Financial and operational performance of privatized cement industrial units of Pakistan

    Student thesis: Doctoral Thesis


    In 1978, Government of Pakistan had taken a first step towards the privatization in Pakistan when three nationalized industrial units were handed over to their original owners. In the mid-eighties, privatization began to receive some consideration. A serious attempt in this regard however, was taken during early 1990s, when the government persuaded outright sale of public enterprises, nationalized commercial banks and development financial institutions. This study looks into the financial and economic consequences of transfer of ownership from public to private in the cement industry. The study utilizes the data on twenty cement firms covering 95% of the industry over twenty six years (1986 to 2011), comprising of both public and private ownership periods.

    The study utilizes two different techniques; 1) financial performance evaluation using financial ratio analysis such as profitability ratios, operating efficiency ratios, capital investment, output, financial insolvency, and dividend pay-out pattern; 2) economic performance evaluation using adjusted economic ratios such as public profit and profitability and total factor productivity. By using frontier production and cost function, firm level cost and technical efficiency and productivity is estimated to compare the performance over the years. Total factor productivity is further decomposed into technical change and scale component to find out the key sources of productivity change. To shed some light on the labour use efficiency, the study estimated labour demand function using non-linear least square method. To complete the story, an effort was made to estimate competitive conditions in pre- and post deregulation and privatization period using a variety of parametric and non-parametric methods.

    It is found that on average, investment spending and output has increased after privatization. Margin on sales and other profitability measures show a jump immediately after privatization but had been falling recently. Overall, profitability levels have suffered due to bad economic and law and order conditions. Public profits and profitability has also improved over the years. The decomposition into cost and technical efficiency reveals that firm-level cost efficiency has improved in the post privatization period. It is also found that firms using dry production process are more efficient both technically and cost wise compared to firms using wet process. When firms are grouped according to location, the north region firms outperformed the south region firms in term of technical as well as cost efficiency. Further, contrary to expectations, labour demand function estimates show decreasing labour use efficiencies.

    For most of the years this study covers, industry was operating under increasing returns to scale. The estimates of total productivity reveal that the industry has become more productive since 1997, recording 3-4% growth per annum. This growth was achieved primarily, due to technical change after significant investment was made by the new management in technology upgrades. The contribution of scale component was negligible. The evaluation of competitive conditions reveals that the industry as a whole has started exercising some market power in the post reforms period. By estimating biases in input usage, the study concludes that firms are using more labour and capital and less of fuel and material.
    Date of AwardOct 2012
    Original languageEnglish
    Awarding Institution
    • University of Portsmouth
    SupervisorShabbar Jaffry (Supervisor) & Barry Murphy (Supervisor)

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