That’s not a question being asked around a lot in this country. So, when Pakistan Institute of Development Economics (PIDE) recently picked it up as a subject for one of the episodes of its long running webinar series, it brought a spade full of answers.
The long list of usual answers wasn’t very surprising. Low private sector credit, absence of bankruptcy laws, an anti-growth tax policy and tax administration, poor contract enforcement and long pending court cases, inconsistency of policies, a large undocumented economy, macro unsustainability, and so on and so forth.
These problems are not without justifiable reasons. For instance, there are serious concerns over intellectual property laws, which is one of the reasons why Pakistani start-ups (to which many are pinning the hopes to) tend to register abroad. But then those start-ups find themselves in a pickle when they have to source financing from Pakistani investors since Pakistani investors cannot easily send money abroad for their genuine needs.
Even known large respectable business houses find it excruciatingly difficult to invest abroad to be able to grow their businesses. Waleed Saigol, who is well informed about Pakistan’s cement industry given his investments in the sector, said at PIDE’s moot that it took rival Lucky Cement two long years to send $50 million abroad to be able to put up a plant in Africa.
That Pakistan is not a good environment to grow business is also evidenced by the fact, as investment banker Alman Aslam, pointed out that many emerging market geographies of multinational banks and other foreign companies are run by Pakistanis who graduated from local business schools. His point: when same people can grow these organizations abroad, then they should be able to grow businesses here at home as well, provided they are given the right business environment, which in large part is influenced by the state.
While all these reasons why businesses don’t grow in Pakistan may be true, two other responses not so fashionable responses particular stood out at PIDE’s moot. First, Mohsin Iqbal, former country manager Intel Corporation, said organizations also need to look within, especially in terms of organization culture, pursuit of meritocracy, customer orientation, encouraging risk taking and so forth. This is an understudied and little discussed subject in Pakistan since its perhaps easy or fashionable to lay the entire blame on governments and state machinery.
Second, as Sameer Ahmed, investment banker who has held directorships in various local bourses, raised the question why Pakistan’s business community hasn’t engaged the state in a reformist manner. This point too is well received.
Most businesses and business associations or chamber bodies are happy to lobby for various endowments (tax cuts for example), but hardly ever engage to bring about institutional change (in tax administration reforms for example). Surely, if the state is inefficient, and if politics is usually a matrimony of political and business elite then its business elite who have to lobby towards change. Failure may lead to politics of poverty; and that can lead to nationalization, which business really don’t want to experience again.
Sameer’s thoughts also reminds one of a story that has come to fore just recently. It so happened that in 1980, Nobel laureate Professor Abdus Salam had proposed late Dr Zafar Hassan, a noted scholar and a businessman, that he should explore setting up a centre for basic sciences in Pakistan aimed at boosting Pakistan's industrial sector.
The idea was to establish a research institute for modern science in Pakistan that could disseminate research on topical sciences such as digital technology, robotics, and microprocessor technology, from which the whole of private sector could benefit.
Dr Hassan was initially able to successfully convince Pakistan's business community to provide seed money for setting it up. But when the business community realized there were no short-term gains in the project, they backed out of their commitments. Indeed, the history of Pakistani business community's narrow understanding of self-interest runs deep, well exhibited also by poor state of textile research in the country – a sector that claims to be backbone of economy.