PAKISTAN has long struggled to attract greater volumes of foreign direct investment (FDI) to expand and modernize its fairly stagnant economic base. Pakistan's level of investment is almost half the volume of investment attracted by growing economies such as Vietnam, India, Bangladesh and Sri Lanka. To accommodate two million Pakistani youth entering the labor market each year, Pakistan needs to double its investment / GDP ratio.
Business leaders blame Pakistan for the lack of political coherence, repressive taxes, high public service costs, cumbersome procedures, weak contract compliance and conflict resolution capacity. One is not surprised to see Pakistan's current ranking of 136 of 190 in the Ease of Doing Business Index.
Read: Pakistan is among the top 20 enhancers in Doing Business 2020 & # 39; by the World Bank
The good news, however, is that Prime Minister Imran Khan made it his priority to improve the ease of doing business. As a result of the coordinated efforts led by the Investment Board, Pakistan has been recognized by the World Bank among the top 20 global reformers this year. Pakistan is expected to improve its ranking in 25 places in the report that will be released on October 24 (today). This will be the highest upside change in a year shown by the country and perhaps the only significant economic reform from which the PTI government can actually take credit.
Pakistan has been recognized as one of the top 20 world reformers this year.
The other major reformers include China, India, Bangladesh, Qatar and the countries of Central Asia. It is also important to take stock of the reasons for falling into the Global Competitiveness Index, where the responsibility lies primarily with the ministries of commerce and industry.
According to the World Bank, Pakistan improved in six areas that included starting a business, dealing with building permits, obtaining electricity, registering property, paying taxes and trading across borders. Pakistan facilitated the start of a business by expanding the procedures available through the online one-stop shop. In addition to improvements in property registration, it became easier to obtain a building permit.
The launch of online portals for new commercial connections made it easier to obtain electricity, and changes in rates are announced in advance. In addition, tax compliance was made easier through online payment modules for value added tax and corporate income tax. Pakistan facilitated cross-border trade by improving the integration of several agencies into an electronic system and by improving the coordination of joint physical inspections at the port.
In addition to looking good, what does the improved classification really mean for Pakistan and will lead to greater business confidence and desired investment flows? As president of the Investment Board, I had committed myself to the prime minister that in two years, Pakistan would be among the top 100 countries in the Ease of Doing Business Index. The first lesson of this achievement is that difficult reforms are feasible with visible political commitment, professional leadership and a good strategy that gathers relevant global best practices. The effective use of technology was the most powerful variable to improve business processes. The second lesson is that, unless the ownership of the reform corresponds to the indigenous institutions, it will not take place or be sustained. Pakistan needs to review the role of international financial institutions (IFIs) that wish to take a seat at the policy table with little understanding of the political economy and the reform process. Progressive economies have used IFIs and donors only to finance needs and share knowledge. Policymakers in Pakistan have granted the highest level of access to low-level IFI officials to cover up their own lethargy and incompetence. The third and most important lesson is that any good reform will not work unless the leading agency develops a relationship of mutual respect with the executing institutions. In this case, the Investment Board team maintained a regular commitment with 36 federal and provincial institutions to find practical solutions to facilitate business.
It is essential that the government understand that no reform alone will produce the desired results in a political vacuum, a weak capacity for implementation and an anti-business mentality. Making trade reforms is a small part of the overall investment climate landscape, where structural change is needed to demonstrate the government's commitment to improve the investment climate, which includes support for physical and regulatory infrastructure, reducing the cost of Doing business, a world-class growth policy, fast tracking of business transactions and resolution of business disputes.
If we take a look at the main investment transactions of recent years, most suffered from these structural weaknesses. While Pakistan is trying to recover from macroeconomic deficits, perhaps most surprising is the confidence deficit and disconnection between economic managers and entrepreneurs. Investors have appreciated the prime minister's good intentions, but they see a second fragmented level and no positive change in delivery infrastructure.
China tops the list of FDI in Asia with $ 136 billion, followed by Hong Kong ($ 104 billion), India ($ 40 billion), Indonesia ($ 23 billion), Vietnam ($ 14 billion) and Malaysia ($ 10 billion). According to the United Nations Conference on Trade and Development, the liberalization of investment policies and investment incentives represent more than 50 percent of the reforms that attract investment. The key lesson for Pakistan is to properly sequence investment climate reforms and develop a world-class industrial policy and incentives. The facilitation of investment and the ease of doing business will help speed up transactions.
To begin, the prime minister needs a solid professional configuration that includes a team of well-qualified trade and development economists to develop a road map of economic growth. This team must be trained to challenge the old school. Pakistan continues to rely on generalists who occupy key political positions and deliver political work to average consultants.
If Pakistan replaces the old colonial government offices with modern technology-based corporate structures along the lines of the Dubai International Financial Center or the Qatar Financial Center, a strong positive signal will be issued. Such structures will not only provide unique corporate centers with independent regulations; Great cost savings will also be achieved by closing multiple overlapping bodies that currently exist. Investors are looking for a visible change in the way Pakistan does business.
The writer is an expert in economic policy who until recently was Minister of State and President of the Investment Board of Pakistan.
Posted on Dawn, October 24, 2019
Source: https://www.dawn.com/news/1512629/doing-business-in-pakistan