Business

The fall of SOEs

AnyFans 2025-09-19

By Zahid Maqsood Sheikh

The fall of SOEs

In light of recent developments regarding the closure of the Utility Stores Corporation (USC), I believe this article provides timely insight into the underlying governance issues that affect Pakistan’s State-Owned Enterprises (SOEs). The recent decision to shut down USC serves as a poignant example of the larger systemic issues at play.

I hope this piece contributes to the ongoing discussion on reforming SOEs in Pakistan to enhance their contribution to national growth and economic stability.

The recent decision by the Pakistani government to shut down the Utility Stores Corporation (USC) serves as a stark reminder of the deep-rooted inefficiencies within the country’s State-Owned Enterprises (SOEs).

Aimed at preventing USC from becoming another financial burden like Pakistan International Airlines (PIA), this closure reflects broader governance failures that are commonplace in Pakistan’s public sector. The shutdown, affecting 6,000 employees, underscores the critical need for reform within SOEs that have long been plagued by financial mismanagement, corruption, and ineffective governance.

Across the globe, state-owned enterprises (SOEs) often serve as engines of economic growth and strategic national assets. Countries like Norway, with Equinor, and China, with the State Grid Corporation, show how SOEs can thrive when managed effectively.

On a global scale, SOEs hold considerable economic significance, the OECD notes that their share in the top 500 global companies by revenue has tripled from 2000 to 2023, now representing 12% of global market capitalization. This demonstrates the crucial role that well-functioning SOEs can play in driving national economies.

However, in Pakistan, the reality is quite different. Many of its SOEs are burdened by chronic inefficiencies and financial losses, which are symptoms of a deeper, persistent governance crisis that also hinders the attraction and retention of professional talent.

Unlike their successful global counterparts, Pakistan’s SOEs often lack clear mandates, operational autonomy, and effective oversight. Political interference in appointments and day-to-day operations, overstaffing, and unclear strategic direction are widespread. These issues not only lead to poor performance but also discourage highly skilled professionals from joining or staying in the public sector.

A core issue lies in weak corporate governance. While Key Performance Indicators (KPIs) may be set for CEOs and boards, accountability for meeting these metrics is often absent, particularly at the board level. In many cases, KPIs become mere box-checking exercises rather than meaningful tools for driving results.

Prolonged tenures of board members and executives further undermine governance standards. Furthermore, oversight mechanisms like audits are often misaligned with the organizations’ development goals, focusing on minor procedural issues instead of strategic outcomes.

The operational landscape is further complicated by conflicting directives from elected officials and parent ministries, leading to management confusion and a lack of coherent strategy. These dysfunctions, combined with a reputation for inefficiency and limited career growth, discourage skilled professionals from entering the public sector.

Even those who do gain experience in SOEs often find their public sector background undervalued when seeking roles in the private sector, creating barriers to the exchange of talent and ideas across sectors.

Ultimately, this governance deficit does more than hinder operational efficiency; it undermines the very capacity of SOEs to fulfill their intended role in national development. While divesting SOEs may seem like an easy solution, a genuine commitment to their improvement and retention would better reflect the government’s goal of boosting the nation’s overall economic prospects.

As the examples of successful SOEs globally show, effectively managed organizations can be major contributors to national revenue. To achieve this, Pakistan must address the structural issues of accountability, board effectiveness, and operational clarity.

Only by restoring credibility and purpose to public sector institutions can Pakistan’s SOEs transition from fiscal liabilities into drivers of sustainable growth.

It’s worth noting that the recently introduced SOE Act aims to enhance the efficiency of these organizations, starting with leadership. Additionally, the finance department has set up a monitoring unit. However, there is concern that excessive reporting requirements could detract from meaningful work, so finding a balance will be essential for an effective operational model.