The only country which could help Pakistan to come out of its poverty trap was USA-hence the tilt towards the USA was but naturalNeed for Friends: Pakistan suffered from a sense of isolation in the World. The efforts to promote unity in the Muslim World were not making headway. It also became clear that the UN and the Commonwealth would not facilitate the solution of the Pakistan-India problems, especially the Kashmir dispute.Lack of Better Alternative Options: Keeping in view the situation Pakistan found itself, it was the only option available although for the USA it was not its first option.  The USA had been consistently wooing India to join it in its Cold War efforts to contain China and encircle USSR. It was only after India chose to befriend USSR that the USA came closer to Pakistan. Delay on the part of the Soviet bureaucracy to finalize the date of the visit of the Pakistani prime minister to Moscow may be an insignificant reason to push Pakistan towards the Capitalist camp; the die had already been cast as explained below

Nature and extent of USA-Pakistan relations during 1950s

There were several dimensions and intensity of the relationship between Pakistan and the Western block led by the USA. Some of these are as follows.

Mutual Cooperation: February 1954-Pakistan started developing close cooperation with Turkey, later expanded to include other allies May 1954-US Pakistan Mutual Defence Assistance Agreement. A Bilateral Agreement of Cooperation was signed between Pakistan and the United States in March 1959 whereby the United States agreed to supply military and economic assistance to PakistanDefence Pacts: In September 1954, Pakistan joined the South-East Asia Treaty Organisation (SEATO) created to counter communist aggression or subversion. Pakistan’s plea to include all kinds of aggression was not accepted. One year later (September 1955) Pakistan joined the Baghdad Pact (renamed CENTO in 1959 after Iraq’s withdrawal) for strengthening the defensive capability of the member states “solely” against communist menace.Joint Exercises: Pakistan armed forces participated in several joint military exercises with the western countriesMilitary Base: 1956: President Dwight Eisenhower requested prime minister Suhrawardy to lease Peshawar Air Station to the American Army for keeping an eye on the Soviet Union and its ballistic missile programme. The request was granted by the prime minister and in 1958, Pakistan leased  out Badaber, near Peshawar, for ten years 

Benefits of the Tilt towards the West

Pakistan’s alignment with the United States yielded several advantages.

Economic Assistance: American economic assistance grants, loans, goods and services gave a boost to Pakistan’s faltering economy. Pakistan received grant assistance valued at US $ 650 million, and credit facilities worth US $ 55 million.Capacity Building: U.S. Military Assistance Advisory Group set up to advise on modernisation of armed forces and security arrangements. Similarly in the civilian fieldMilitary Modernisation: Several divisions were re-equipped, few new ones were raised, restructuring of defence system/came handy in subsequent wars with India. Training facilities improved and Pakistan military officers were sent to the United States on different training courses;Recognition & Image: Pakistan became an important member of the Western lobby and got prominence at the regional/global stage

Costs of tilting towards the USA

However, the alignment with the West was not cost-free.

No Independent Foreign Policy: Pakistan’s independent foreign policy was compromised and the prospects for improvement of its relations with the Soviet Union suffered heavily. The Soviet Union made a blistering criticism of Pakistan’s alignment with the U.S. and threatened Pakistan with dire consequences if Pakistan allowed its territory to be used against the Soviet Union. Besides extending support to India on the Kashmir question, it also supported Afghanistan’s irredentist claims on Pakistani territory. The Soviet Union paid back its revenge on the Indo-Pakistani war of 1965, emerged as the biggest supplier of military hardware to IndiaMuslim World Alienation: Although Pakistan vigorously championed the right of self-determination for Muslims around the world. Pakistan’s efforts for the independence movements of Indonesia, Algeria, Tunisia, Morocco and Eritrea were significant and initially led to close ties between these countries and Pakistan. However, Pakistan’s participation in defence pacts came in conflict with its desire to cultivate close and cordial relations with the Muslim states. Except for Iran and Turkey which shared the defence arrangements, the Middle Eastern states responded negatively to Pakistan’s security ties with the West. Earlier, Pakistan adopted an ambiguous policy towards the Suez Crisis of1956, which alienated Egypt.Exclusion from NAM: Pakistan also lost ground with the developing countries. Pakistan was very active in organising the Bandung Conference in 1955 but, when the spirit of Bandung crystallised into the Non-aligned Movement (NAM) in 1961, Pakistan was excluded because it participated in defence pacts.Distance from Socialist Block: It kept its relations with the socialist/communist countries at a low level to strengthen its credentials as a Western ally. Although China avoided an open condemnation of Pakistan’s participation in these pacts and showed a remarkable understanding of the factors that led Pakistan to join the Western camp, yet Pakistan maintained a safe distance from China and its policy on the seating of China in the UN was more in line with the U.S. perspective.Lukewarm Support from Allies: Despite Pakistan’s full support to the USA in all issues, the latter was not prepared to extend enough diplomatic support to Pakistan in its problems with India This raised doubts in Pakistan about the credibility of American support.Institutional Imbalance: Pakistan had already inherited an over-developed military machine as a colonial legacy in contrast with the civilian institutions, American military aid further strengthened their power vis a vis other institutions resulting in the derailment of the democratic train at the start of the journey.

No doubts these are very strong arguments against the decision of Pakistan’s leadership of the 1950s to join the Western camp. However, while criticising the foreign policy elite we should not forget or ignore the objective conditions prevailing in those tumultuous periods, the precarious situation Pakistan was facing and most importantly, the options it had to choose from. Keeping in view the challenges Pakistan was facing at the time of its independence coupled with the state of affairs at that moment of international relations, Pakistan had very limited options to choose from. It was the best option available at the time to safeguard our national interest.

However, it was one-way traffic. When choosing between India and Pakistan, the USA had been consistently wooing India to join it in its Cold War efforts to contain China and encircle USSR but failed. It was the 1962 India China War that provided the USA with a golden opportunity it had been seeking all along to come closer to India. Responding to Nehru’s personal letters for American assistance, the U.S. and its allies rushed weapons and military equipment to India.

Knowing that the honeymoon was over, Pakistan started cultivating close cooperation with China for the same reasons it courted the USA in the first place. The arms embargo during the 1965 War between Pakistan and India which hurt Pakistan more due to its total reliance on American military armaments, resulted in further deterioration of relations between the two countries.

During the 1970s the USA again needed Pakistan when fearing an impending defeat in Vietnam, USA was desperately looking for ways to take revenge from USSR by bleeding it to death in its soft belly –Afghanistan. Bhutto’s refusal to toe the American line cost him his life and was replaced by General Zia. He was extensively used for the defeat of the USSR in Afghanistan and its eventual disintegration.

However, this Faustian bargain between Pakistan and the USA sowed the seeds of modern terrorism which started haunting both the countries and has now engulfed the entire Middle East and Europe. 9/11 was one such act of terrorism. Although it was the worst intelligence failure of the American security establishment, Afghanistan was picked as the target of US vengeance. Pakistan was forced to join in this War on Terrorism by threatening it to “bomb into the stone age”.

Present bonhomie between Pakistan and America which started in 2018, is the result of realisation by the USA that even after spending billions of dollars and killing hundreds and thousands of innocent people notwithstanding its own casualties during the 20 years of war, there are no signs of any clear US victory. President Trump was desperate to extricate American forces before the election campaign gets going and needed Pakistan to bail it out of this quagmire.

On the other hand, Pakistan was in urgent need of financial assistance to overcome its economic difficulties. Thus the convergence of the vested interests of both the parties forced them to make concessions to each other’s demands keeping pursuit of their respective long term strategic interests on hold. That’s why the current warm relations between the two countries is an aberration, not the norm-rather transitory and deceptive,

Future of US-Pakistan Relations

What would be the nature of relations between the USA and Pakistan will depend upon the priorities of the American foreign policy based on the geopolitical compulsions and evolving regional realignments. Super powers have global agenda; hence they are every country’s neighbour. As such their relations with a country will depend upon their own sets of priorities for the realisation of their respective national interests. Relevance and usefulness of a country including its geostrategic relations is, therefore, directly proportionate to its usefulness for the achievement of the foreign policy objectives of the superpowers. Sometimes geo-strategically located small countries become more important than large countries not enjoying that privilege. Pakistan is one such example; it is located in a region that has a special significance for the USA for the following reasons

Geostrategic Relevance: Geo-strategically, South Asia is the most important region for the USA because of its proximity to Central Asia, the soft belly of its rival Russia, and to Tibet, the soft belly of its other rival, China. Its bordering the Indian Ocean from where 80% of ships carrying goods to and from its Allies pass, makes it even more significant. Similarly, it is the outer border of the Middle East where the USA and its Allies are fighting for resources, markets and hegemony.Geopolitical Significance: Geopolitically, South Asia is again a very important region for the USA as two nuclear powers of the day, India and Pakistan, are at daggers drawn with each other. Any miscalculation and the world can easily plunge into 3rd World War with possible use of nuclear arms. Additionally, it has India which could be a perfect counterpoise to China. Last but not the least, it is the hotbed of international terrorism-presently the biggest worry of the USA. And if any terrorist group gets hold of the nuclear arm, it will end up being used against its Allies or maybe against the USA forces stationed in various bases Geo-economic Importance: Geoeconomically, it is one of the most lucrative regions with a huge market and vast reservoir of educated and skilled manpower. Witnessing impressive growth rates, there is an increasing and prosperous middle-class yearning for western goods and services. Its developmental needs attract a lot of FDI every year

Based on the above perceptions of the USA and the significance of South Asia for safeguarding its national interest, the  USA has adopted a multi-pronged strategy to achieve its objectives in South Asia using all the tools available in its tool kit- constructive engagement, threats, cajoling, aid, trade and whatnot. 

In this grand strategy of the USA, India enjoys a pivotal position for the realisation of American foreign policy goals. Although the multi-dimensional cooperation between India and the USA is not new and started during the 1980s due to the better credentials of India as compared to Pakistan, yet the new geopolitical and geostrategic developments have brought them even closer. As such, relations between the USA and India are strategic, long term and comprehensive as both the countries are partners in glove for the achievement of their respective objectives. While the USA is keen to counter the strategic alliance of an emerging China and a resurging Russia, India intends to keep China out of the Indian Ocean for which American backing is essential-see the India-US agreement i.e. LEMOA in that context.

On the other hand, the USA is mindful of the geostrategic importance of Pakistan for the furtherance or hindrance of its foreign policy goals in this volatile region. It is therefore ensuring that Pakistan’s estrangement on account of cosy relations between the USA and India doesn’t cross the threshold of its becoming a total satellite state of China. Employing the time-tested policy of carrots and sticks, it is engaging Pakistan’s political elite through development aid and keeping close liaison with Pakistan’s security establishment through its own defence establishment.

At the same time, its sticks include suspension of civil and military aid to Pakistan, informal pressure through World Bank/IMF, using diplomatically harsh language and putting its influence in the Financial Action Task Force (FATF) to include Pakistan in the Black List for terror financing. It is augmented with low-level terrorism/insurgency in Pakistan through India and Afghanistan. The recent surge in Indian hostility towards Pakistan and its opposition to China Pakistan Economic Corridor should be seen in this rapidly evolving geopolitical realignment.

What Pakistan should do?

The foreign policy of a country is the obverse of its domestic policy- achieving the same goals through skilful handling of its foreign relations. Accordingly, the effectiveness of the foreign policy of a country is dependent on its domestic situation on the one hand and the way its diplomatic corps exploit the opportunities available at any particular time on the other. As such, its success or failure is directly proportionate to domestic successes or failures; even the most skilful diplomat cannot market a domestic failure as the crowning success of its country in the global arena.

While making all-out efforts to have good relations with the USA, Pakistan must keep in mind the cardinal principle of global politics-there are no permanent friends or permanent enemies in international relations, only permanent interests. Hence the bilateral relations between the USA and Pakistan will keep on changing with the changes in objective realities and the corresponding changes in the perceptions of the policy makers in the USA. Presently Pakistan is extremely useful for the realisation of its immediate objective of honourable exit from Afghanistan; hence all the carrots.  Once it is achieved, we should expect a lot of sticks from the USA known for bullying the weak. With that in view, here are some suggestions

Setting our House in Order

Formulation of a proactive foreign policy anchored around a broad-based national consensus on our national interest is the need of the day. While territorial integrity and national sovereignty would remain the cornerstones of this national interest, we should now emphasize improving the quality of life of its citizens as the pivot of our foreign policy. For this, we have to set our house in order by making concerted efforts in at least six areas namely

Containing Corona Virus PandemicPromoting DemocracyStrengthening InstitutionsNation buildingAccelerating Economic Growth/Human DevelopmentCurbing Terrorism/Extremism Reducing the Trust Defici t

The USA is still a super power-no need to antagonise it. Even China has no objection to better USA-Pakistan relations. Similarly, the USA and its allies are our largest trade partners, as well as the source of capital goods. More than two million strong diasporas living in the USA and Europe are our biggest source of remittances while more than 20,000 students always remain enrolled in their universities.

However, despite all the history of good relations and the above mentioned strong interdependence, there is too much trust deficit between the two countries which needs to be reduced. Some of the areas in which this trust deficit is quite visible are Afghanistan, nuclear assents, terrorism and Pakistan-China relations. Pakistan should assure the USA that our relations with other countries particularly with China and Russia are based on mutuality of interests and are in no way against the vital interests of the USA.

One of the ways the USA can reduce our dependence on China is to ensure greater FDI flows to Pakistan plus its access to access to American military technology to the extent it is available to other countries-India, Saudi Arabia etc. Of course, Pakistan is ready to provide all the safeguards to ensure that we do not transfer this technology to China-the main allegation of the American firms against Pakistan

Seeking Convergence of Interests

One of the most effective strategies used in foreign policy is to explore the areas where there is greater convergence of mutual interests between two or more countries. Pakistan should, therefore, insist that the USA must develop a long-term strategic partnership with Pakistan in such cases where there is the convergence of mutual interests. Containment of global terrorism and degradation of terrorist outfits is one of the primary goals of American foreign policy. Pakistan, which is one of the worst victims of terrorism, is equally interested in its elimination. Terrorism is a common enemy needing a long term strategy and participation of all the stakeholders including the USA to launch coordinated efforts for its elimination. Demanding Pakistan to deal with terrorism alone without removal of the irritants, sharing of intelligence, conducting of joint anti-terrorism operations is a recipe for disaster.

Trade, not Aid

Improving the quality of life of the citizens, henceforth the pivot of our foreign policy, is dependent, among other things, on accelerating the rate of economic growth of the country. This, in turn, needs massive resources. While Pakistan would welcome an increased volume of American civil aid to help Pakistan in its economic growth, it would be direct investment by the American multinationals and greater access to US markets we are interested in. The USA can play an extremely crucial role directly as well as indirectly. One such step could be to desist from issuing too many travel advisories restricting the visits of foreign investors into Pakistan. Similarly, its positive nod to multilateral institutions like the World Bank/IMF can go a long way in boosting foreign investment in Pakistan. And that FATF sword-the sooner it is lifted, the better.

Greater US Indulgence in South Asia

The USA is extremely keen to maintain its influence in South Asia and contain China- OK, then it should play a proactive and a positive role in an amicable resolution of all interstate disputes in the region. This includes the Kashmir dispute which is the core issue between the two countries vitiating the peace of the Subcontinent.  It should also desist India from creating unrest in Pakistan, particularly in Baluchistan and Karachi.

However, Pakistan should make it clear to the USA that no doubt India is a bigger and more powerful country that has more to offer to the USA than Pakistan-as such, Pakistan does not expect the same treatment from the USA as it extends to India. However, it should also make it clear to the USA that in no case Pakistan would accept the regional hegemony of India as envisaged in American new security strategy, not become a subservient state of India

Drawing the Lines

Genuine interests of the USA must be protected-terrorism, safe exit from Afghanistan, nuclear safety guarantees etc. However, not at cost of genuine interests- CPEC, Kashmir, Nuclear deterrence. Pakistan should make it clear to the USA that nuclear deterrence is our first line of defence because of its cost-effectiveness for a country with limited strategic depth and a huge imbalance in conventional defence capability against its arch-rival.  However, we should assure the USA that our nuclear assets are only for defence and have made foolproof arrangements for its security so that they do not fall into the hands of the terrorists- by design or by default.

Pakistan should remind American policymakers to see Pakistan from a telescopic rather than microscopic end; we are neither an AFPAK country nor a breakaway region of India. Pakistan is an independent country with its own identity. You may not like to treat us equal to India but do treat us as a separate country of more than 200 million people having its own national interest to look after. And despite the growing macroeconomic risk, the Pakistani economy is home to a growing middle class and a potential market for American investors in the consumer goods, energy, materials, real estate and retail sectors.

Conclusion

One of the basic reason for the love-hate relationship between Pakistan and the USA is the 180 degree divergence between the respective strategic cultures of both the countries. Pakistan’s policy making elite has always viewed its relationship with the US through an idealistic prism, considering US as a front-line protector against a much potent adversary India. Against these misplaced and exaggerated hopes of Pakistan, the US being a global power, have always treated Pakistan as a disposable  instrument helpful in pursuing its strategic interests in the region.

Despite Pakistan’s geostrategic location and its nuclear status, Pakistan is even losing that importance for the USA after its withdrawal from Afghanistan and its pivot towards Asia. In the emerging reconfiguration of global politics,  Pakistan has little utility for the US policy of containing China which has deep historical ties with Pakistan. On the other hand, India, aspiring for a defining role in global policies and an endemic rivalry with China, is more than willing to serve as a fulcrum in US Asia Pivot policy.

Abstract

The formulation of the foreign policy of a nation-state, that is an extension of its domestic policies, is a complex, and an iterative process involving multiple stakeholders.  In this process besides the objectives to be pursued to safeguard its national interest under the prevailing regional security apparatus, it is the strategic culture, the mindset of the ruling elite which ultimately determines the contents and direction of the foreign policy of a country.

Since independence, Pakistan’s strategic culture which has evolved through the interaction of its historical legacies, the geographical peculiarity of the country, economic imperatives, and socio-political structure, has been dominated by two fears namely

Firstly, it was facing an existential threat from two fronts, from India on its western borders and from Afghanistan on its Eastern borders Secondly, this existential threat cannot be mitigated through the conventional defence and that too on its own due to lack of geographical depth and resources

Pakistan has therefore opted for three distinct options throughout

extra-regional linkages, particularly during the 1947-71 period pursuit of nuclear option after its breakup 1972-2022avoiding two-front war by ensuring that a neutral, if not an overtly pro-Pakistan regime is in place in Afghanistan

Using its extremely important geostrategic location to safeguard its national interests without getting embroiled in the great power competition, Pakistan’s foreign policy is anchored around seven strategic pillars

This essay explains those seven strands which have been determining the contents and direction of the  of the foreign policy of Pakistan during the last seven decades.  

 

Introduction

The prime objective of a state is to improve the quality of life of its citizens-security of life & property, the standard of living, political empowerment. For this, it formulates a set of comprehensive interdependent policies. Foreign policy is one such policy formulated to safeguard a country’s national interest by utilising its interaction with foreign entities-states, non-state actors or supra-state institutions.

The formulation of the foreign policy of a nation-state, that is an extension of its domestic policies, is a complex, and an iterative process involving multiple stakeholders. Besides giving an indication of its priorities, a carefully formulated foreign policy provides clear guidance to those who have to implement it. In this process besides the objectives to be pursued to safeguard its national interest under the prevailing regional security apparatus, it is the strategic culture, the mindset of the ruling elite which ultimately determines the contents and direction of the foreign policy of a country.

Since independence, Pakistan’s strategic culture which has evolved through the interaction of its historical legacies, the geographical peculiarity of the country, economic imperatives, and socio-political structure, has been dominated by two fears namely

Firstly, it was facing an existential threat from two fronts, from India on its western borders and from Afghanistan on its Eastern bordersSecondly, this existential threat cannot be mitigated through the conventional defence and that too on its own due to lack of geographical depth and resources

Pakistan has therefore opted for three distinct options throughout

extra-regional linkages, particularly during the 1947-71 periodpursuit of nuclear option after its breakup 1972-2022avoiding two-front war by ensuring that a neutral, if not an overtly pro-Pakistan regime is in place in Afghanistan

Thanks to its unique geostrategic location, an asset if properly and prudently leveraged, Pakistan is a pivotal state in the region whose friendship is crucial for all global powers. That’s why Russia, China, and the USA agree that Pakistan is the most important factor concerning the Afghan peace process

Using its geostrategic location to safeguard its national interests without getting embroiled in the great power competition, Pakistan’s foreign policy is anchored around the  following seven strategic pillars

 

Strategic Rivalry with India

There is a strategic rivalry between these two South Asian countries due to the blood-soaked breakup of the British Indian Empire in 1947. Kashmir, an unfinished agenda of history, is one reflection of this strategic rivalry; its solution would lessen the animosity between the two countries but would not eliminate it because it owes its genesis and continuation on two conflicting fears and desires- Pakistan’s fear of existential threat and the Indian desire for regional hegemony.

One cannot rule out the intensification of this strategic rivalry in the foreseeable future between the two, thanks to Modi-inspired anti-Pakistan hatred in India. Recent skirmishes with China has left India badly bruised; to assuage its ego, Modi and the military junta in India are seeking an opportunity to wage a short but quick war with Pakistan. It would also compensate them for their loss of face in the Balakot fiasco. The possibility of a Water war is becoming grimmer with the rise of hinduvata nationalists in policymaking in India.

 

Strategic Friendship with China

Pakistan’s historically trouble-free strategic friendship with China, based on the convergence of mutual interests more than any other reason, is pivotal to Pakistan’s foreign policy. Similarly, Pakistan which China has designated as its Iron Friend occupies a special place in the geostrategic calculations of the Chinese leadership. Besides its location in South Asia which has special significance for China, Pakistan’s proximity to Central Asia, and its bordering the Indian Ocean from where 60% of ships carrying goods to and from different countries pass, makes it even more significant. Similarly, it is the outer border of the Middle East where USA and its Allies are fighting for resources, markets and hegemony.

Because of its above-mentioned extremely important geostrategic location, Pakistan has become a critical link in China’s ‘One Belt, One Road initiative(BRI). The flagship of BRI  namely the China Pakistan Economic Corridor(CPEC) has a huge geopolitical significance, providing a vital link to China to reach the Indian Ocean through the shortest possible route.

Although the multi-dimensional cooperation between these two countries has a long history, yet the new geopolitical developments have brought them even closer. These are strategic, long term and comprehensive as both the countries are partners against fast-developing US-India relations.  India intends to keep China out of the Indian Ocean for which American backing is essential-see the India-US agreement i.e. LEMOA in that context. In return, India is supporting the US and Japan in the South China Sea.

Both, the USA and India, are opposing any project under the Chinese One Belt, One Road Plan, particularly CPEC. The recent surge in Indian hostility towards Pakistan and its opposition to China Pakistan Economic Corridor should be seen in this rapidly evolving geopolitical realignment. That’s why Pakistan has become even more important for China than before. If Pakistan capitulates to India’s hegemonic designs, New Delhi’s military capabilities will be increasingly deployed against China.

 

Strategic Neutrality with Russia

Relations between Russia and Pakistan have always been very complex, occasionally cordial but mostly hostile during the last seven decades. Although these relations have improved a lot due to changing geopolitical environment, Chinese efforts, and American attitude, yet they can never be as intense as they are between China and Pakistan, or even those between Pakistan and the USA due to certain historical legacies. Pakistan’s alignment with the West during the Cold War was at the cost of its relations with the former USSR besides compromising Pakistan’s independent foreign policy. USSR not only extended support to India on the Kashmir dispute but also supported Afghanistan’s irredentist claims on Pakistani territory.

With this heavy baggage of history, all that Pakistan can expect and should strive for is strategic neutrality from Russia to act as an honest broker between India and Pakistan on the one hand and between Pakistan and Afghanistan on the other. In fact, the same strategic neutrality that Russia’s predecessor, the USSR maintained during the Rann of Kutch war between Pakistan and India in April 1965 as well as the one maintained by the USSR during the Pakistan-India September 1965 war.

There are bright prospects of such strategic neutrality between the two countries because of the complementarity of grand strategies of both countries,  converging in the identity of views on Afghanistan, geoeconomic connectivity, and regional peace. However, it’s a tight-rope walk for Pakistan as too much warmth of the relationship between the two could attract the American ire or may stoke Chinese sensitivities. The fear of losing a huge Indian market would also be an obstacle for Russia to come too closer to Pakistan.

 

Strategic Balance with the USA

“To be an enemy of America can be dangerous, but to be a friend is fatal” ~ Henry Kissinger

Bilateral relations between the USA and Pakistan have always been very complex, and unstable changing with the changing geopolitical environment and the requirements of the USA foreign policy in this part of the world. Both countries have been playing a balancing game, keeping their mutual interaction at the tactical and not strategic level. A brief recap of the history of bilateral relations between the USA and Pakistan is enough to indicate how both countries have been playing a balancing game during the last seven decades

USA-Pakistan partnership from 1954 to 1962 was a marriage of convenience between the two for safeguarding their respective national interests. Pakistan needed economic assistance and military equipment and approached the USA which was looking for allies and bases in South Asia to contain communism. Both benefitted from this partnership.

When the USA abandoned Pakistan and started arming India in the aftermath of the 1962 India-China War, Pakistan befriended China and even sent friendly overtures to USSR. During the 80s, it was the other way round; it was the USA that wanted friendship with Pakistan to bleed the USSR in the killing fields of Afghanistan to take revenge for its own defeat in Vietnam.

The third time Pakistan was forced to cooperate with the USA was by threatening it to be “bombed to the stone age” when the USA invaded Afghanistan in 2001. Pakistan had no choice but it tried to make the best out of the bad bargain. However, relations got soured between the two when both accused each other of not taking care of their core interests while pursuing their respective policies in Afghanistan.

Present bonhomie between Pakistan and America which started in 2018, is the result of then American President Trump’s desperate attempt to extricate American forces from Afghanistan before his election campaign got going and needed Pakistan to bail it out of this quagmire.

The USA is mindful of the geostrategic importance of Pakistan for the furtherance or hindrance of its foreign policy goals in this volatile region. It is therefore ensuring that Pakistan’s estrangement on account of cosy relations between the USA and India doesn’t cross the threshold of its becoming a total satellite state of China. On the other hand, Pakistan, mindful of America’s pre-eminence in global politics, would never try to antagonise it while trying to get maximum benefits from its good relations with the USA.  After all,  the USA and its allies are Pakistan’s largest trade partner, technology source, biggest aid donors plus hosts of the large Pakistani diaspora.

Thus Pakistan always tries to maintain a strategic balance in its relations with the USA by ensuring that the genuine interests of the USA such as containing terrorism, safe exit from Afghanistan, nuclear safety guarantees etc are properly taken care of. However, Pakistan tries its best that while doing so, its own core interests- CPEC, Kashmir, Nuclear deterrence, warding off Indian hegemony, are safeguarded.

 

Strategic Restraint with Iran

Although Pakistan is one of the few countries where a fairly high proportion of the population view Iran positively, it is really unfortunate that the relations between these two neighbouring countries are not as cordial as they should have been. Their relationship is often viewed from the lenses of our relations with Saudi Arabia, the USA, and India.

No doubt, Pakistan-Iran relations remained extremely cordial till 1979, they started deteriorating after the fall of the Shah of Iran due to certain developments in both the countries as well as the rapidly changing external environment.  While in Iran, the new Islamic regime enforced a strict Shia version of Islam, in Pakistan, a military dictator started Islamisation of the country promoting the Sunni version of Islam. These two diametrically opposite developments in the two countries created a lot of distrust and provided space for external forces to exploit it for their vested interests. However, despite the immense pressure of the Arab countries, Pakistan remained neutral during the decade-long Iran-Iraq War of the 1980s and did not create any trouble for Iran.

One of the reasons for this mutual acrimony between the two countries is the accusations of sponsoring terrorism by both countries. Iran blames Pakistan for providing safe havens to Anti-Iran Jandullh while Pakistan accuses Iran of sponsoring anti-Pakistan terrorist organisations. It has given rise to Strategic restraint-despite these accusations, both countries try to maintain cordial relations by using fire-fighting tactics on a need-basis. Pakistan does not want to open a third front while Iran cannot afford to antagonise Pakistan where it sees a lot of potential for economic cooperation when the American sanctions are lifted.

For Pakistan, Iran is an uncomfortable neighbour which can create troubles for Pakistan and has been doing so; the arrest of Kulbhoshan, the Indian spymaster from Baluchistan was just one such proof.  Pakistan has therefore always tried to adopt a policy of strategic restraint despite clear proof of Iran’s involvement in terrorist acts within Pakistan.

 

Strategic Depth on Western Borders

The term Strategic Depth about Pakistan’s policy towards Afghanistan has been one of the most misunderstood and unnecessarily ridiculed concepts among IR analysts. In simple terms, to avoid fighting a two-front war i.e., with India on its eastern border and with Afghanistan on its western border, Pakistan must have a neutral, if not a  friendly regime in Afghanistan. Known as Strategic Depth, it will not only allay Pakistan’s fear of fighting on two fronts but more importantly, it will help reduce the threat posed by the sub-nationalist insurgents having safe havens in a troubled Afghanistan

And this quest for Pakistan to have a Strategic depth on its western borders in the form of a friendly regime in a peaceful Afghanistan is not only beneficial for Pakistan to become a geo-economic power, but it will also open up new avenues for investments and markets for a landlocked Afghanistan. Besides helping Afghanistan to become an energy corridor, it will open vast opportunities for Afghanistan to fully capitalize on the opportunities that the China-Pakistan Economic Corridor (CPEC) provides to Islamabad & the region.

 

Strategic Cordiality with Saudi Arabia

If strategic friendship with China is the cornerstone of Pakistan’s foreign policy, then strategic cardinality between Pakistan and Saudi Arabia is the anchor of this policy. They cannot afford to alienate each other because of their multiple interdependencies. While Pakistan is economically dependent on Saudi Arabia, the Kingdom is home to over two million Pakistani workers and enjoys advanced security cooperation with Pakistan.

Based on the principles of non-interference and mutual cooperation, this Strategic cordiality has ensured that despite deep economic and military cooperation between Saudi Arabia and Pakistan since the 1960s, Pakistan has always endeavoured that its relations with Iran, the arch-rival of Saudi Arabia, are never adversely influenced by the mutual animosity existing between Iran and Saudi Arabia.  Similarly, Pakistan has never pressurised Saudi Arabia in any way in the latter’s relationship with India, our arch-rival. Pakistan has always assured Saudi Arabia that our close relations with Iran should be construed as a bridge not a gulf between Iran & the Arab world.

 

Conclusion

Assessing whether Pakistan’s foreign policy has been successful in the realisation of goals and objectives determined under different components of national interest, is an extremely difficult exercise.  Its honest appraisal would lead one to conclude that it is a mixed bag containing some  stellar successes and also dismal failures. However, we must admit that despite its several handicaps, Pakistan has not done badly in pursuing the objectives of its national interest. It has successfully en-cashed its geostrategic location about which Stephen Cohen rightly observed that history might not have been kind to Pakistan, it is fortunate to have such an important geographical location.

Dexterously using its geostrategic location as a lever, Pakistan has not only successfully responded to the existential threat it had been facing since independence but has also managed to maintain a reasonable balance of power against a hegemonic India. Exploiting the opportunities available during the Cold war, it became a nuclear power, developed its economy, and has been successful in cultivating friendly relations with all three global powers after the end of the Cold War.

Looking towards the future, although our objectives will remain almost the same as mentioned above, there will be greater emphasis on geo-economic thrust. Pakistan’s new security framework articulated in Islamabad Security Dialogue is heavily tilted towards geo-economics as its cornerstone. For this, regional peace particularly stability in Afghanistan is critical to realise Pakistan’s geo-economic ambitions through connectivity. Similarly, we will have to maintain strategic balance with our relations with all three superpowers by roping them into CPEC-style initiatives

 

From the ebook “Pakistan Studies: 20 Essays” published by Amazon  https://www.amazon.com/dp/B01MSF3UMR

Abstract

After the announcement of the withdrawal US/NATO forces from Afghanistan there is a plethora of articles and a large number of books being written on its causes. While they are using different perspectives to analyse this humiliating defeat of a Superpower of the day, there is one common theme in most of these narratives; the USA  loses its every war for the same reasons, again and again. Vietnam, Iraq, Syria, Afghanistan. You name it and you will come across the same strategic blunders, tactical failures, and policy inconsistencies repeated in every theatre of war.

This article enumerates the eight most important causes of the defeat of American forces in Afghanistan and also highlights the reason why we should not blame Pakistan for this American fiasco in Afghanistan

Introduction

“The war is not meant to be won; it is meant to be continuous”- George Orwell

Since the announcement of the withdrawal date of US/NATO forces from Afghanistan by Donald Trump, officially accepting the 3rd defeat of a superpower in 50 years, there is a plethora of articles and a large number of books being written on its causes. While they are using different perspectives to analyse this issue, ranging from geopolitical on the one hand to the military on the other, there will be one common theme in most of these narratives; the USA  loses its every war for the same reasons, again and again. Vietnam, Iraq, Syria, Afghanistan. You name it and you will come across the same strategic blunders, tactical failures, and policy inconsistencies repeated in every theatre of war.

The USA invaded Afghanistan in the wake of worldwide sympathy it was enjoying after the fateful 9/11 attack. Although it was the worst intelligence failure of the American security establishment, Afghanistan was picked as the target of US vengeance. Ironically, Afghanistan had absolutely no role in it. None of the 19 suicide bombers were Afghanis nor they had got any training in Afghanistan. In fact, all had been getting training for a year in the USA while the plan for this operation was planned in Germany. Even the devil incarnate Osama, whom no doubt appreciated the cowardly act, kept on pleading his non-involvement in the 9/11 attacks.

U.S. demand for handing over Osama bin Laden, who had already been wanted by the UNO, and expelling al-Qaeda, was not acceptable to the Taliban without any convincing evidence of his involvement in the 9/11 attacks. Describing this as delaying tactics, the USA launched Operation Enduring Freedom on 7 October 2001 with the United Kingdom. Other NATO forces later joined this Afghan War. Pakistan was forced to join this War on Terrorism by the threat of “bombing into the stone age”

Traditional rivals of the Taliban, the non-Pashtun Northern Alliance sided with the USA which was then successful in driving the Taliban from power within no time. However, most of the Taliban succeeded in fleeing to the remote interior of the country or escaping towards the rugged mountainous No Man’s Land existing between Afghanistan and neighbouring Pakistan.

Post-Invasion Scenario

Now started the ambitious project of state-building and infrastructural development for which the UNO established the International Security Assistance Force (ISAF), to oversee military operations in the country and train Afghan National Security Forces. At the Bonn Conference in December 2001, Hamid Karzai was selected to head the Afghan Interim Administration, which after a 2002 Loya jirga in Kabul became the Afghan Transitional Administration. Elections were held in 2004 and Karzai was elected president of the country, now named the Islamic Republic of Afghanistan.

In the meantime, the Taliban regrouped themselves and under the leadership of their leader, Mullah Omar reorganized the movement and launched guerilla operations against the NATO forces. According to the official records of the USA, around 2400 American soldiers died in the USA’s longest war in history and more than 25,000 were seriously wounded. Estimates vary but the conservative calculation will put the costs of the Afghan War anywhere between 2 to 3 trillion US$ of American citizens’ tax money.

What went wrong?

So, what were the causes of America’s dismal performance in Afghanistan against a ragtag army of the poor led by a poor for the poor? Here are my two cents on the topic

Lack of clear Objective backed by Effective Strategy

Although its public aims were to dismantle al-Qaeda and to deny it a safe base of operations in Afghanistan by removing the Taliban from power, the Operation Enduring Freedom itself was a gung-ho operation, carried out without any proper planning and effective strategy to cope with the situation once the initial objectives were achieved. As such, it was doomed to fail.

Once the Taliban had been ousted and al Qaeda had been degraded, America should have tried to establish a broad-based government and left with a strong intelligence presence to keep an eye on the re-emergence of Al-Qaida. Rather it started an ambitious project of state-building and even nation-building- objectives which need decades if not centuries.

Unfortunately, Americans remained clueless about their objectives till the end of the game. And at the tactical level, there was even greater confusion about the objectives and goals of the military intervention- what the actual goal was at the military level. It just jumped in without properly defining any tangible and verifiable goals and objectives in terms of military achievements. On the other hand, the Taliban, like the Vietcong in the Vietnam war, knew exactly what they were doing and why. They wanted an independent sovereign Afghanistan, free of foreign forces.

Consequently, all the Taliban had to do was to drive out the Americans to isolate the Kabul junta from its sources of economic and military support. They finally succeeded in accomplishing this by avoiding a decisive engagement and instead, resorting to hit and run tactics until American forces pulled out of Afghanistan.

Lack of clarity about the overall objective of the military intervention resulted in inconsistent policy and strategy formulation by the Pentagon. Consequently, every change of guards resulted in a different set of strategies.  “Heart and Mind” policy was coupled with brutal tactics; killing innocent people through drones became a standard war strategy. Americans tried to use bombing campaigns, advanced weaponry and coupled it with brutal tactics to show how strong it was, and how futile it was for the Taliban to continue resisting. It wanted them to submit by scaring them which worked the opposite way. The images of American atrocities horrified the world, especially America’s population. It did not achieve any objective of America. If anything, it made the local population hate America even more and join the Taliban.

Obama’s presidency was the best time to engage the Taliban for a meaningful peace dialogue; he instead went for the so-called Surge with disastrous results. This inconsistency in policy formulation and implementation adversely affected American troops’ morale and it showed in their lack of performance.

Half-Hearted Attempts

If the objectives were so ambitious then the USA should have allocated much larger resources and should have continued with it till these were achieved. Keeping in view the peculiar conditions of Afghanistan with its diverse ethnic composition, mountainous terrain, inadequate infrastructure and institutional backwardness, far more troops and finances were required.  Troop levels in Afghanistan never approached that level.

Instead, those battle-hardened troops were sent to Iraq in 2003 where another similar gung-ho operation was launched, allowing the Taliban to re-emerge in the vacuum this created. An easy victory against the Taliban convinced the Americans about their own invincibility without realising the peculiar globally favourable circumstances and the wholehearted domestic support of the non-Pashtun warlords. This diversion of attention and power vacuum provided God-send opportunity to Taliban to regroup and become a formidable force to reckon with.

Lack of understanding about Political Dynamics

The USA failed to comprehend the political dynamics of the local and regional landscape. Instead of understanding the complex inter-regional and intra-regional conflicts and using them for divide and rule policy, Americans antagonised everyone by reducing all the complex issues into one big “you vs us”. After the fall of the Taliban government, the USA installed a government that was overwhelmingly non-Pashtun. Ignorant of Afghanistan’s centuries-old culture of intensive dialogue leading to consensus decision making, America supported a highly centralized Presidential system heavily dominated by non-Pashtuns.

Passionate appeals by Pakistan to accommodate the moderate Pashtun Taliban who were on the run and amenable to negotiated peace were not heeded. By banishing all the Pashtuns from every decision-making apparatus of the state machinery, they not only created a legitimacy crisis for the new government but also disempowered nearly 50% of the population in one go in the new socio-political set-up. Consequently, it was the Northern Alliance, heavily dominated by the Tajiks and other tribes, hostile towards Pashtun since millennia, who was calling the shots in the national government.

It was, therefore, just a matter of time, when the accumulated errors of omission and commission on the part of NATO forces in Afghanistan in general and the Afghan government, in particular, effectively pushed the majority of Pashtuns towards the Taliban who needed the space and sympathy of the people to carry out their mission. Survey after survey has suggested that the majority of Pashtun people are supporting the Taliban not only out of fear but also for being more trustworthy as compared to the present regime. Pashtuns considered the Taliban movement as an indigenous liberation movement without any affiliation with the Al Qaida or global Jihad. They still consider it as a continuation of their centuries-old war against foreign invasion or occupation-whether British or Soviet or American.

Intelligence failure of the CIA

CIA is an overrated institution that failed at both levels-strategic and tactical, a classic example of an intelligence agency not only lacking foresight and a clear direction but also neglecting the fundamentals of intelligence gathering. It failed to gauge the scope of the war and underestimated the strength of the Taliban. It was compounded by confusion about definitions, faulty accounting techniques, and figure fudging. Focussing too much on technology instead of Human Intelligence (HUMINT) resulted in a disconnect that prevented the integration and fusing of information to achieve efficient, accurate intelligence assessments. These failures, in turn,  led the USA to adopt conventional military solutions for an unconventional problem

They even failed to understand that any coalition of various groups like the Taliban has its intr-group difference which could have been exploited and created a wedge among them. With right amount of coercion and cooperation, the CIA could have coopted one or two components of this eight-group conglomerate. As explained below, it is the so-called Quetta Shura led by Haibatullah Akhund which controls the bulk of the fighters but he is challenged by several groups of dissidents. All these groups maintain a considerable degree of autonomy and negotiate deals and agreements without even reporting them to Quetta Shura.

Inefficient and Corrupt Government

Despite massive military and financial aid by the NATO forces, the Afghan government could not deliver in terms of security or delivery of basic services. Both Karzai and his successor Ashraf Ghani proved to be disasters. Besides rigging elections, both are guilty of massive corruption and nepotism. According to a 2009 DFID survey,

“Most ordinary people associate the [national] government with practices and behaviour they dislike: the inability to provide security, dependence on foreign military, eradication of a basic livelihood crop (poppy), and as having a history of partisanship (the perceived preferential treatment of Northerners).”

Read any annual report issued by the Special Inspector General for Afghan Relief (SIGAR) showing how mass corruption, bribery, payoffs and drug money had fatally undermined US efforts to build a viable Afghan society. Unfortunately, everyone blames the Afghani elite for being corrupt while ignoring the role of American corporations and the NGOs for whom Afghanistan was a gravy train.

Terrain-the Killing Fields.

Americans must have learnt a lesson from their previous excursions in Vietnam and Iraq that terrain plays an extremely crucial role in any war. They failed to subjugate Vietcong guerillas because Vietnam is a land of swamps and jungles, ideal for Vietcong fighters to attack and hide. I do not believe in the theory that Pashtuns cannot be defeated. They have been subjugated by Alexander the Macedonian, Genghis Khan, Timur, the Moguls and the Sikhs. Even the British had successfully invaded Afghanistan. However, invading a foreign country like Afghanistan which is sparsely populated, mountainous and bleak is one thing; maintaining your occupation for long is impossible. The proverbial bravery and tenacity of the Pashtun tribes through their wars of attrition ultimately saps the morale and drains the finances of the occupying power. The same was happening with the American forces in Afghanistan

Taliban had strong Backers-Russia and Iran.

After their defeat in Vietnam, Americans started to destabilise Afghanistan to take revenge from the Soviet Union for this humiliation. By 1980, the CIA had recruited and trained thousands of fighters from all over the Islamic world and started infiltrating Afghanistan. Americans were ultimately successful and USSR had no option but to leave Afghanistan, defeated and humiliated. 

The American invasion of Afghanistan was a God-sent opportunity for the Russians to pay them back in the same coin, knowing full well what was in store for the Americans in the long run. They not only provided maximum support to the Taliban, particularly in the form of military equipment but also endorsed them as a major stakeholder when Russia convened a series of high-level regional meetings on Afghanistan, inviting the Taliban as a party.

The motive behind the Russian move to show its tilt towards Taliban had three strategic motives- asserting itself as a superpower as USSR used to be in its heydays, to keep American forces bogged down in global conflicts so that they could not destabilise Russia or the countries in its immediate security zone, and lastly, to bolster the Taliban as a counterweight to ISIS. After the introduction of ISIS in Afghanistan, which Russian consistently blamed the USA for creating and transporting its members from Syria in “un-marked helicopters” to Afghanistan,  the Taliban became an even more palatable option for Russia.

Similarly, Iran which was deadly against the Taliban for the atrocities committed by them against the Shia population of Afghanistan when in power, started supporting them for its own strategic objectives once the Taliban were cut to size. The Iranians, like the Russians, became convinced that the USA created ISIS and after its defeat in Syria, had transported hundreds of ISIS jihadists to Afghanistan to destabilising Iran. In this changed scenario, the Taliban became their allies by default. For the Iranians, ISIS claiming to be a universal movement interested to export its militant ideology by force is a graver threat than the Taliban who have been emphasising again and again that their struggle only concerns with foreign occupation of Afghanistan, fully respect geographical boundaries, and pledged that Afghanistan would not become as a launching pad for attacks on regional countries.

American Announcement to Withdraw

Although history will blame Donald Trump and Joe Biden for making a hasty decision of troop withdrawal, the fact is that it was the 2013 announcement by Obama which sowed the seeds of American defeat in Afghanistan. By announcing its withdrawal from Afghanistan quagmire by 2014, the USA repeated the same mistake which the USSR made in the case of its ally Najibullah in September 1991. Boris Yeltsin, determined to cut back on the country’s international commitments, announced that from 1 January 1992, no more arms, petrol and food supplies would be delivered to Kabul. This announcement was catastrophic for the morale of Najibullah and his supporters, who had otherwise survived for more than two years and could have gone for much longer.

Similarly, the above-mentioned announcement by Obama and later on an invitation to the Taliban for negotiations for their possible induction as partners in the government was enough to keep up the morale of the Taliban who might have yielded to Pakistan’s pressure for a negotiated settlement with the Afghan government.

Pakistan’s culpability in American Defeat?

Pakistan has been blamed by anyone who knows a bit about Afghanistan for its so-called duplicity in America’s Afghan fiasco  i.e., if Pakistan had not done double-dealing, if it had not provided safe havens to the Taliban if it had eliminated Haqqani network, if it had stopped the supply of jihadis from its madrassas- you name it and there will be a long list of Pakistani actions which allegedly snatched victory from American hands.

Just compare it with the way the Soviet Union took its defeat in Afghanistan. Everyone in Pakistan is very fond of claiming Pakistan’s larger than life role in the defeat of the other superpower of the day in the same killing fields but ignore the crucial role played by the USA and its allies, even the Chinese in this retreat. It was a battle between the Soviet Union and it two dozen allies on one hand and the USA and its more than 50 allies on the other. That’s why the USSR or its successor Russia never blamed Pakistan for its defeat. They were too honourable to demean themselves by putting all  the blame for their humiliation on a minion like Pakistan the way Americans have been doing so far

As the tribe from which the bulk of the Haqqani network is recruited, is mostly living in the Pakistani territory, it is assumed that controlling them is the responsibility of the Pakistan government.

Granted. While sympathising with the anxieties and concerns of those who want Pakistan to take firm action against the Haqqani Network, the sad reality is Pakistan was never, and will never be capable of taking any stringent action against them for one reason or other. Let me explain.

Pakistan has Marginal Influence over Taliban

Despite all the wild allegations levelled against Pakistan’s ISI by the foreign press and the exaggerated claims made by a section of Pakistan’s security establishment itself, the fact is that Pakistan has very marginal and mostly moral influence over the Taliban or on Haqqani Network. Any leverage Pakistan had in the past dwindled due to our joining the War on Terror and handing over hundreds of their members to the Americans for their detention in Guantanamo Bay. Naturally, they will never remember Pakistan’s generosity in hosting them for so long; their only memories will be how they were expelled.

Secondly, the Taliban are very shrewd people and understand Pakistan’s weaknesses and deal with the latter’s security agencies on their own terms. They have been holding clandestine meetings with the Norwegian diplomat for the resolution of the crises without informing the ISI and had been in contact with the Russians, Chinese and the Iranians on their own to avoid pressure from the Pakistani establishment. For instance, former leader of Taliban Mullah Akhtar Muhammad Mansour visited Iran several times; in fact, he was targeted by the US drone when he entered Pakistan from Iran.

Taliban are Split

The Taliban is not a monolithic group, rather a conglomerate of various groups with complex internal arrangements. It makes it extremely difficult to reach any sort of agreement with them or coerce them to negotiate. While the main group, the so-called Quetta Shura led by Haibatullah Akhund, controls the bulk of the fighters and formulates policies, the so-called Rasool Shura having less than 10% of the fighters maintains no relations with the former. In fact, the leadership of Haibatullah is challenged by several groups of dissidents such as those led by Obeidullah Ishaqzai, cousin of Akhtar Mansur, by the Shura of the North, by the Miran Shah Shura and by Peshawar Shura. Even the Mashhad Shura which is on good terms with Haibatullah, has not formally recognised him as the leader. All these groups maintain a considerable degree of autonomy and negotiate deals and agreements without even reporting them to Quetta.

It is a No Man’s Land

The tribe from which the bulk of the Haqqani network is recruited lives in one of the agencies located in the ex-Federally Administered Tribal Areas (FATA) of Pakistan. More than 750 miles long and 150 miles wide, extremely inhospitable and rugged mountainous, this FATA belt on either side of the Durand Line, the official border between Pakistan and Afghanistan, has remained a No Man’s Land for the last two millennia and it is still a NO man’s Land. No army in the world can succeed against a group that takes refuge in such terrain. Even if the Pakistan government had given a free hand to the USA to take any action they like to go after the Network, the USA would not have dared to use its boots on ground. That’s why, the USA had been relying on drone attacks with minimal results and a lot of collateral damage.

Pakistan is afraid of Blowback

In fact, the biggest handicap the Pakistan government faced was the fear of the blowback of any such action in the form of increased terrorist activities inside the country. Pakistan’s thin resources were already deployed on fighting a four-fronts War- on the Eastern front with Afghanistan, on the Western front with India, fighting with the foreign-sponsored insurgency in parts of Baluchistan and confronting the domestic terrorists. Although after the successful execution of several rounds of anti-terrorist operations, the writ of the state has been established in certain No Go areas, yet it has not got that stomach to open the fifth front.

No doubt, families of Taliban leaders are living peacefully in Pakistan, no one in Pakistan can ever think of harming them. It is against humanity, against Islamic values and Pakistan’s cultural traditions.  One foul move by the Pakistani establishment to detain any women folk can result in serious threats for the state of Pakistan.

Conclusion

While it is very easy to condemn Pakistan for supporting the Taliban in Afghanistan, it must be remembered that Pakistan has vital security interests in Afghanistan and no one can deny its right to protect them. It was forced to join America’s Afghan War on the threat of being “bombed back to the stone age” and has been paying a heavy price for this misadventure of others. Besides hosting 4 million Afghan refugees for two decades, it is now a victim of the worst kind of terrorism.

Peaceful neutral Afghanistan is the foremost priority of Pakistan but it is deeply concerned about the Indian involvement in Afghanistan. Until there is a comprehensive peace treaty under the auspices of the UNO and guaranteed by all the regional stakeholders, there is no chance for permanent peace in Afghanistan.

From the book “ Internation Relations: Basic Concepts & Global Issues” by Shahid Hussain Raja  https://www.amazon.com/dp/B08QZSRWT1

After remaining depressed for a year or so, Pakistan’s Stock Market, always considered as one of the best-performing in the world, is again picking up. It came down from high 50,000s to low 30,000s and presently again moving towards 50,000s. It will soon regain its lost ground in the short to medium period and then move upwards in the long period. It is therefore right time to buy Pakistani stocks if you are interested in highly profitable returns in the medium to long term.

(However, if you are interested in quick and safe returns in a very short period, then Pakistan government treasury bills are now offering one of the highest returns in the world, attracting huge foreign inflows)

Before you start investing in the stock market, please do read a few good books on this issue and keep on updating your knowledge by reading the financial pages of the newspapers.

One good book I can recommend is “The Intelligent Investor”. Warren Buffett’s pick as the greatest investment book of all time, The Intelligent Investor by Benjamin Graham was first published in 1949 and is still rated the best in this genre.

A few of his pieces of advice are

Your main goal should be to not lose money; so go for ‘investing’ and avoid ‘speculating,’. Buy some good stocks and stick with them instead of day trading.Buy the stock whose Price/Earnings Ratio should be less than 15.( P/E ratio or the PER is the ratio of a company’s stock price to the company’s earnings per share.)Don’t invest in companies that have had negative earnings-per-share in the last three years.Similarly, its Price/Book Value Ratio should be less than or equal to 22.5. (P/B ratio, is a financial ratio used to compare a company’s current market price to its book value. This ratio also gives some idea of whether an investor is paying too much for what would be left if the company went bankrupt immediately)Don’t buy a share simply because its share is selling cheap; look for its EPS growth (annual rate of growth of earnings from investments). Ideally, it should be more than 30% (cumulative) over the course of the prior 10 years. This is a good indicator of a stable and sound business model.Look for a current ratio (current assets / current liabilities) greater than 2. It is a signal that the company is financially secure.Always prefer companies with dividends, and with consistent dividend growth.Market crashes should be thought of as exciting and delightful fire sales on the best stocks. By contrast, be terrified when the market has gone up far, fast, and resist the urge to start buying more stock when the market is up. In other words, he does not advocate investing or divesting simply because the market goes down or up, one always looks at individual companies.

A lot of financial jargon? Do not worry. Everything is available online. This is essential if you want to enter this field. And you will get used to these terms within few days.

How to buy stocks in Pakistan?

First, select a brokerage firm for opening an account. My suggestion would be to select any of the following brokerage firms attached with the Central Depository Company(CDC), the sole entity handling the electronic (paperless) settlement of transactions carried out at the Pakistan Stock Exchange (PSX)

Alfalah CLSA Securities (Pvt) LimitedArif Habib LimitedBMA Capital Management LimitedFoundation Securities (Pvt.) LimitedKhadim Ali Shah Bukhari Securities LimitedJS Global Capital LimitedMarket 786 (Pvt.) LimitedMuhammad Munir Muhammad Ahmed Khanani Securities (Pvt.) Limited           Topline Securities Limited

Opening an account is quite easy, almost hassle-free as everything is now online. The firm’s customer service will guide you and send you the software which is very easy to learn, hardly a few hours practice.

Secondly, choose the sectors you want to invest in; presently, in Pakistan, cement, banking, oil/gas and foreign MNCs are blue chips.

Thirdly,, select the firms in these sectors you think are best. Buy shares of foreign MNCs, cement companies, banks and oil and gas firms particularly OGDC/PPL Purchase their shares through any reputable stockbroker and then wait.

Fourthly, do not indulge in day trading. It thrills but kills the novices. Read about them, talk to the brokerage firm and no harm if you send an email to the company you choose and ask them the above five pieces of information.

Fifthly, buy the shares and relax; no need to do day trading as it is risky when you start buying shares. learn the tricks of the trade for at least three months and then start day trading if it thrills you

Lastly, keep on buying additional shares every month by saving a fixed amount every month-how small it may be. One less Bareeze/Sana Safinaz suit per month means at least 100 more shares of good firm

Investment Procedure for Overseas Pakistanis

One of the best initiatives of the present government is the start of the Roshan Digital Account (RDA) for Non-Resident Pakistanis (NRPs).  State Bank of Pakistan in collaboration with eight Schedule banks operating in Pakistan has launched this scheme to provide innovative banking solutions for millions of Non-Resident Pakistanis (NRPs).

Besides normal banking services, these accounts can be used transferring remittances as well as making investments in government bonds, property or stock exchange.

What makes RDA most attractive is its availability in both currencies namely Pak rupees or US$/British £/EURO etc. The account holder can choose either a foreign currency or rupee-denominated account, or both. For NRPs, these accounts would be interoperable and enable real-time online conversion from foreign currency to Pakistani Rupees and vice versa.

In addition to the above, some of the salient features of these accounts are

No minimum balance requirementCustomer can open a Foreign Currency Value Account (USD) or an NRP Rupee Value Account as defined in chapter 6 & Chapter 8 of the Foreign Exchange Manual.Both these accounts are fully repatriable.The account can be fed by Foreign Inward Remittances originating from the account holder himself/herself through formal channels (only banks)Monthly account statements sent to the registered email addressAccount to be opened by Non-Resident Pakistanis only.Account to be operated singlyAccounts are funded through foreign remittance only.Local credits allowed to the extent of proceeds received from permissible investments made from the accountAccount to be opened in 48 hours if everything is in order.Mobile Banking App and Debit Card Available

How to open an R oshan D igital A ccount(RDA)

This account can easily be opened through an online portal / mobile application by providing minimum documents in just 48 hours. Most importantly, there is no need to visit a bank branch or the consulate/embassy of Pakistan.

Fill Account Opening Form

Currently, there are eight banks with which you can open an account. Select anyone that you feel more convenient. Go to the selected bank’s website for filling account opening form digitally.

Bank AlfalahFaysal BankHabib Bank LtdMCB LtdMeezan Bank LtdSamba BankStandard Chartered Bank LtdUnited Bank Ltd

Kindly note; If you are interested to buy stocks and shares through your RDA, then select one of the following banks because all eight do not provide these services

Bank AlfalahHabib Bank LtdMeezan Bank LtdUnited Bank Ltd

Choose Digital Account Type

Before applying online, kindly read the selected banks’ eligibility criteria and account opening procedure by clicking the “For More Details” links given on their respective websites. Most of the banks will initiate their online application with Email registration/verification through OTP. Or some banks may direct you to Choose the type of Digital Account – a Foreign Currency Account or a Pak Rupee Account.

Upload Documents

Once you have initiated your online account opening application, you will be required to upload scanned copies of the following documents to open an account:

CNIC/ NICOP/ POC.Passport (Pakistani and/or foreign country).Proof of non-resident status.Proof of profession and source of income/ funds.For salaried individuals: job certificate/ salary slips.For business persons: tax return/ rent agreement/ any other proof of income.Some banks may ask for other documents including Utility Bill/Tenancy Agreement/Any government-issued document other than the identity document for address verification

Add Picture

You will be asked for a digital photo that would be taken at the time of filling the form and uploaded live.

Receive Confirmation

Selected banks representative may contact you via video call or any other medium for verification. You will get confirmation of account opening within 48 hours.

Transfer Funds

After account opening, you can transfer funds in the account through banking channels from the country of your residence.

Please note:

Banks may not be able to offer Roshan Digital Account or investment in Naya Pakistan Certificates for residents of some countries due to their legal requirements.  As a rough guide, you can say all EU countries, UK, USA, Canada, Japan, South Korea are the countries where you can open an RDA but can not buy the Naya Pakistan certificates. However, do check it with the bank about the latest position in this respect.

Procedure for Opening a Stocks Trading Account

After the opening of the RDA, the Bank will provide you with the option of investing in the following asset classes:

a) Naya Pakistan Certificates (NPCs)-where permittedb) Stocks (equities, debt, others)

When you select Stocks as the mode of investment, the concerned Bank will ask you to give consent to allow the bank to share your information and scanned copies of documents with the Central Depository Company(CDC). It is the sole entity handling the electronic (paperless) settlement of transactions carried out at the Pakistan Stock Exchange (PSX).

Bank will also share your details with the brokerage firm you select as well as with the National Clearing Company of Pakistan Limited (NCCPL). Further, the bank will also obtain an agreement on the terms & conditions of Custody and Trading Accounts.

Subsequently, the bank will ask you to select a brokerage house for trading purpose. Select any of the following brokerage firms connected with CDC

AKD Securities LimitedAlfalah CLSA Securities (Pvt) LimitedArif Habib LimitedBMA Capital Management LimitedFoundation Securities (Pvt.) LimitedKhadim Ali Shah Bukhari Securities LimitedJS Global Capital LimitedMarket 786 (Pvt.) LimitedMuhammad Munir Muhammad Ahmed Khanani Securities (Pvt.) Limited           Topline Securities Limited

Once the process is complete, the commercial Bank will forward your details along with scanned copies of documents and IBAN to CDC electronically.

After receiving the details from the bank, CDC will send an email intimation to you, and will also forward the details and digital form of documents to the respective brokerage house as well as NCCPL for allocating your Unique Identification Number (UIN).

The brokerage firm will perform their own due diligence and confirm the opening of the trading account to you and CDC within one working day, along with the particular online trading portal.

Now you can trade in the Pakistani stock market using the brokerage firm’s online portal.

Clearing, Settlement and Custody

You have the following two options for settlement and custodianship of the stocks and shares you have purchased

Direct Bank Method: Under the Direct Bank Model, the respective Bank will be responsible for all the matters related to Clearing, Settlement and Custody of your stocks and shares.CDC Direct Settlement Service: Under CDC DSS Model, the CDC will also open an IAS account and share the details of CDC access with you.

Repatriation of Funds

One of the most important features of RDA is that you can easily repatriate the funds back to the country of your stay. You can lodge a request to transfer the funds back to RDA any time through the web portal or email. Subsequently, once the funds are received in RDA, you can request to respective Bank for repatriation of funds overseas.

From the book “Finance for Non-finance Managers: A Handbook” published by Amazon

https://www.amazon.com/dp/B07TTNNTC8

Introduction

Founded on 8th May 1880, The Coca Cola Company, owner of the most iconic brand of Coca Cola, is the 2nd largest beverage manufacturer in the world. Head quartered in Atlanta, USA, it owns or license, and market more than 500 non-alcoholic beverage brands. However, out of all these, its four brands namely Coca-Cola, Diet Coke, Fanta, and Sprite are world leaders in non-alcoholic beverages, sold in more than 200 countries.

The Coca Cola Company makes its branded beverage products available to consumers throughout the world through its network of Company-owned or -controlled bottling and distribution operations as well as independent bottling partners, distributors, wholesalers and retailers — the world’s largest beverage distribution system. These products account for nearly 2 billion of the approximately 60 billion beverage servings of all types consumed worldwide every day.

Employing more than 86,200 employees, it had a market cap $218.25 Billion in October 2020 while it earned $37.27 Billion revenue in December 2019 with a net profit of $8.92 Billion.

SWOT A nalysis

Invented by Albert Humphrey of the Stanford University in 1960s, SWOT Analysis is a structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats of an organisation. Identifying the internal and external factors that are favourable and unfavourable to achieving the corporate objectives of a firm, the analysis helps the management to find out the strategic fit-the perfect route to achieve those objectives.

A. Strengths

Some of the characteristics of the business that give the Coca Cola Company an advantage over its competitors are as follows;-

A/1. Brand Recognition

The market leader in the soft drinks industry, Coca-Cola is one of the most renowned brands across the world. Be it your home, office, shops, hotels, bars or restaurants, Coca-Cola is everywhere. 94% of the world’s population recognizes the brand instantly by its red and white Coca-Cola logo . More than 10,000 soft drinks from Coca-Cola are consumed every second of every day on average. This brand recognition is one of its biggest strength as it saves a lot of its resources, financial and non-financial, for marketing its products.The company can influence consumers’ buying decisions through its brand power and massive marketing campaigns more easily than most of its smaller rivals.

A/2. Dominant M arket S hare

The Coca-Cola Company is the largest non-alcoholic beverage company in the world, serving around 2 billion or 3.2% of the total 60 billion beverage servings of all types consumed worldwide every day. The company owns, distributes and sells over 500 various non-alcoholic beverage brands in over 200 countries. Being large having global reach, and dominant market share has a few advantages over competitors:

Economies of scale. Economies of scale allow the company to share its fixed costs over hundreds of brands and billions of servings, making each drink as cheap as possible.Market power over suppliers and competitors. Due to its size, The Coca-Cola Company can exercise its market power over suppliers by requiring lower prices from them. The company can also use its size to affect the competition by underpricing some of its items, acquiring the smaller competitors or saturating the market with many of its own products.Wide audience reach. The Coca-Cola Company’s distribution network allows the chain to reach more customers than most of its rivals could reach.  Wide audience reach does not only help the company to target more customers and increase brand awareness, but also to introduce new products more easily.

A/3. Diversified P roduct P ortfolio

The Coca-Cola Company owns and distributes over 500 different brands, which is the most extensive beverage brand portfolio in the whole industry. The company offers beverages for every taste in 7 beverage categories such as carbonated soft drinks, bottled water, juices, sports drinks, tea & coffee etc. Although the most popular company’s drink is Coca-Cola, earning around 40% of the company’s total revenue, it is only one of the 21 billion-dollar brands that the business owns such as Fanta, Sprite, Diet Coke/Coca-Cola Light, Coca-Cola Zero, Minute Maid, Georgia Coffee etc. This diversified portfolio benefits the the company in several ways

The Coca Cola Company depends less on one or two of its beverages to generate the majority of its revenue.With so many beverage drinks in so many flavors, the business can satisfy every consumer’s needs and tastes.If the demand for one of the company’s beverages falls sharply (as it is now with Coca-Cola) the business can rely on other beverages to generate higher sales.Few of The Coca Cola Company’s rivals can enjoy such a diversified brand portfolio, which provides strong competitive advantage over the rivals.

A/4. Greatest C ustomer L oyalty

Coca-Cola is considered one of the US’s most emotionally-connected brands. This valuable brand is associated with ‘happiness’ and has strong customer loyalty. Customers can quickly identify their particular taste. Finding its substitutes is difficult for them. Moreover, Coca-Cola and Fanta have a huge fan following than other beverage names in the industry.

B. Weaknesses

On the other hand, some of the characteristics that place the Coca Cola Company at a disadvantage relative to its competitors are as follows;-

B/1. Limited Product diversification

As compared to its competitors, the Coca-Cola Company has low product diversification. Where Pepsi has launched many snacks items like Lays and Kurkure, Coca-Cola is lagging in this segment. It gives Pepsi leverage over Coca-Cola.

B/2. Health concerns

The industry has seen customers move towards the health drinks. However, this is an area where the brand presence of Coca Cola is relatively low. It also faced lawsuits over product quality recently. The uproar over the use of pesticides is yet to die. Continuing lawsuits and legal hassles also challenge its reputation especially in the growing markets.Carbonated drinks are one of the major sources of  sugar intake.  Coca-Cola is the biggest manufacturer of carbonated beverages. Many health experts have prohibited the use of these soft drinks. It is a controversial issue for the company. However, Coca-Cola hasn’t devised any health alternative or solution for this problem yet.

C. Opportunities

Opportunities, as the name implies, are the elements, external to the organisation, that could be exploited to its advantage by taking advantage of their potential to increase profits, productivity or benefit a business. Opportunities arise from PEST (political, economic, social and technological) environment. Some of the opportunities which can be beneficial for the Coca Cola Company in future are as follows;-

C/1. Increasing Population/Prosperity in Developing Countries

Population of the developing countries is increasing at a rapid rate along with the rise in the middle classes in these countries. Consequently, there is a rise in the demand for luxury goods and services; coca cola and its allied brands are included in these luxury items. Coca-Cola has the opportunity to introduce new offerings in these countries

C/2. Increasing Global Temperatures

Whether mad-made or natural, the looming threat of Climate Change and Global Warming is a God-send opportunity for the beverage manufacturers all the world. Rising temperatures mean high demand for soft drinks. Many regions with hot climate have the highest consumption for cold drinks. Thus, increasing presence in such locations can be excellent – Middle Eastern and African countries are a good example.

C/3. Technological innovations

Coca Cola’s business is entirely dependent upon logistics, transportation and supply chain, all needing massive amount of energy. With the decreased demand for oil and gas as a result of technological advancements in alternative renewable fuels, their prices are decreasing creating opportunities for cost reductions in all its operations.  

C/4. Water Scarcity

Water, particularly high-quality potable water, is steadily becoming a scarce commodity in majority of the countries. Coca-Cola owns several packaged drinking water brands like Kinley. There is a great potential for expansion in this segment for Coca-Cola. There is an opportunity to expand and bring more healthy drinks in the market to meet the growing demand of packaged water.

D. Threats

D/1. Decreasing Population in Developed Countries

With the rate of population growth declining in the Western countries, the scope of further rise in demand for the beverages is likely to squeeze in the developed countries

D/2. Trade War with China

There is growing tensions between China and the USA on several issues; trade imbalance between the two is the most contentious issue. And Coca Cola being the iconic brand of America is likely to suffer if China imposes ban on American products or the Chinese people start boycotting the American products

D/3. COVID-19 P andemic

The food and beverage sector has faced the worst brunt of the coronavirus so far right from the manufacturing and supply chain to their end use. Countrywide lockdowns have prevented employees from working in factories, severely impacting the supply chain, reducing the consumer footfalls, and reducing the purchasing power of the people to buy such luxury items. While the  general consensus is that this grim scenario might last until a treatment/vaccine for COVID-19 is found, it has been speculated that the aftermath of the pandemic is likely to remain for quite a period. 

D/4. Health Consciousness

Multiple studies have shown how consumers are becoming health conscious, considering their health to be a factor when choosing foods. Carbonated drinks are one of the major sources of  sugar intake which results in two grave health issues – obesity and diabetes. Coca-Cola being the biggest manufacturer of carbonated beverages is accused of major source of spread of these two health concerns.  Molson Coors have joined with Hydropothecary Corp to release a cannabis-infused non-alcoholic drink for Canadian markets. Blue Moon have announced a de-alcoholised cannabis-infused beer called Grainwave. The challenge for Coca Cola will be to take advantage of the innovation, and tap into the new seam of product development opportunities.

D/5. Traceab ility Issues

Consumers are also becoming  demanding about the traceability of the ingredients of the food and beverage they consume. The appeal here is reduced air miles, and a general sense of participation in a greener route from field to fork. McDonalds’ commitment to use only cage-free eggs by 2025 would soon become an example for other big brands in food and beverage industry to follow for the items they market. The challenge here is to be aware of consumer demands for clear information on the provenance of their food, and to make changes accordingly.

D/6. The ‘Plastic B an’

The eco-friendliness becoming the buzz word, excess consumption and improper disposal of plastic has come up as one of the major challenges faced by food and beverage managers today.  Food and beverage manufacturers and retailers are now striving toward making the food manufacturing process highly conducive to the environment through the adoption of numerous recycling practices. The deployment of green business practices – right from the production to the packaging and supply chain management is a crucial solution to tackling the current issues in the food industry.Greenpeace censured Coca-Cola in its published report in 2017 for its use of single-use plastic bottles.

It has also been criticized over its recycling and renewable sources. The Coca-Cola Company  was ranked the world’s No 1 plastic polluter by Break Free From Plastic in its annual audit, after its beverage bottles were the most frequently found discarded on beaches, rivers, parks and other litter sites in 51 of 55 nations surveyed. Last year it was the most frequently littered bottle in 37 countries, out of 51 surveyed. It was found to be worse than PepsiCo and Nestlé combined: Coca-Cola branding was found on 13,834 pieces of plastic, with PepsiCo branding on 5,155 and Nestlé branding on 8,633.

D/7. Water U sage C ontroversy

Another environment-related threat for a beverage manufacturer like Coca Cola should be the issue of waste management. Undeniably, the food industry generates a considerable amount of waste, right from sourcing the raw material to food retailing and distribution. The negative impact of the same has been identified as one of the most crucial environmental issues in food and beverage industry that needs to be dealt with as soon as possible. Coca-Cola has faced many criticisms over its water management issue. Many social and environmental groups have claimed that the company has a vast consumption of water in water-scarce regions. Besides, people have alleged that Coca-Cola is polluting water and mixing pesticides in water to clear contaminants.

D/8. Direct & I ndirect C ompetition

Although direct competition from Pepsi is clear in the market, however, there are many other companies which are indirectly competing with Coca-Cola. Starbucks, Costa Coffee, Tropicana, Lipton juices, and Nescafe, are the indirect competitors of Coca-Cola which can threaten its market position.

Recommendations

Based on the above SWOT analysis of Coca-Cola, we can conclude that Coca-Cola has a definitive market position in the soda industry. However, it is recommended to bring more innovative changes such as

Long term Strategy for Covid-19: This pandemic has changed the business environment in multiple ways. Firms are adopting new ways of doing business to meet the challenges posed by Covid-19. Coca Cola must innovate to retain its market position.Horizontal Diversification: So farCoca Cola has been successful in vertical diversification- launching more than 500 products in beverages. However, it is now time to bran into horizontally by launching products in food sector such as cereals, snacks, biscuits, etc.Focusing on Health-related Matters: It should bring some solution to address the rising health concerns from social activists.Improving its Water Management System: Coca Cola is already seized of this issue but its progress is slow and dealing with the criticisms from environmental agencies.Expanding into Developing Countries with Humid Temperatures: There are many products of Coca-Cola like Fuze Tea, Dasani and Hi-C which aren’t distributed in many developing countries. Coca-Cola needs to increase the distribution of such products.Sustainability and Green Marketing: It can improve its brand image in the market.In this scenario, a product that is tagged as ‘eco-friendly’, quite naturally, has more of a consumer connection and is likely to accrue lucrative sales than a product that is popularized to harm the environment.Last year, Nestle declared its decision to use 100% recyclable/reusable packaging by 2025. Additionally, retailers such as Asda, Café Coffee Day, and McDonald’s have also announced their commitment to go plastic-free and bring about sustainable practices in production and packaging.

Abstract

Since its creation Pakistan has been experimenting with making, breaking, and amending constitutions. 1962 Constitution was one such document which though had a short life but long term consequences for the country.

This essay attempts to give a brief background for its promulgation, its main features, and assesses its impact on the constitutional and political history of Pakistan.

Introduction

Constitution-making in Pakistan has unfortunately a chequered history. After gaining independence in 1947, Pakistan adopted the 1935 Indian Constitution with slight modifications as an interim constitution and started earnestly to frame a consensus document to serve as its permanent constitution. However, due to peculiar circumstances, the complexity of issues involved, and the incompetency of the political elite, it took them more than seven years to accomplish the task.

The 1956 Constitution was never practically implemented as no elections were held. It didn’t fail, just made irrelevant because there was no one to implement it. It was eventually abrogated after about two years on October 7, 1958, when assemblies were dissolved and Martial Law was declared by President Iskander Mirza. However, only after 20 days, he was removed by his Defence Minister/Commander in Chief, General Ayyub who himself became the Chief Martial Law Administrator on 27th October 1958

After consolidating his power, General Ayyub appointed a commission, headed by the former Chief Justice of Pakistan Muhammad Shahabuddin, and comprising ten other members, five each from East Pakistan and West Pakistan, for the preparation of a new Constitution. It presented its report on 6 May 1961, was thoroughly examined by the President and his Cabinet. In January 1962, the Cabinet finally approved the text of the new constitution which was promulgated by President Ayyub on 1 March 1962 and finally came into effect on 8 June 1962.

Features of 1962 Constitution

Its salient features were as follows

Rigidity: Consisting of thirteen schedules and 250 articles, it was a very rigid Constitution, amendable by at least two-thirds majority of the parliament and that too after authentication by the President.Name: Deviating from the 1956 Constitution it initially named Pakistan as the Republic of Pakistan and was forced to add Islamic after strong agitation by the religious lobby. Urdu and Bengali were recognised as national languages.Federal Form of State: The Constitution provided for a federal system with the principle of parity between East Pakistan and West Pakistan having their own separate provincial governments. The responsibilities and authority of the centre and the provinces were clearly listed in the constitution.Presidential Form of Government: It abolished the office of the prime minister, provided for a presidential form of government under which the President was to be elected indirectly from a panel of not more than three candidates by an electoral college consisting of 80,000 local councillors (Basic Democrats) equally distributed between the two provinces. The term of the President who had to be a Muslim not less than 35 years of age and qualified for election as a member of the National Assembly, was five years to act as Head of State as well as Chief Executive. Solely responsible for the country’s administration, both the Governors and all the federal ministers were appointed and removed by him. He was eligible to promulgate Ordinances and veto against legislated laws only overridable by two-thirds of the National Assembly. However, the president was not empowered to dissolve the Assembly except at the cost of his office also.Unicameral Legislature: The central legislature had one house known as the National Assembly with 157 members; equality between the two wings was maintained in it. The National Assembly was exclusively empowered to legislate for the central subjects. However, it could legislate on matters falling under provincial jurisdiction. The power to impose taxes was laid with the central legislature.Indirect Method of Election: The President was elected by an Electoral College comprising 80,000 Basic Democrats, equally distributed between the two provinces.Provincial Governments: There were two provincial governments. Each of them was headed by a governor. He enjoyed powers in the province which the President enjoyed in the centre. The Governor was empowered to appoint provincial ministers with the sanction of the President of Pakistan.Provincial Legislature: Each province was provided with a legislature. It originally consisted of 150 members. However, later on, this number was increased to 218.Fundamental Rights: The constitution of 1962 laid down fundamental rights of speech and expression, freedom to choose a profession, and freedom to profess religion. With regards to civil rights, familiar rights such as the rights of life, livery, and property were granted.Role of Judiciary: The Judiciary was responsible for the interpretation of laws and executive orders in the light of the principles embodied in a written constitution.Supreme Judicial Council: A supreme judicial council consisting of two judges of the supreme court, chief justice of the supreme court, and two judges of high courts was to be established.Islamic provisionsThe preamble of the Constitution of 1962 was based on the Objectives Resolution, laid down simply that the state of Pakistan shall be an Islamic republic under the name of Islamic Republic of Pakistan’.According to the principles of policy, steps were to be taken to enable the Muslims of Pakistan individually and collectively, to order their lives under the fundamental principles and basic concepts of Islam, and should be provided with facilities whereby they may be enabled to understand the meaning of life according to those principles and concepts.No law shall be enacted which is repugnant to the teachings and requirements of Islam as set out in the Qur’an and Sunnah and all existing laws shall be brought in conformity with the Qur’an and Sunnah.Only a Muslim could be qualified for the election as President.The teaching of the Quran and Islamiyat to the Muslims of Pakistan was made compulsory.Proper organisation of Zakat, waqf, and mosques was ensured.Practical steps were to be taken to eradicate what was seen as social evils by Islam, such as the use of alcohol, gambling, etc.A novel Islamic provision in the 1962 Constitution had introduced an ‘Advisory Council of Islamic Ideology’ to be appointed by the President. The functions of the Council was to make recommendations to the Government as to means which would enable and encourage the Muslims of Pakistan to order their lives following the principles and concepts of Islam and to examine all laws in force to bring them into conformity with the teachings and requirements of Islam as set out in the Qur’an and Sunnah.There shall be an organisation to be known as Islamic Research Institute, which shall be established by the President. The function of the Institute was to undertake Islamic Research and Instruction in Islam to assist in the reconstruction of Muslim society on a truly Islamic basis.The state should endeavour to strengthen the bonds of unity among Muslim countries.

Failures of 1962 Constitution

Terre were multiple reasons for the failure of the 1962 constitution to serve as a consensus document for the political governance of a multi-ethnic country. Some of these were as follows

Lack of Political Legitimacy

Initially, Ayyub khan enjoyed huge sentimental legitimacy by virtue of his populist slogans in the backdrop of general resentment of the public against the politicians on account of their alleged incompetence and corrupt practices. However, he always suffered from a lack of political legitimacy because he had usurped the power through dubious means. He could not even convert this public goodwill to instrumental legitimacy for the new system he created. To create a façade of political legitimacy for his rule, he created a five-tiered system of Basic Democracies.

Consisting of 80,000 local councillors at rural and urban councils directly elected by the people, these basic democrats, firmly under the administrative control of the Deputy Commissioners, became the electoral college for the election of  President. Elections took place in January 1960, and the Basic Democrats were at once asked to endorse and thus legitimate Ayyub Khan’s presidency. Of the 80,000 Basic Democrats, 75,283 affirmed their support- the main purpose of creating this system. However, people did not accept this election as a legitimate one, although they tolerated him as a military dictator

Flawed and Corrupt System

With this constitutional framework in place, General Ayyub ruled the country with an iron hand. These 80,000 basic democrats not only became the Electoral College responsible for the indirect election of a President and the members of the Provincial and National Assemblies but they were also given powers of local self-government. Being responsible for the administration of the affairs of local self-government, generous funds were placed at their disposal with the result that they had a vested interest to support the government in power to enjoy the perks.  As long as they supported the nominees of the ruling party, they enjoyed immunity, but as they began to flex their muscles, they were threatened with criminal misappropriation of money.  There was widespread misuse of these funds creating great resentment among the masses against the very system.

Against the Democratic Norms

The 1962 Constitution he foisted upon the public was a perfect document to govern a country against democratic norms.  Not based on the universally accepted theory of the separation of powers, the executive headed by an indirectly elected President was the controlling authority of the Legislature and the Judiciary By abolishing the office of the prime minister and giving sole executive authority to the President, General Ayyub introduced a dictatorial Presidential system in the country which had become used to the parliamentary form of government. The President headed the state as well as the Government. He had the authority to appoint Provincial Governors, Federal Ministers, Advocate General, Auditor General, and Chairmen and Members of various administrative commissions. As the Supreme Commander of the Armed Forces of Pakistan, the appointment of the chiefs of the forces was also within his powers. The President was also involved in the appointment of the Chief Justice and other judges of the Supreme Court.

Authoritarian Rule

More than anything, it was the way he ruled the country which was responsible for the mass agitation against him and the system he created under this constitutional framework. The military rulers issued orders to get immunity from any writs. No courts of law or person were allowed to question the military action, the proclamation of martial law, the provincial Governors, or the military courts. While Ayyub Khan was re-elected in 1965 in an election whose fairness is doubtful,  his authoritarian style of governance caused countrywide street agitation against him towards the end of 1968. All the major political parties demanded his resignation, restoration of the parliamentary system, and the annulment of One Unit in West Pakistan. 

Acting vengefully, he handed over the power to another Military dictator instead of following the very Constitution he had promulgated. On 26 March 1969, the Army Commander-in-Chief, General Agha Mohammad Yahya Khan took over as the CMLA/President. Soon afterwards, he acceded to the popular demands, abolished the one-unit system in West Pakistan, and ordered general elections on the principle of one man one vote.

Stifled Political Development

Being a military dictator, Ayyub Khan considered national-level politicians as a threat to his regime and argued that Pakistan was not yet ready for a full-blown experiment in parliamentary democracy. He not only disqualified the old political elite which had created Pakistan but also tried to create a new crop of politicians. They were replaced by the pygmy politicians elected as local councillors but elevated to the provincial and central stage of governance. They had no national vision as all their efforts and politics revolved around local politics.  

As the basic emphasis of the new institution was on economic development and social welfare alone, it could not bring any fundamental structural changes in the country. In fact, it augmented the authority of the civil service, and the power of the landlords and the big industrialists in the West Wing went unchallenged.

Breakup of Pakistan

Although there were multiple causes, historical and structural, of the break up of Pakistan in 1971, in hindsight, we can say that the promulgation of the 1962 Constitution was the beginning of the last stage of a united country. The 1956 Constitution, howsoever flawed it might be, was a written agreement endorsed by the majority of the elected representatives who had taken part in the freedom struggle of the country, for their resolve to live together. Its abrogation nullified all the efforts made by the political elite of both the wings to do so, cutting the very roots of the country as a united nation-state.

Secondly, a heavy concentration of powers at the centre struck at the very roots of a federation creating feelings of marginalised helplessness among the Bengalis. Apparently declaring the state to be federal, it was a unitary structure standing on the bedrock of One Unit in West Pakistan.   It provided one legislative list wherein the authority of the Central government was specified and residuary powers were left to the provinces. Furthermore, the Central Government was empowered to step into any field outside that list. There was no provincial autonomy whatsoever because the Center repeatedly made inroads into Provincial and Residuary fields.

Because of the heavy concentration of powers in the office of the President, the 1962 Constitution has been rightly described as the Lyallpur Clock Tower which stands at the crossroads of eights roads, the biggest Union Jack on earth.

From the Ebook ” Pakistan Studies-20 Essays” by Shahid Hussain Raja, published by Amazon https://www.amazon.com/dp/B07JQ92JGY

Abstract

Globalization, a multidimensional set of social process that create, and intensify world wide social, economic and technological interdependencies and exchanges, is an historical phenomenon affecting every country directly or indirectly. Despite all the occasional setbacks and resentment expressed against its different dimensions, globalisation is the march of history, which like the water flowing in a river, moves forward not backwards.

In this essay, I discuss the 8 drivers of its rapid speed after the 2nd World War.

 

Introduction

Although Globalization is a gradual process with deep historical roots, the term Globalisation normally used now a day was coined by an American economist Theodore Levitt in 1983. He argued that all around the world people’s tastes seemed to be converging and that firms were now beginning to offer standardised products in all countries.

However, over time Globalization has acquired much broader meanings and now it refers to a multifaceted phenomenon of increasing integration of economics, communications, and culture across national boundaries. There are six dominant features of globalization

Historicity: It is a historical phenomenon which can be traced to the length of your imagination. The far the better! You may declare the first African who came out of Africa as the pioneer of the globalisation. Or, you may credit Greeks or Iranians or Alexander, the Macedonian for initiating this process.Universality: It is a universal phenomenon, colour neutral, size neutral and location neutral; every country is affected directly or indirectlyMultidimensional: It is a multi-dimensional phenomenon with deep and wide impact on every sector of economy and section of society in almost every country- food, shelter, clothing, lichenology, beliefsUneven: It is uneven in its impact- every country is affected differently-some more, some less depending upon their respective level of exposure to this inexorable march of historyDouble-edged Weapon: It poses threats as well as provides opportunities to every country; those which take advantage of the opportunities provided by it are in its favour and those who fail to benefit, are opposing itPrivate Sector-Led: By and large, it is private sector led phenomenon in which the states are just facilitators

Drivers of Accelerated Globalisation

Since the end of World War II, and particularly in the past 10 to 15 years, we have seen the process of globalisation drive forward at an unprecedented rate. A large part of this is down to legal, political and technological developments which have facilitated trade across national boundaries, both in products and in factor inputs. Some of the reasons for its acceleration after the 2nd World War are as follows

March of History

Globalization was inevitable because of the march of history-from hunter/gatherers to tribes living in villages which over some time became towns. Later, few towns became city-states encompassing these towns/villages. History moved forward and these city-states formed themselves into nation-states which are now forming regional blocks like EU, NAFTA, etc. These regional groupings are just another milestone in our slow but steady journey towards the formation of World Government-the endpoint of the march of history.

Within the next two centuries, all the current state borders will be abolished, and nation-states will be replaced by continent-sized units of governance, with maximum devolution/decentralisation for the provision of basic services to the people. While UNO will act as the world Parliament to formulate global policies, its constituent units such as UNICEF, WHO, etc will be acting like global ministries with the World Bank as the central bank English will be recognised as the universal language with inputs from different languages towards its vocabulary.

The Reduction and Removal of Trade Barriers

It was the General Agreement on Tariffs and Trade (GATT) concluded after the 2md World War which accelerated the pace of globalisation by reducing tariffs and various non-tariff barriers to trade, enabling more countries to exploit their comparative advantage. Equally important is the number of countries taking part in free trade negotiations. In 1948, when the GATT treaty became effective, there were only 23 Contracting Parties to the agreement. Just over 60 years later, there are now 153 member states of the WTO whom all enjoy the benefits of free trade based on the principle of comparative advantage. Accordingly, between 1948 and 2008, trade rose from only 5% to a massive >25% of world GDP making countries become more and more reliant upon each other for their export earnings, income, and employment.

Rise of Capitalism

Globalisation, in essence, is the internationalisation of western capitalism as presciently predicted by Francis Fukuyama in his End of History thesis. Despite all the criticism levelled against his thesis, there is no denying the fact that after the fall of communism, there has not been any serious threat to the capitalistic form of economic management from any quarters. Every country, even Russia and China has embraced capitalistic mode of production.

In their pursuit of profit maximisation, big corporations are always searching for cheaper resources and expanded markets. The rising costs of doing business in the USA/Europe due to rising prosperity and huge costs of maintaining welfare states are forcing the Western MNCs to locate their production houses in cheaper countries. There has been an increase in the minimum efficient scale (MES) making the domestic market too small to satisfy the selling needs of the multinational corporations. The costs of ocean shipping have come down, due to containerisation, bulk shipping, and other efficiencies. The increasing prosperity of the middle-income countries is an additional reason for accelerating the process of globalisation. 

End of Cold War

The end of the Cold War leading to greater interaction among the states and the people accelerated the globalisation process completely altering the way nations communicate, negotiate, and interact with each other. Consequently, globalisation improved and expanded global commerce, brought more Foreign Direct Investment to developing countries, built infrastructure, advanced literacy, inspired democratic movements via social networks, and created emerging middle classes all over the world. These middle classes are by tradition anti-war and pro-peace for expansion of trade, investment, and greater prosperity

Side by side with economic globalization, there is a multiplication of social networks and activities that increasingly overcome traditional political, economic, cultural, and geographical boundaries. Expansion and stretching of social activities and interdependencies are resulting in intensification and acceleration of social exchanges and activities through information technology. The world is literally becoming a global village with chances of warfare diminishing

Technological Change

Since the end of the 2nd WW, globalization started expanding rapidly due to multiple reasons, one being the rapid speed of technological transformation including the internet and the information technology. The growth of the internet has increased e-commerce,enabling firms of all sizes to compete more easily in global markets. Essentially, the internet acts as a 24-hour shop front. For the firm, it therefore provides cheap marketing with global reach, such that even small local businesses can afford to serve customers abroad. By facilitating the outsourcing of production and transfer of technology, information technology has radically transformed global production, consumption, and trading patterns.

In his remarkable book “The World is Flat” Friedman has captured the essence of the fifth generation of globalisation. He believes the world has become flat in the sense that there is a level-playing field for any entrepreneur belonging to any country-rich or poor due to his internet access. In fact, he maintains, individual entrepreneurs as well as companies, both large and small, are becoming part of a large, complex, global supply chain extending across oceans, with competition spanning entire continents.

Globalisation is Beneficia l

Globalisation has benefitted every country in the world-some more, some less. No one is willing to become an island. UK after its exit from the EU is not going to become a fortress; rather it will be getting itself more integrated with the world. Even the triumph of Donald Trump in the USA elections was a temporary phenomenon and in no way indicated the desire of the USA to roll back globalisation which has benefitted America the most. The USA has a lot of grievances with its trade relations with China but it does not mean American firms will exit from China and come back to the USA-no way. The maximum they will do is to re-locate in India and other countries

The desire of businesses to benefit from lower unit labour costs and other favourable production factors abroad has encouraged countries to adjust their tax systems to attract foreign direct investment (FDI). Many countries have become engaged in tax competition between each other in a bid to win lucrative foreign investment projects. Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled. Borders have opened and average import tariff levels have fallen.

Growth of Multinational Corporations (MNCs)

An MNC is a firm which owns production facilities in at least one country outside its home state. MNCs are said to epitomise global interdependence, as they often span across a number of different countries, with sales, profits and a smooth flow of production being reliant on several countries at once.

With lower transport costs firms are more easily able to disperse their production processes around the world to take advantage of varying cost conditions. Secondly, falls in communication costs have also facilitated a dispersal of the production process. Both types of cost reductions (i.e. falls in transport costs and communication costs) are said to have caused the death of distance.

The Development of Trading Blocs

Also known as a ‘regional trade agreement’ (RTAs), a trading bloc is essentially a group of countries that remove tariffs and quotas on trade between themselves. In recent years, the number and size of trading blocs have increased dramatically. Trading blocs promote global interdependence through trade creation as well as increased integration amongst members of a trading bloc. Trading blocs like the EU which has expanded to over 26 countries with a combined population of 356 million, help globalisation through making global negotiations easier. For example, in the case of trade negotiations, the EU negotiated as a single trading block making it easier to push through practices which has increased free trade.

Conclusion

Uneven and unequal, it is affecting, directly as well as indirectly, every country, developing or developed; the severity of its impact, positive or negative, is directly dependent upon the capacity of each country to respond to the challenges posed by globalization itself. Nonetheless, globalisation continues to gather pace in the 21st century and with technology becoming cheaper and more advanced, we can only expect the process of globalisation to propel further forward in the years to come

From the e-book “International Relations; Basic Concepts & Global Issues- A Handbook”, published by Amazon and available at   https://www.amazon.com/dp/B08QZSRWT1

Abstract

Financial statements are a structured presentation of financial information about the firm over/at a point of time in standard formats and consistent terms. Normally there are three types of statements prepared by the accounts branch of a firm

Balance SheetIncome/Profit & Loss StatementCash Flow Statement

Though inter-related and using the same information, all three statements have different formats with different emphasis. Thus the Balance Sheet depicts the liquidity position of the firm, the Income statement shows its Profitability position. On the other hand, Cash Flow Statement reveals its Solvency position.

In other words, the Profit & Loss account measures financial performance over the year whilst the Balance Sheet states the financial position as at the year-end. Cash Flow statement explains the sources of funds generation and heads of their spending.

This article explains what is a balance sheet, how it is presented, how to read it, and what are its limitations

What is a Balance Sheet

The Balance Sheet of a business organisation is the structured presentation of its assets and liabilities in a standard format- how much it owns (assets) and how much it owes to others (liabilities). Always presented on a given date every year in a standard format, it uses consistent well-defined terminology for ease of historical comparison and contrast with the competitors.

Liabilities show the sources of the funds while assets show the uses of these funds. Assets and liabilities can be short term (less than one-year maturity) or long term (more than one-year maturity). Long term liabilities ideally financed by long term assets. Covering long term liabilities with short term assets is recipe for disaster

Importance of a Balance Sheet

Presents the static picture of the short term liquidity status of the firm; can it pay its debts right now if needed?Also shows the long-term financial health of the firm. Is it viable and competitive in the long run?Depicts the operating performance of the firm. How well in managing resources, reducing costsAlso, the test of management performance-too many inventories? Too many receivables?Used for historical comparison (are we doing well over years?)As well as cross-company analysis (how we compare with our competitors in particular and the industry in general)

The Balance Sheet statement- Who needs it and why?

Although preparation and publication of financial statements is a legal requirement, it has multiple uses. Its multiple stakeholders want to know 

Owners: to know how the business is going, how much profit they are earning, who is getting what out of this profit margin, etc. What is happening to my equity?Management: to keep track of the business and carry out timely corrective measures. How is our firm doing? Directors need to control the overall performance of the company and make strategic financing and investment decisions. Middle management needs feedback on whether they are meeting their financial targets.Lenders: to know whether you are worth lending money or not.Competitors: to know where you stand vis a vis them. And if you are a success, then naturally they will like to know the secrets of your success for obvious reasons. Why you are more successful?Government: to tax more or to give generous allowances to the industry as a whole if it realises the importance of the industry for the realisation of its overall national vision.Employees: to know whether we are getting an equitable share in the cake we made. Are our pension contributions safe or being squandered on frivolous heads? What will happen to our bonuses? To our pension funds?Suppliers: to assess the creditworthiness of potential and existing customers to make a decision whether to sell goods and services to you or not and the amount and period of credit allowed. No one would like to supply goods to a firm that is likely to sink under its debt burden.Customers: to minimize the risk of their supplies drying up and disrupting their own output. Firms entering a joint venture will also need mutual reassurance.Civil Society Organisations/Media: to know what is happening to the business as it will affect the working of the national economy and in turn, will affect the quality of life of the citizens.Shareholders: to know your firm’s performance to decide whether to purchase more shares or sell the present ones?Firms entering a joint venture will also need mutual reassurance.

Format of a Balance Sheet

Every Balance Sheet of a firm has two parts, one showing what it owes(Liabilities) and the other showing what it owns(Assets)

Liabilities

Owners’ CapitalEquityReserves/SurplusBorrowers’ FundsLong Term DebtShort Term DebtWorking CapitalCreditorsProvisions

Assets

Fixed AssetsLand and BuildingPlant/machineryInvestmentsBonds,shares,government securitiesWorking CapitalRaw materialFinished goods inventoryDebtorsCash

How to Read a Balance Sheet?

Note the date on the top. By convention, these balance sheets are issued on one of the following dates-31st March/30th June /30th September or 31st December

While preparing for internal use the Accounts Branch uses a horizontal format Liabilities are shown on the left side while assets are shown on the right side. However, when releasing publicly, the format is changed to vertical format, showing the balance sheets in four Columns- Present year / last year / Changes / Reference number for an explanation. This change in the format of presentation of Assets / Liabilities is by convention for comparison purposes

Changes in the values of assets and liabilities are expressed in monetary terms i.e., $ or £, and not in percentage terms. However, while taking decisions based on this information, managers do use percentages. Last column-numbers in parenthesis refer to explanatory notes attached

Reading a Balance Sheet-Assets

Balance Sheet starts with the Assets- the first column shows what the company owns now and the second column shows what it owned last year. The third column is the difference between the two and the last column refers to the number of the explanatory note where you can find out the reason if any for any change or any other necessary information.

Assets are again by convention presented in ascending order of liquidity or ease of sale. For example, cash in the current account of a firm is more liquid and is shown as the first entry; finances used for the purchase of long-term government bonds are not so easy to en-cash; hence they come later. Buildings are hard to sell even in a short period; they are shown at the last and so on. Two conventions are strictly followed while showing the value of the assets to observe the principle of prudence

if the present market price of an asset is higher than the price it was purchased initially a few years ago, then its purchase price is shown as its current value irrespective of the fact that it has risenif the present market price of the asset is lower than the purchase price, then its estimated current market price is shown here

Keeping the above clarifications in view we can read the balance sheet as follows

Cash-checking account/very short term securitiesMarketable Securities-short term investments i.e. CDs(Banks), T-bills (Government), Commercial Papers(MNCs)Account Receivables-goods sold on credit minus bad debtsInventories-Finished goods, work in progress, raw materialTotal Current Assets- Add all the aboveInvestments including Intangible Assets-totally owned subsidiaries, partial equity in other firms, patents, goodwill, copyrights, trademarksFixed (tangible) Assets-more than one-year maturity-land, buildings, machinery, equipment, vehiclesGross book Value-add themAccumulated Depreciation- Accounting purposesNet Book Value-after deducting accumulated depreciationTotal Assets- Current Assets Investment Net book value 

Reading a Balance Sheet-Liabilities

Liabilities show what a firm owes to others, also presented in ascending order, starting with less than one-year maturity

Accounts Payables-normally 30 to 60 days’ creditBank Notes-short term loans from banks/creditorsOther Current Liabilities-result of accruals i.e. unpaid salaries/wages/interest/taxes for the remaining periodCurrent Portion of Long Term Liabilities-Long term debts nearing maturityTotal Current Liabilities-Add all the aboveLong Term Debt-more than one-year maturity-debentures, mortgages, bondsTotal Liabilities-add the current liabilities and the long term debtPreferred Stock-who provided the initial capitalCommon Stock-who bought the sharesRetained Earnings-profits ploughed back increase stockholders’ equityTotal Liabilities and Stock Holders Equity- add the above

How to Interpret a Balance Sheet?

Balance Sheet shows the liquidity position of the firm- its ability to pay off all liabilities if assets have to be sold. For this purpose, we use ratios. Ratios are the quotient of a number or sum of numbers divided by another numerical value. Ratios tell you the relationship among selected items of the financial statement data. Once calculated, we use the results to compare our performance at three levels

Horizontal Performance: We compare these ratios with past ratios of the firm to assess whether we are improving over time, stagnant, or worsening.Comparative Performance: we compare these ratios with our close competitors to find whether we are doing better or worse or equally as compared to our rivals in the field.Vertical/Positional Performance: we compare these ratios with the industry ratios and find out where do you stand in terms of the overall marketplace. Are we at the bottom in terms of operational efficiency or in the top few? Or just average?

Some of the most important ratios used to interpret the Balance Sheet of a firm are Liquidity Ratios and the Solvency Ratios.

Liquidity Ratios

There are two ratios to ascertain the liquidity position of the business firm

Current Ratio

This is calculated by dividing the current assets of the firm by the current liabilities i.e.

Current Assets/Current Liabilities

This ratio measures the short-term liquidity position of the firm in the sense that if the firm has to clear its liabilities in an emergency due to any reason such as a court order, will it be able to do so by disposing of its current assets? Because current assets by definition mean they are very liquid and can be sold/disposed of easily-cash in hand, current account in a bank, short-term government bonds, etc. For example, a firm with a current ratio of 1.5:1 has US$ 1.5 in assets while its liabilities are only one US$. Not bad. However, a firm with a current ratio of 2.5:1 has US$ 2.5 for every one dollar of liability. It is in a more comfortable position

Working Capital

This is calculated by simply deducting the total current liabilities from its total current assets i.e.

Total Current Assets-Total Current Liabilities

Strictly speaking, it is not a ratio in the technical sense, rather a difference but is known as a ratio by the GAAP tradition. It tells you the position of the working capital at the disposal of the firm for running its business operation.

Solvency Ratios

There are three ratios to check the solvency position of the firm

Debt Equity Ratio (Leverage Ratio )

It is calculated by dividing the total liabilities of a firm by its total equity of the shareholders i.e.

Total Liabilities/Total Equity

Also known as the Leverage Ratio, it compares the ratio of the liabilities vis a vis the equity of the shareholders invested in the firm. Obviously, shareholders will like to have as lower debt as possible because, in the case of liquidation of the firm, they will get back whatever is left after paying the debts. Thus a smaller Debt to Equity Ratio is preferable i.e. 0.90:1 is better than 1.2:1

Debt Asset Ratio

It is calculated by dividing the total liabilities of a firm by the total assets it owns and expressed as a percentage by multiplying it with 100.

Total Liabilities/Total Assets x 100

Written as a percentage, it shows the % share of assets owed to lenders says as collateral. A lower percentage is preferred because, in case of liquidation of the firm, the lenders will demand the clearance of their debts from the sale proceeds of the assets and only leftover will be available for distribution among the shareholders.

Equity Asset Ratio

This is calculated by dividing the total equity capital invested by the shareholders by the total assets owned by the firm at the end of the year and expressed as a percentage by multiplying it by 100 i.e.

Total Equity/Total Assets x 100

Expressed as %, it shows the share of owners in the assets. In case these are to be sold and after paying the liabilities, these will be distributed according to their respective share

Limitations of the Balance Sheet

The balance sheet as published does not show the value of a business or what a company’s shares are worth because some assets are not disclosed in a balance sheet, namely internally generated goodwill, and workforce skill. Items are usually valued at their cost when purchased although their prices may have gone up due to inflation/scarcity. For this current cost accounting is more suitable i.e. assets are re-valued regularly and the profit is adjusted accordingly

Balance Sheet-The Take Away

What is our financial health-Are our assets more than our liabilities or are we heading towards short term/long term bankruptcy?Is the owners’ equity safe? In case of termination of business, will they get more or less than they invested?Are our lenders’ capital safe, giving them the confidence to lend us more at market rate or we will be forced to get loans at more than the market rate?Do we have enough working capital or facing cash flow difficulties to run the business?

From the E-book “Finance for Non-finance Managers: A Handbook” by Shahid Hussain Raja, published by Amazon https://www.amazon.com/dp/B07TTNNTC8