Reforming the business sector in Pakistan

It has become increasingly popular to invest in countries and sectors that yield higher returns and to facilitate international investors World Bank calculates an Ease of Doing Business Index. This Index ranks 190 countries on different parameters (such as regulations for businesses and strong protections of property rights etc.) to conclude a ranking of the ease with which foreign investors can start and carry out business in that economy.

According to a news report in Express Tribune, Pakistan’s economy has recently went down by three positions in this Index, from 144 in 2016 to 147 this year as of June 2017. Further statistics available at Trading Economics show that Pakistan’s ranking had persistently gone up since 2008 but managed to go down by four places in 2015, from 148 in 2015 to 144 in 2016.

A report by World Bank shows that Pakistan has been unable to perform on a number of parameters for the year 2016. Pakistan’s rankings in South Asia for these include:

  1. 172nd on paying taxes.
  2. 171st on trading across borders.
  3. 156th on enforcing contracts.
  4. 82nd on resolving insolvency.
  5. 20th on protecting minority investors.
  6. 105th on the provision of credit.
  7. 170th on registering property.
  8. 167th on the provision of electricity.
  9. 141st on provision of construction permits.
  10. 142nd on starting business ranking.
  11. 147th on business environment.

However, these figures should not be taken in isolation but with a number of key reforms that the government has introduced recently. The first of such reforms deals with starting a business easily with a personal identification number in place of the previously more expensive digital signature. Secondly, the process of land registration in Karachi has been switched to an online method where the fee schedule along with necessary documents for the process have been uploaded. Thirdly, the rights of minority investors were protected by making it easier to press charges against directors in matters considering unfavorable payments for the parties. Fourthly, trade transactions have been made easier by developing container terminal and introducing electronic documentation. Apart from the second reform which was introduced solely in Karachi, all the other three have been introduced in both Lahore and Karachi.

This points towards the amount of time needed for the government introduced reforms to take an effect on the economy and produce results. From this, one can understand that there is a strong consensus amongst the government on the need to making Pakistan an ideal location for various international investors. The $57 billion worth of Chinese investment in the country by way of China Pakistan Economic Corridor is an indication of this and is also serving as a tool driving international investment in the economy.

Prices in the realty sector of Gwadar have gone up and it is expected that in the next three years these will increase by another 300%.

Statistics at Board of Investment show that Net FDI has increased by 56.4% while remittances form 6.99% of total GDP in the economy. According to JS Global Research foreign investment amounting to $200 to $500 million is expected in the coming years and Gwadar will be at the center of this. The increased volumes of foreign investment suggest an increasing confidence in the economy, especially growth in remittances points towards overseas Pakistanis viewing Pakistan as a potential hub. It has been noted that 93% of these expatriates are willing and eager to invest in the economy, especially in real estate sector that is continuously expanding. From this it can be concluded that the financial sector might not be expanding but that sectors like real estate are. This expansion has come after a series of extensive taxation regimes were put in place by the government to regularize the sector. As is with reforms it took some time for people to gain profits from a sector that was largely undocumented, thus it is expected that soon the reforms introduced in Lahore and Karachi will benefit the economy and improve its rankings in Ease of Business Index.

Thus, we can deduce that as has been seen in the realty sector, the introduction of reforms will better the economy but that it will take some time for the change to occur. For as long as government is engaged in making business activities rampant in the economy, the business landscape will keep for the overall economy.

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