InternationalVOLUME 15 ISSUE # 07

Business accolades

Pakistan’s inclusion in the World Bank’s list of “Top-20 improvers in Doing Business 2020” is perhaps the most significant achievement of the Pakistan Tehreek-i-Insaf (PTI) government after missed targets in its first year of rule. However, the improved ranking will not attract investors if certainty and continuity in policies are disturbed.
The big jump in the ranking is the result of diligent and concerted efforts put in by the government’s lead agency, the Board of Investment, and other federal as well as provincial agencies over the past two to three years. The initiation of the reforms predates the PTI government and the fact should be large-heartedly acknowledged. According to the World Bank, Pakistan has improved in six areas measured by “Doing Business”, which are: starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. The World Bank’s Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.
According to the 2020 listing, Pakistan’s improvement in the six areas is a reflection of “the country’s development of an ambitious reform strategy, including the establishment of a national secretariat and prime minister’s reform steering committee”. The World Bank stated that Pakistan had made the process of starting a business easier by expanding procedures available through the online one-stop shop. Along with improvements in property registration, the process of obtaining a construction permit has also been made easier. The listing said that it was because the Sindh Building and Control Authority (SBCA) and the Lahore Development Authority (LDA) had streamlined approval workflows and improved the operational efficiency of their one-stop shops. “The launching of online portals for new commercial connections made getting electricity easier, and tariff changes are announced in advance,” it stated. Tax compliance has also been made easier through online payment modules for value added tax and for corporate income tax. Additionally, the corporate income tax rate has been lowered.
Pakistan made trading across borders easier by enhancing the integration of various agencies into an electronic system and by improving coordination of joint physical inspections at the port. According to the report, India has made it easier to do business in four areas while China, also included in the ranking, has implemented reforms in eight areas. Pakistan’s current ranking is 108 against Bangladesh’s 168, but the latter attracted foreign direct investment equal to 1.1 per cent of GDP in 2018 compared to 0.8pc in Pakistan. It shows mere improvement in the ranking does not mean an increased inflow of foreign investment. Others factors also contribute to it.
Experts say lack of policy certainty and continuity has been the major constraint for Pakistan to attract foreign investors. Another factor which has kept investment at bay is the country’s tax regime. It includes not just the complicated tax code and the multiplicity of taxes, especially after the 18th Amendment, but the tax treatment ie the way the law is applied or chosen not to be applied. The lack of tax enforcement on large swathes of the economy, and uneven tax treatment between different industries, between firms within the same industry, and between the formal and informal sectors of the economy, all create challenging conditions for formal businesses.
It is matter of concern for Pakistan that its investment level is almost half the volume of investment attracted by growing economies, like Vietnam, India, Bangladesh and Sri Lanka. To accommodate two million young Pakistanis entering the labour market every year, Pakistan needs to double its investment to GDP ratio. Business leaders blame successive governments in Pakistan for lack of policy consistency, repressive taxation, high utility costs, cumbersome procedures, weak contract enforcement and dispute resolution capacity.
However, Pakistan’s inclusion among top 100 countries in the Ease of Doing Business Index is not a small achievement. It indicates that difficult reforms are possible with visible political commitment, professional leadership and a good strategy that picks up on relevant global best practices. Effective use of technology is the single most powerful variable in improving business processes. It also proves that unless ownership of reform is with indigenous institutions, it will neither take place nor sustain.
Economists say Pakistan needs to review the role of international financial institutions, which are keen to take a seat at the policy table with little understanding of political economy and the reforms process. The progressive economies have used international financial institutions and donors for financing needs and knowledge sharing only. In Pakistan, policymakers give the highest level of access to low-ranking officials of international financial institutions to cover up for their own lethargy and incompetency. The improved ranking also proves that any good reform will not work unless the lead agency develops a relationship of mutual respect with implementing institutions. In this case, the Board of Investment kept a regular engagement with 36 federal and provincial institutions to find practical solutions to facilitate businesses.
Experts say the government will have to understand that no single reform will yield the desired outcomes in a policy vacuum, weak implementation capacity and an anti-business mindset. Doing business reforms are a small part of the overall investment climate picture where a structural shift is needed to demonstrate the government’s commitment towards improving the investment climate, which includes supporting physical and regulatory infrastructure, lowering the cost of doing business, world class growth policy, fast-tracking of business transactions and resolving commercial disputes.