Rankings

Lately, enthusiasm over indices and ranking has mushroomed significantly, which perhaps, on the face of it, is justifiable; perceptions matter and good news should definitely be broadcast loudly. The inherent risk in creating such hype, however, is that pretty soon everyone starts believing it and complacency sets in; that the nation can ill afford at this juncture.
The other risk is that driven by the necessity to maintain the positive momentum, a tendency to be selective about which index to quote, a natural side effect, sets in. Amazingly, there are dozens of global rankings and indexes out there to choose from, and in certain cases it is mind boggling why was there a need for such an index in the first place; seriously don't these people have better things to do? Personally, all these indexes and key indicators were created by the academicians to look busy while doing nothing; in substance they seem to be totally disconnected with on ground realities. Whether or not a nation is thriving, or vice versa, is apparent from the face of its populace; and there is no index in existence, which can capture that particular expression.
Notwithstanding, the point is that pretty soon bad news is filtered out, consequently derailing sincere efforts towards continuing betterment. Unless the problem is identified and acknowledged there can never be a solution. As an example, probably the first ranking to hit the Pakistan market was Jim O'Neill's prediction that Pakistan has the potential to become the 18th largest economy by 2050. On the face of it that is indeed good news, but sit back and contemplate, why 18th why not 6th? After all does not Mr O'Neill link size of the economy with the size of the populace, however broadly, when making his predictions? Pakistan already ranks as the 6th most populated nation in the world and given the comparable growth rate could potentially be 4th or 5th by 2050, in which case 18th position is no more exciting. And considering that Pakistan is in the top 10 list of countries with technically recoverable shale oil reserves, and has one of the largest coal deposits in the world, both of which when exploited can potentially convert the country into an energy exporter, 18th sounds terrible.
The crux of the matter is that while 18th may or may not be the best slot to aim for, the size of the economy matters and what is more critical is the roadmap to the desirable end state. Let's go to the current popular index. Pakistan tops the list of gainers in the Frontier Markets Sentiment Index for 2014, definitely encouraging news. However, Pakistan is ranked 15th in the Top 20 of the very same Frontier Market Sentiment Index, and Iraq and Ethiopia are ahead in the ranking.
Hang on what exactly is a frontier market? According to Wikipedia, A frontier market is a type of country that is not a developed market... It is used for countries that were in the past emerging markets. Seriously, Pakistan is not even an emerging market anymore, and when did that happen and more importantly who is responsible for this? There are 22 countries in Bloomberg's 2014 emerging market ranking which suggests that Pakistan will be the 37th country of preference for foreign investors; if these lists are how investors actually decide on where to invest their hard cash, which is doubtful to say the least.
And finally, JETRO's survey of Japanese firms operating across the world, which puts Pakistan just behind Taiwan in terms of business generated. Obviously this should encourage other Japanese countries to look at Pakistan more deeply, and the latter has to ensure that such interest translates into constructive investment into the country coupled with technology transfer rather than trade alone. Notwithstanding, are there any other countries which take out rankings of where their corporations make the most money from? And if there are such other indexes, what is Pakistan's ranking there? More importantly in any trade relationship, a key question to always ask is, "what is in it for Pakistan?"
To summarise, it is indeed positive news that indexes across the globe have started featuring Pakistan, but there is a need to look at such indices more deeply and to look at the bad news as well. The Economic Freedom of the World 2013 Annual Report Ranks Pakistan at 111 out of 152 countries in its Economic Freedom Ratings for 2011. On Heritage's website, the 2014 Index of Economic Freedom ranks Pakistan at 126 out of 178 countries. Admittedly the current leadership had nothing to do with the 2011 results and they might not have had enough time to make a substantive impact in a year, but as off now, they are firmly in the driving seat.
The economic freedom rating assesses a country on four levels which are rule of law, size of the government, regulatory efficiency and market openness. Pakistan's scored the worst in the rule of law category and according to the website, "Pakistan's government operates with limited transparency and accountability. Corruption is pervasive at all levels of politics and the bureaucracy, and oversight mechanisms to ensure transparency remain weak. Hundreds of politicians, diplomats, and officials have been granted immunity in ongoing corruption cases. Property rights are not protected effectively. The legal system performs poorly".
Curiously, according to the data on the Heritage website the top individual tax rate in Pakistan is 25%; this was increased to 35% in last year's budget and if that is updated by the rankers, Pakistan could surely slide further down the list. Reading between the lines, the government can take steps here and there to try to improve this ranking, but fundamentally, property rights is the one factor which has a decisive role in determination of economic freedom. In a country where courts adjudicating property disputes continue to be referred to as "Dewani", there can never be economic freedom. And property rights are not only about economic freedom, unless something is done quickly about "Dewani" cases which linger on for generations, a huge capital base, which could otherwise be utilised for growth, will remain embroiled in controversy. This is perhaps a key step for improving Pakistan's ranking in all economic indices.
By the way, for those interested, there is a freedom report as well according to which Pakistan is partly free, Google to find out what that means! To conclude, perceptions are a first step and necessary step. However, the next step is as important and perhaps more critical, for if perceptions don't get translated into facts, these short term gains will vaporise. Better rankings are good and may work for the foreigners, but until and unless the man on the street agrees that things have improved, they really haven't.
(The writer is a chartered accountant based in Islamabad)