Eighteenth Amendment: When governments compete, citizens win

How the new constitutional framework is encouraging competition between the provinces.

The 18th constitutional amendment seems to have had an unexpected positive side-effect: all-out competition between the governments of Sindh and Punjab to attract investment to their respective provinces. While the contest is still in its early stages – and Punjab has a massive lead – it is likely to continue in the shape of the already noticeable phenomenon of governments becoming more responsive to the needs of entrepreneurs.

For decades, both provincial governments have had boards of investment which were, at least in theory, supposed to facilitate entrepreneurial activity. Yet, it is only in the past two years or so that there seems to have been an active redesign of the Punjab and Sindh investment boards to serve as one-window facilitators, seeking to help investors navigate the still-complex regulatory framework within each province.

While Punjab’s investment board began reorganising somewhat before the passage of the 18th amendment, the expansion in the regulatory and financial powers of the provincial government greatly enhanced the ability of Lahore to credibly offer incentives to investors.

Spurred by competition from Punjab to lure away investors, including an audaciously located ‘Punjab Investment Conference’ held in Karachi, the provincial government of Sindh finally began to respond to the threat of losing economic share.

Punjab: leading the pack

From Berger Paints to the Ghulam Faruque Group, several of the oldest established businesses in Karachi are highly impressed by the efforts being undertaken by Chief Minister Shahbaz Sharif to enhance the province’s competitiveness with regards to investment.

Several groups have already made plans to move existing or new lines of business to the province and many others are seriously considering doing the same.

So what is it about Punjab that attracts businesses? Part of it is natural advantages. With over half the country’s livestock and agricultural production capacity, any business looking to establish a foothold in agriculture will naturally look towards establishing a presence in Punjab.

Interestingly, Sharif has been able to take those natural advantages and build upon them: the provincial government, for instance, is highly responsive to businesses. Several businesses report that bureaucrats not only return phone calls but ensure that requests by entrepreneurs are taken up and they respond in a timely manner, or at least much faster than the normal pace of business in the rest of the country, all relatively free of any requests for bribes.

Regulations are also quite business-friendly. For instance, the World Bank (WB) found that Faisalabad is the best city in the country to do business in terms of ease of regulations. Regulations regarding mining, energy and several other industries also tend to be at par with global best practices.

But it is not competence on the part of Punjab alone that has led more entrepreneurs to consider moving there. Sindh has not helped itself by allowing matters to deteriorate within the province.

Sindh: resting on its laurels

In terms of business competitiveness, Sindh has depended largely on the fact that both of Pakistan’s functioning ports, Karachi and Port Qasim, are located within its geographical boundaries. While this is an unassailable advantage in its own right, it is not enough to withstand the onslaught of competition from Punjab. Yet the Sindh government seems to only recently have woken from its slumber.

Karachi, by far, boasts the single largest concentration of the Pakistani middle class, although even this advantage is fast diminishing in the face of the rapidly improving highway infrastructure in Punjab. In addition, the ethnic conflict in the metropolis, coupled with the incidence of extortion rackets that intimidate businesses, have made life more difficult for entrepreneurs.

From the business perspective, it is becoming increasingly difficult to justify a presence in the city – even for exporters, given the improvements in the National Highway system.

Yet, all is not lost for the province. It still has some advantages. Around 60 per cent of all domestically produced oil and gas comes from Sindh. It also possesses one of the largest reserves of coal in the world, Thar, and has none of the insurgency problems common in Balochistan, making it a highly attractive place to do business for energy companies.

Karachi, despite all its problems, is still one of the best places in the country in terms of human capital and remains the undisputed financial capital of the country. It also has a more reliable supply of electricity and gas than Punjab. But the Sindh government seems cognisant of the fact that these advantages alone will not be enough and the entire province cannot continue to depend on one city. This is why the Sindh Board of Investment (SBI) is being modelled along the lines of the Punjab Board of Investment and Trade (PBIT), a one-stop solution that allows investors to seamlessly interact with government without any of the red tape.

There is still, however, a long way to go. Most investors give far higher marks to the PBIT compared to the SBI. Sindh may not be able to rest on Karachi’s laurels for much longer. Then again, it may not need to.

Khairpur: the dark horse

If the Sindh government seems to be woefully behind in efforts to compete against Punjab, one district has absolutely no intention of waiting for the SBI to get its act together. That district is Khairpur, where the local government has shown remarkable proactiveness in its initiatives to attract investment – both local and foreign – into industries in which it has a comparative advantage, offering incentives such as tax relief to investors that help develop its agribusiness base.

There is, however, a problem for Khairpur’s district government. Until the provincial assembly of Sindh passes a law authorising district governments, it is severely constrained in the ability to serve its citizenry.

In short, it is not just Karachi that stands to benefit from local governments as is commonly believed, but smaller cities such as Khairpur and Sukkur as well.

Free market of government

The above examples illustrate one principle: when governments are forced to compete, similar to corporations, the spirit of competition spurs both innovation – which leads to improved quality of service – and a reduction in costs to the citizen-consumers (both legal and illegal).

If the currently stalled process of devolution of power starts again, it is highly likely that districts will compete with other districts and provinces will compete with other provinces to retain both: businesses as well as an educated citizenry.

This process has already begun with competition between Punjab and Sindh. It is in the interest of every Pakistani to ensure that it is pushed along by yet more devolution of power to the districts and below.

The writer be contacted at [e-mail]

Published in The Express Tribune, January 17^th, 2011.