Pakistan,
with a population of approximately 180 million and an average gross domestic
product (GDP) growth rate of 4.9%, is the fifth largest market in the entire
Middle East, Africa and South Asia regions (after India, South Africa, Saudi
Arabia and Egypt). It has a youthful population and a large middle class of
approximately 30 million. With English as the lingua franca of the business
community, a highly evolved services sector that contributes 60% of the GDP,
and a legal system based on Anglo Saxon traditions, Pakistan has a number of
attributes that make it an attractive market for multinational firms.
The World Bank’s 2013 'Doing Business Report', which surveys the ease of
doing business in international markets, ranked Pakistan at 107 among the 185
economies surveyed. By comparison, regional competitors China and India ranked
91 and 132 respectively.
In Pakistan doing business is easier in Faisalabad and Multan, and more
difficult in Quetta and Hyderabad. Continued reforms have reduced start-up time
and costs, but the number of procedures remain high. Business start-up takes on
average 21 days and costs 20.2% of income per capita. Business start-up costs
ranges from 13.2% of income per capita in cities with online registration to
26.2% of income per capita in Sialkot, where businesses continue to register in
person.
Pakistan performs relatively well in starting a business, both regionally
and globally. Globally, Pakistan stands at 98 in the ranking of 185 economies
on the ease of starting a business; while India stands at 173.
According to the data compiled by Doing Business 2013, it is easier to start
a business in Islamabad than in any other Pakistani city—it only takes 16 days
and costs 13.2% of income per capita. In contrast, the business start-up
process is most difficult in Gujranwala, where it takes 24 days and costs 24.5%
of income per capita.
Despite the same regulatory framework, there are differences in the time and
cost needed to start a business in Pakistan, mainly due to differences in the
efficiency of local branches of national agencies, practices at the local
government level, and variations in the use and availability of online
services.
Economies around the world have taken steps to make it easier to start a
business, streamlining procedures by setting up a one-stop shop, making
procedures simpler or faster by introducing technology and reducing or
eliminating minimum capital requirements. Many have undertaken business
registration reforms in stages, and they often are part of a larger regulatory
reform programme.
In some countries, the process of business registration, obtaining
construction permits, advancing credit and starting business is straightforward
and affordable, while in others it is so cumbersome and time-consuming that
entrepreneurs either bribe officials to speed up the process or simply run
their businesses informally. The consequences of greater barriers to entry are
particularly severe for vulnerable groups such as youth and women, who are more
likely to operate in the informal sector as a result.
In spite of significant security threats and familiar emerging market
concerns over import permit regulation (IPR), contract enforcement and
governance issues, the Pakistani market offers many attractive trade and
investment opportunities. With regard to investment, the market has few
restrictions on the movement of capital: no shareholding restrictions (outside
of a few sensitive sectors), no work permit issues, no technology transfer
requirements; and it has a large and sophisticated entrepreneurial class.
Pakistan has a rapidly developing infrastructure, well-established legal
systems, comprehensive road, rail, and sea links; and good-quality
telecommunications and information technology services. The country is
strategically located and serves as a regional hub for access to the Middle
East, Southeast Asia, China, Turkey, and the Central Asian republics.
In order to accelerate the pace of business growth, there is no need to
reinvent the wheel: it is sufficient to start by introducing reforms that have
been successfully implemented in other cities. In fact, Pakistani cities have a
lot to gain from adopting the best regulations and practices that are working
elsewhere in the country.
For example, reducing business start-up procedures to 16 days, like they do
in Islamabad, would shorten starting a business almost to the Organisation for
Economic Co-operation and Development (OECD) average of 13 days. Fast
construction permit approval, like in Peshawar, would mean that dealing with
construction permits also becomes faster in Pakistan than the OECD average of
157 days. To register property in 30 days, like in Lahore, would put Pakistan
on the same level as Austria. A low tax rate, like in Islamabad, would fix the
total tax rate at 26.0% of commercial profit, similar to Ireland. Importing a
container to a Pakistani city with such regulations would take 18 days and
exporting would take 20 days, comparable to Italy. Resolving a commercial
dispute would be as speedy as in Faisalabad (730 days), and faster than in
Cyprus.
In addition to this there are many more regulations Pakistani cities can
learn from each other and adopt good practices already working in the country.
Pakistan needs to further improve the business environment to make it easier to
set up and operate a business.
Requiring fewer procedures to start a business is associated with a smaller
informal sector. Formally registered businesses grow larger and are more
productive than informal ones. Upon formal registration, entrepreneurs can
access courts and credit, supply more important customers, and avoid harassment
from government officials or the police. Furthermore, formal enterprises pay
taxes, adding to government revenue, which ultimately leads to economic growth.
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