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Economic Backbone: Its None Of Your Business

By Nyda Mukhtar

February 21, 2011
They are capable of resuscitating a dying economy and of making third world countries first world powers. They can develop cities and rural areas, put an end to wars, and make societies and communities stronger.

By Nyda Mukhtar
They are capable of resuscitating a dying economy and of making third world countries first world powers. They can develop cities and rural areas, put an end to wars, and make societies and communities stronger. These are businesses. They come in all shapes, sizes and legal status and are the backbone of any economy. Sony, Toyota and Honda put Japan on the map while it is a common saying that no two countries with a McDonald’s have fought a war with each other since they each got McDonald’s. So if any country wants to do well locally and globally, businesses should be allowed to grow and to establish their own niche. For Pakistan, flourishing and well-established markets seem to be the only hope for the country stuck within an ever-expanding web of problems.
While Pakistan is not as bad as it seems when it comes to establishing businesses, it has not been as great as it can be. Doing Business 2011 ranks Pakistan at 83 among the 183 countries of the world, the highest among the South Asian countries. The question then becomes that despite the relatively better ranking in South Asia, why is Pakistan still not able to develop or grow like some of the lower ranked countries in the region? The answer is that while Pakistan is doing comparatively well for businesses, but given its current geo-political situation it hasn’t done well enough. Pakistan needs to step up its game to catch up with other countries in growth and development.
But to do this, Pakistan has to look towards the problems faced by local businesses. These are pretty standard revolving mostly around lengthy administrative procedures peppered with a heavy dose of corruption. While the Securities and Exchange Commission has set up a relatively fast system of e-Services to help businesses register, the other procedures takes the average time of setting up new businesses to 21 days. This compares poorly with Singapore where businesses take 3 days to set up. Similarly, registration of property involves only six procedures, but somehow takes 50 days due to the complicated execution and registration process for the deed. Bribes are also an additional cost with businesses having to pay approximately Rs 75,000 to acquire land and an average of Rs 25,432 to avoid tax auditing. In addition, while businesses in Pakistan pay the least taxes (as a percentage of their profits), due to extensive administrative barriers, they take 560 hours to file them, almost double the Indian average of 258 hours. With the notorious backlog of cases in Pakistani courts it is not surprising that contract enforcement in Pakistan takes 976 days while in Vietnam it only takes 295 days.
While dealing with corruption seems to be a hopeless case, Pakistan can emulate others in improving administration by setting up internet kiosks for businesses to register (like India); gathering support for tax-simplification programs through partnership with the press (like Yemen) and introducing time limits for legal commercial cases (like Algeria).
But Pakistan doesn’t even need to look too far to adopt better business practices. Doing Business 2010 reports that while Pakistan does relatively okay overall, some parts of it do better than others. While countrywide it takes an average of 21 days just to set up a business, a business in Islamabad can do so in 16. Similarly, in dealing with construction permits, registration of property, trading and enforcing contracts, Multan, Faisalabad, Karachi and Sukkur are the best in terms of either fewer days or fewer procedures. If the best practices of all the cities were used in all the major cities, back-of-the-envelope calculations show that an average businessman can save over $1,500. If one city in Pakistan can do it, it should not be difficult for the others to follow suit.
It seems that a little less (and smarter) regulation is what Pakistan needs right now, especially in case of businesses and markets. To boost our local markets and become competitive internationally, the government needs to let the markets function freely on their own. That is why the Planning Commission’s New Development Approach (NDA) is trying to better markets by implementing a policy of less regulation. Maybe it is time to try a new approach; maybe it is time to let Pakistani businesses take the helm and hopefully give the nation more development, a better future and its citizens something to smile about.
Nyda Mukhtar is an economic consultant at the Planning Commission working on governance and markets. This article first appeared in The Express Tribune on February 7, 2011.