NationalVolume 12 Issue # 22

A path strewn with hurdles

The World Bank’s Ease of Doing Business 2017 report is out, and once again Pakistan is in the rank of countries where doing business is a hurdles race. The WB index uses a number of indicators to assess how difficult or easy it is to do business in a country.

The Doing Business Index is a flagship World Bank publication. Each year the World Bank conducts a survey and publishes a comprehensive report on Ease of Doing Business and country ranking. The parameters considered in the survey are: Starting a Business, Construction Permits, Getting Electricity, Getting Credits, Paying Taxes, Cross-border Trading, Property Registration, Contract Enforcement, Resolving Insolvency, Protecting Rights of Minority Shareholders. The latest report is the fourteenth in a series of annual reports measuring governmental regulations that enhance or constrain business activity. Doing Businesslooks at quantitative indicators on business regulations and the protection of property rights, which can be compared over time, across 190 economies. It measures regulations affecting different aspects of running a business.

Pakistan is the only South Asian country to have improved its overall ease of doing business ranking this year but it is still ranked 144th out of 190 countries. With a series of far reaching reforms in recent years, Pak-

istan has made trading across borders easier by introducing a fully automated, computerized system (the Web-Based One Customs system) for the submission and processing of export and import documents.

The ten economies highlighted by the World Bank this year for making the biggest improvements in their business regulations include Brunei, Kenya, Indonesia, Georgia and the UAE. While Pakistan has been praised for improving infrastructure and streamlining procedures such as introducing a new electronic platform for customs clearance, it is still considered a low middle income, and ranked quite low overall. It may be noted here that those countries which also rank well in Rule of Law and Judicial Risks do well in securing investments too. Pakistan’s judicial system and legal framework are archaic and hostile to business. Our legal framework and laws related to contract enforcement, dispute resolutions and similar issues are outdated.

Several emerging countries have moved on to a reformed legal structure, such as an on-line system in the regulatory process, electronic filing of court proceedings, citizens’ and stakeholders’ inclusion in rule making, expanding court automation, speedy small-claims commercial courts, enforcing judgement more efficiently, respect of arbitration clauses and proceedings, a streamlined and shortened timeframe for insolvency proceedings, reformed legislation and regulations for investors’ interest and workers’ protection and social benefits. All these reforms have reduced the cost of doing business.

According to the World Bank, since 2005 all economies around the world have taken steps to improve the business environment. Last year, for the first time, Doing Business compilers collected data for a second city in economies with a population of more than 100 million. In Bangladesh, it now analyses the business regulations in Chittagong and Dhaka; in India, in Delhi and Mumbai; and in Pakistan in Lahore and Karachi. As per latest research, half of the economies around the world have an electronic database for rights and encumbrances. However, much more still needs to be done to make processing of business-related matters easier. The report has strongly criticised long enforcement times in many countries which frustrate freedom of contract and limits freedom of contract in the areas of future determination of contract price, exclusion of liability for gross negligence and public policy and legal capacity.

In Pakistan, there are only four limitations to freedom of contract, but still resolving the standardised dispute takes 976 days in Karachi: “Freedom of contract and efficient contract enforcement matter to businesses. The exercise of freedom of contract by parties with similar negotiating power and good knowledge of market conditions promotes efficiency in the allocation of resources, maximising individual welfare and spurring efficiency in the marketplace.” The World Bank report notes: “Efficient contract enforcement promotes investment by influencing the decisions of economic actors. By promoting investment, good judicial institutions can also contribute to economic growth and development.”

According to the World Bank, in the previous year, many governments around the world continued to implement a broad range of reforms aimed at improving the regulatory environment for the local entrepreneurs. Historical experience and empirical evidence proves that economies that both improve the efficiency of regulatory procedures and strengthen the legal institutions that support enterprise, trade, and exchange are better able to facilitate growth .

The World Bank Ease of Doing Business report has lessons which developing countries like Pakistan can ill afford to miss. The message is that the more you facilitate business dealing through the elimination of procedural bottlenecks, the more you promote business growth. No wonder, economies like Singapore have performed miracles by creating a business-friendly environment and laying out the red carpet for investors.

Pakistan’s low ranking in the Doing Business Index should be a matter of concern for the government. What we are seeing around us as development is project business in the energy sector and infrastructure funded largely against loans. But there is very little inflow of foreign direct investment, which is the real driver of a country’s economy and a source of employment for the masses. Another serious issue is the constant decline in our exports, which if not corrected will severely deplete our foreign reserves presently being sustained through remittances from overseas Pakistanis.

The government needs to undertake large scale economic, legal and administrative reforms and bold decisions to make Pakistan attractive for investment and promote exports. It is interesting to note in this context that Prime Minister Narendra Modi has set the goal of getting India into the top 30 countries in this ranking by 2018. President Vladimir Putin’s goal is more ambitious, as he wants Russia (which is currently ranked 51) to be in the top 20 countries in terms of ease of doing business. Pakistan too needs to move quickly to improve its business friendly image.

According to the World Bank, in the previous year, many governments around the world continued to implement a broad range of reforms aimed at improving the regulatory environment for the local entrepreneurs. Historical experience and empirical evidence proves that economies that both improve the efficiency of regulatory procedures and strengthen the legal institutions that support enterprise, trade, and exchange are better able to facilitate growth.

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