Judicial Activism and Investor Confidence

Ahmad Nadeem Gehla

Investor is the first bird to fly away when there is a remote possibility of instability and fear of disregards for international contracts. Populist rhetoric of half-learned scholars and opportunists politicians that corruption and lack of accountability are responsible for discouraging investment does not makes any sense. Although these two factors impact the investment decisions, the studies suggest that authoritarian regimes with massive corruption and lack of accountability has attracted equal investments as did the transparent and democratic governments. In reality, the authoritarian regimes are favourite of international investors while corruption, kickbacks and commissions are established practice of doing business in corporate MNE’s. From arms deals to explorations licences and from Foreign Direct Investment to  award of development projects,;corrupt practices, political influences and reactivity commissions do exist at varying levels. The biggest fear of any investor lies in uncertainty and discontinuation of policies of host state where institutions become dysfunctional because of internal conflicts.

In case of Pakistan, much glorified case of preventing privatisation of Pakistan Steel Mills by Supreme Court of Pakistan, played a key role in breeding uncertainty. As the judgement is a public document, it is open for criticism, but very little has been said and written on it’s impact and constitutionality apart from securing political mileage against an unpopular dictator. In terms of investor confidence, the judgement proved to be an absolute disaster for privatisation and Foreign Direct Investment (FDI). The most vocal economists in country who are aware of its disastrous consequences on economy remain silent because of fear of backlash from supporters of popular Chief Justice.

Superior courts play a supervisory role and their prime function is to resolve the matters where rules, regulations and constitutional provisions are violated by by executive authorities. When a public functionary or institution violates these regulations, courts have powers to direct them to follow the same, but court has no capability to acquire the functions of that institution.  When it does so, not only said institution would becomes dysfunctional and people loose faith on it but also a court would not be able to understand the complex deals which only professionals are capable to handle. This basic principal of dispensation of justice was ignored by Supreme Court while deciding the case of Pakistan Steel Mills in 2007. Despite pointing out the irregularities and directing Privatisation Commission to ensure the public interest is safe guarded under certain conditions, the Supreme Court exceeded its constitutional and supervisory limits by indulging in to investigation process before finally scrapping the deal. Certainly, none of the Honourable judges in bench has expertise to understand and structure the complex fiscal arrangements, which only corporate professionals can perform.i

Had court confined it to pointing out irregularities and directing the institutions concerned to fix these issues, it would have been strengthen the Privatisation Commission and added in to investors confidence. The unprecedented decision of altogether scrapping the entire deal without understanding its fiscal aspects proved to be first ‘stay-away signal’ for investors. The situation got worst during two years long popular ‘restoration of judiciary’ movement which at the same time brought both Pervez Musharaf and Pakistan’s economy to its knees. With installation of democratic government in Islamabad there was a brief period of partial restoration of investor confidence and international investment houses started expressing interest in Pakistan’s power, agriculturalist and infrastructure sectors. The same was wiped away when a showdown in Punjab based Mian Nawaz Sharif and Pakistan People’s Party government lead to restoration of deposed judges.


The hostile judiciary has taken Zardari regime to task while interfering in every executive matter beyond its constitutional authority . Be it fixing Sugar and Electricity prices, tax on imported fuel or contracts for rental power projects, the judiciary is continuously taking over the functions of specialised institutions. If this interference remains to the constitutional supervisory limits and pointing out irregularities, it can strengthen the institutions to function within the regulatory frame work. However, institutions loose credibility and becomes dysfunctional when judiciary assumes their role. Each judicial interference is followed by a parallel media trial. Political rivals and self styled analysts in media with little or no understanding of issues which need specialised professionals, run their regular campaigns to settle scores with government and parties involved while courts stay silent spectator.


Although profits are prime target for any corporate, the corporate leaders have to do business worldwide and are very much conscious about repute of their organisations. An investment destination is never a choice which turns them in to clowns, corrupt and dishonest thugs without any valid proof. Depute corrupt practices which are undeniable part of any investment regime, these corporate are always careful in following the rules and regulations, under the table deals always remain untraceable. Even in developed countries judiciary and regulatory institutions keep themselves limited to their supervisory role to ensure that rules and regulations are being followed. No court in world, would interfere in issue on mere assumption of corruption and would takeover the role of regulatory bodies which require specialised skills and understanding of fiscal matters of state. When this happens, the existence or otherwise of corporate regulators becomes immaterial both for courts and investors.


Pakistan offers some of the most attractive investment opportunities to international investors. The growing middle class and educated workforce with a decent infrastructure can make the country an ideal place for investors. While discussing about Pakistan as their potential investment destination, every investment house raises two questions. First being the political stability and continuation of state policies and second and biggest concern being the guarantee that courts would not turn their legitimate contract in to a devils act on perceived corruption charges. In developing countries like Pakistan, here can hardly a way forward without attracting the foreign investment. The dream would not materialise unless all institutions of state respect the mandate of others. Judicial activism is welcome step and should be focused on ensuring that constitution, laws, rules and regulations are followed by other institutions. Certainly, Supreme Court does not posses the capability, understanding and expertise to acquire the role of every other institution.


Corruption is a reality in all developing countries and even in developed world. In order to eradicate corrupt practices, the institutions needs to be enlightened. This can not happen when one institution of states takes over powers of others and starts making decisions for which it does not posses expertise. The present state of affairs which took birth from ‘Judicial Activism’ in terms of political instability and investors confidence are biggest deterrents for economic development. On its own resources even with completely eradicating corruption and ensuring transparency, which itself is not possible, the country could not create three million jobs annually for its youth beside developing infrastructure for hundred and seventy million population. As long as institution does not stop interference in to others mandate, the investors confidence would not be restored. No investor is going to trust the Privatisation Commission or Pakistan’s Board of Investment without an assurance that after following rules and regulations, their contracts would not be terminated by courts on charges of perceived corruption followed by a massive media trial.


The judicial activism should instead be directed towards internal transparency, as judiciary even after being restored,  itself stands as second most corrupt institution of country. In present economic conditions and limited options, media activism waged by self-styled analysts, judicial activism in wake of ‘righteousness’ and political  opportunism for sake of grabbing power on cost of economy might lead the state to a complete collapse. The first and most important step in restoring investors confidence can only be achieved  if judiciary limits itself as a guardian of law and constitution and not a parallel policy making or a regulatory body.

Ahmad Nadeem Gehla is a lawyer


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