BoI seeks to cut red tape to woo global investors

ISLAMABAD: The Board of Investment (BoI) in consultation with the World Bank (WB) Group has drafted a Zero Time to Start (ZTTS) Policy aimed at facilitating investment in the country and a reduction in regulatory obstacles as international investors have raised such issues time and again at every forum.

To operate in Pakistan, businesses need to fulfill requirements of three tiers of Government (Federal, Provincial and Local Governments). Many Government departments/ organizations have prescribed multiple regulatory requirements including NOCs for establishing and operating businesses.

Many of these NOCs envisage cumbersome processing through manual application procedures often seeking redundant, extensive and irrelevant information indicating lack of modern infrastructure and data driven management.

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Private investments in Pakistan, standing at 11 per cent of gross domestic product (GDP), remain low compared to 29.1 per cent in India, 35.2 per cent in China and 21.2 per cent in Uzbekistan (World Bank, 2018, 2019).

Foreign direct investment (FDI) into Pakistan is also low at 0.9 per cent of GDP as compared to 1.7 per cent in India, 0.99 per cent in China (excluding Hong Kong and Macao) and 4.1 per cent in Uzbekistan (UNCTAD, 2019).

According to the draft ZTTS, low levels of investment can be attributed to a complex, multi-layered, and opaque regulatory regime that involves enforcement by federal, provincial, and municipal government agencies.

Regulatory instruments used under this regime consist of various registrations, licenses, permits, and certificates, including NOCs. These regulatory requirements significantly increase the cost of doing business.

In the Ease of Doing Business Index (2020), Pakistan is considerably behind peer economies, ranking 108 out of 190. In the regulatory area of Starting a Business, Pakistan ranked 72 out of 190.

The complex regulatory environment has contributed to Pakistan’s weak private sector investment performance. In the World Economic Forum’s survey on the Burden of Government Regulation in 2017 (using a scale of 1-7 with seven as the best), Pakistan scored 3.49—less than its neighbours India (4.32) and China (4.38).

The multi-tiered administration of regulatory requirements in Pakistan further adds to the compliance burden, discouraging businesses from entering the formal economy and reducing their growth potential.

To address this complex regulatory environment, the Government of Pakistan launched in March 2022 the Asaan Karobaar Program, with the objective to reduce compliance burden on businesses, particularly for SMEs.

An SME policy considering the disproportionate negative impacts that the complex regulatory environment has on smaller businesses has been launched and detailed in the National SME Policy document (2021) approved by the Federal Government. The National SME Policy indicates that a “No NOC/ Self Declaration and Time Bound Approval” would be set in place.

BOI official stresses need for developing national framework for investment

The Pakistan Regulatory Modernization Initiative (PRMI) is a national investment climate reform agenda to address these regulatory challenges. It aims to reduce the regulatory barriers to investment entry and doing business in Pakistan through a structured process for reviewing, eliminating/ simplifying, reengineering, reforming, and digitalizing the delivery of business registrations, licences, and permits.

The PRMI Strategy document and Implementation Plan, approved in June 2021 by the Steering Committee of PRMI, details the scope and steps for implementation of PRMI.

The draft ZTTS maintains that one of the significant regulatory barriers to investment and doing business in Pakistan is compliance with NOCs, which are commonly considered regulatory barriers and hassle factors in obtaining regulatory approvals to investment and doing business.

NOCs are not authorizations in themselves to do business. NOCs are required in the present regulatory regime to prove that relevant agencies or government departments at federal, provincial and district levels have no objection to an entity starting a business activity.

Consequently, a business first needs to obtain all related NOCs from various agencies before it can obtain the required approval to start a business. NOCs significantly increase compliance time and cost, especially for micro, small & medium enterprises (MSMEs) that lack resources to comply with these requirements.

The Government of Pakistan, through this policy, intends to replace the use of NOCs required for business regulation with a system of compliance verification through an effective inter-agency mechanism that would operate in federal regulatory agencies and by adopting this policy cover related procedures.

The reformed Compliance Verification Process (CVP) will follow a risk-based approach. Business activities will be classified, using the PSIC coding, by risk levels to be used by federal regulatory agencies adopting this policy which will be released by PRMI and updated on regulator basis.

The draft further unveils that implementation of this policy would require the following specific action plans to be produced by PRMI, aligned to PRMI Strategy and Implementation Plan, and approved by PRMI Steering Committee.

Each plan would need to include timelines for activities, a results framework with Key Performance Indicators and targets for each, an estimation of resources required and a strategy for funding the implementation of this policy.

Once specific plans are approved PRMI Steering Committee would consolidate an overall timeline for approval, initial date of application, expansion of scope of initial application and development of capacities for full application of the policy: (i) Plan for time bound mapping of NOCs and inspections.

All Regulatory entities to provide details with end-to-end process flows. Head of the Regulatory agencies to certify; (ii) Plan for Analysis of the relevance and usefulness of NOCs and Inspections with recommendations for elimination of unnecessary regulations & Simplification (BPR) of compliance requirements through consultations. At the end of this activity, requirements and Process flows will be finalized for Digitization.

The finalized process flows will be signed off by the respective departments; (iii) Plan for development, consultation and consensus building with regulatory agencies adopting this policy of a common risk classification of economic activities (taking as initial proposal the list included in the Annexes of this policy document); (iv) assessment of changes required in legal frameworks for regulatory agencies adopting this policy and plan for monitoring implementation of required legal changes; (v) Plan for period public consultation of policy following Regulatory Impact Assessment - RIA - general principles and including relevant public sector entities and national and sectoral business associations (including Federation of Pakistan Chambers of Commerce & Industry FPCCI, Overseas Investors Chambers of Commerce & Industry - O1CCl and Pakistan Business Council - PBC) and; (vi) Plan for consultation and consensus building with Federal level regulatory agencies, which would result in formal commitments for adoption of the ZTTS Policy for NOCs at Federal level.

This Plan should include a proposal of incentives for regulatory agencies adopting this policy beyond the benefits of reduction in the administration costs and burdens to comply with regulatory mandate and improve effectiveness (outcomes) of regulation that would be associated with a focus on higher risks.

Copyright Business Recorder, 2023