Many business ideas are not pursued because of economic and regulatory bottlenecks. In emerging economies, like ours, several factors make it difficult to start and sustain businesses. A desire to correct this has sustained the World Banks Doing Business Report (DBR) which was incepted seven years ago. This year, Pakistan declined in seven of the 10 factors, was stagnant in two, and marginally improved in one.
The DBR ranking compares the ease, speed and cost involved in seeking approvals, permits and endorsements from the government. Higher rankings, in economic terms, mean greater savings in time and cost.
It follows logically that countries with more seamless processes than ours will be more competitive and cheaper. With a less cumbersome regulatory environment for businesses, entrepreneurship thrives. In Pakistan, the higher cost and complexity of doing business translates into higher charges to consumers, and the overall supply-bottleneck induced inflationary pressure may, significantly, be attributed to this same phenomenon.
For new businesses, getting electricity takes 206 days in Pakistan, as compared to four days in Sri Lanka. The cost of acquiring electricity is 1673.7 percent of the gross income per capita. Obtaining construction permits is another conundrum in itself - obtaining the permit takes 222 days.
In FY12, the capital value tax doubled to four percent, making it more difficult to register property; Pakistans ranking for registering property is an abysmal 126. On average, a business has to make 47 tax payments a year, which takes 78-hour working days, translating to a ranking of 162. With no reforms registered by the DBR since 2005, enforcing contracts is another declining factor for Pakistan - ranking at 155, with a cost of 23.8 percent of claims.
Since 2005, Pakistan has made a total of 10 legislative reforms to streamline processes as compared to Georgias 36 and Rwandas 26 (two of the top five most reformed economies in the time-period).
Benchmarking against best practices has worked well for Pakistan. A relevant yardstick is that of Rwanda, which has made several moves to smoothen the processes surrounding approvals, permits and endorsements from the government. Greater availability of information and the deployment of standardized processes over the internet have been instrumental to success.
Furthermore, Rwanda has explored several ways of consolidating processes under one roof for related activities; reduced time involved and established time limits on relevant authorities; and decentralizing authority for the granting of permits, while centralizing authority on information flows to avoid inefficiencies associated with multiple iterations of the same effort.
The complacence displayed by the Pakistani government hitherto is worrisome - in the year 2012, there were no reforms (major or minor) recorded by the DBR barring an increase in the profit tax rate on small businesses.
The report isn for the average Afridi-fan that blindly searches for reasons to be patriotic. Among several leading international indices and published statistics, foreign investors consider the DBR as one of the most important indicators of day-to-day operations and profitability. These results may go a long way to explain the dismal $87 million in net foreign direct investment during the first quarter of FY13.
At a time when Sri Lanka has become the first South Asian economy in seven years to be listed on the 10 most reformed countries of the world, economic managers and policymakers in Islamabad should be concerned.