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Pakistan: a global reformer in ease of doing business

This year Pakistan ranked 108th jumping up from 136th position on the recent World Bank Index that rates Ease of Doing Business. This leap put Pakistan among top 10 countries that experienced the most improved business environment in the last year. Moreover, Pakistan ranked as the first country in South Asia that had largest change in rating on ease of doing business. This has been made possible by efforts introduced by the incumbent government to minimize various regulations that come under the traditional bureaucratic systems acting as barriers to registering, starting and running business activities.

Under this Index, World Bank evaluates a country’s business-related regulations and procedures on 10 benchmarks. They cover diverse issues from registration to attaining permits for specific businesses to getting water and electricity connections to paying taxes to dealing with insolvency etc. These factors are important as they play a vital role in decisions related to investment by both local and international investors, hence, closely monitored when measuring ease of doing business.

One of the major improvements for Pakistan has been in the ease of starting a business. Pakistan made the biggest leap of 58 spots to 72nd position in this category.

Previously some of the major obstacles for starting a business in Pakistan were multiple taxes, registration fees and tedious procedures to register a business. Thus, with the aim to better facilitate the business community, the government launched an online one-stop registration system, replacing the traditional system that comprised of an application with several different forms and each with their own submission requirements. In the new online system, the requirement of digital signature was also replaced with the personal identification number, further enhancing the convenience to register online. This fundamentally reduced the cost and time required to start the business. The reforms also established an active link to exchange information between the registry and tax authority, reducing the hassle to register manually.

According to Securities and Exchange Commission of Pakistan (SECP), on average, 1,000 new companies were registered every month in the past year recording a 30% increase. Out of these the highest number, i.e. almost 50% was registered in Islamabad, 30% in Lahore and 20% in Karachi. This substantial growth in the number can be attributed to the SECP’s reforms in the Ease of Doing Business especially for the start-ups. These reforms include simplified processes as well as improved online facility for company name reservation and registration, one-window facility for registration and online National Tax Number (NTN) generation, reduction in registration fee and establishing new wings to assist investors with the whole process.

Moreover, institutional strengthening through cooperation between Board of Investment (BoI), Securities and Exchange Commission of Pakistan (SECP) and the Federal Board of Revenue (FBR) have shown impressive efforts to promote investment and Ease of Doing Business. They have initiated meaningful dialogues with industry experts and policymakers that highlighted grave issues in business environment as well as policy flaws and technical inadequacies that act as a barrier to foreign investment. They have further established a special complaint and suggestion cell to facilitate the business community, address their complaints and further incorporate their suggestions in policy making.

 

In addition to the regulatory changes, the Government of Pakistan also made efforts by introducing numerous major initiatives such as National Incubation Centers, and Training Programs to facilitate entrepreneurial activities. In private sector, there are currently 52 active incubation centers and acceleration programs that offer a range of resources and services. On average, 15 start-ups are reported to graduate annually by proving to be financially viable. This system is further strengthened by introduction of co-working spaces, fellowship programs, increased angel investment and the launch of global initiatives like Start-up Weekend, Start-up Grindetc. Moreover, substantial labor force is being trained through public-private partnerships like DigiSkills Training Program introduced by the Ministry of Information Technology and Telecom. It is an online program that trains individuals in skills that are highly demanded by the industry and then links them to available opportunities through an online platform.

Given the skilled educated youth interested in start-ups, it was noted that after these changes, 95% of the companies were registered online, of these 73% were registered as private limited companies and 24% as single member companies. The trading sector took the lead with 260 incorporations followed by 174 in services, 163 in IT, 154 in construction, 81 in tourism, 61 in food and beverages, 41 in education. Out of them, 67 new companies reported foreign investment from Countries like Canada, China, Denmark, Germany, Jordan, Netherlands, Nigeria, Middle East, Singapore, Turkey, UK and US.

These significant steps have begun the process of Ease of Doing Business in Pakistan but the task is challenging and Pakistan has a long way to go in linking these procedural measures with actual business productivity. Improvement on ranking is just one of the many aspects required to ensure a well-functioning business environment and ample inflow of foreign investment. It requires dynamic political leadership that is determined to pursue a pragmatic reform agenda. Going forward, the government needs to introduce stringent measures such as strengthening local institutions, ensuring business supportive policies, formulating long-term sectoral plans, introducing capital market reforms, and stabilizing macroeconomic factors in order to instill confidence in both foreign and domestic investors motivating them to start their businesses in Pakistan.

The writer is a Research Associate, Sustainable Development Policy Institute (SDPI), amna@sdpi.org

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