Doing business: Role of federal government

Pakistan has dropped from 144 to 147, out of 190 countries, on the World Bank’s Doing Business survey

Hasaan Khawar January 11, 2018
The writer is a public policy expert and an honorary Fellow of Consortium for Development Policy Research. He tweets @hasaankhawar

Have you ever applied for an electricity connection for your business in Karachi? If you have, then you know that it takes at least 9-10 months to get it. After submitting an application, one has to wait for 30 days for on-site inspection, 21 days to receive cost estimates, 14 days to obtain wiring inspection, 30 days to get delivery order of materials and 120 days for external works and meter installation. Even more interestingly, this is based on the assumption that a citizen has complete information on what is required and is able to complete procedures without delays. Practically it takes substantially longer and perhaps greasing a few palms.

Contrary to perception that private management of K-Electric is better than public-sector agencies, it is doing much worse. Similar processes with Lesco take about six months. Unfortunately, getting an electricity connection is not the only bottleneck for businesses as their day-to-day operations are rife with such examples. For instance, it takes 18 months or more for a business to obtain a sales tax refund and over three years to settle a dispute in a court.

Recently, Miftah Ismail, adviser to the prime minister on finance, highlighted that the government is taking all possible measures to reduce the cost of doing business. Let’s hope he is right and doing it fast enough to stop the slide in the country’s ranking on the World Bank’s Doing Business survey. This year Pakistan dropped from 144 to 147, within 190 countries.

Doing business indicators are quite useful in identifying areas that need attention from policymakers who are trying to make it easier to do business in their countries. In an earlier article, I highlighted the weaknesses in provincial processes that adversely affect these rankings. However, most of these indicators fall under the purview of the federal government and the provinces have no control over them.

Pakistan received extremely adverse scores on getting electricity, trading across borders and paying taxes — all federal subjects — where the country was ranked 167th, 171st and 172nd, respectively. Other countries that have similar rankings in these indicators include Afghanistan and some African countries. Is this how we are positioning ourselves in the global marketplace?

The indicator on ‘getting electricity’ not only covers procedural days but also measures associated costs, reliability of supply, transparency of tariffs, price of electricity, etc. India has an astoundingly high global rank of 29 on getting electricity, where it takes merely 47 days to get a connection. Interestingly, average electricity price for industrial consumers is 20.3 cents per KWh in India and 18.8 cents in Pakistan. Reducing electricity prices, as announced by the finance adviser, will therefore have little bearing on our ranking, unless it is accompanied by other interventions to reduce procedural delays of several months.

Similarly, a business has to pay taxes and mandatory contributions on 11 counts, including corporate income tax, sales tax, employer pension and social security contributions, etc. What is even more troublesome is that these have to be paid in 47 instances every year, putting excessive compliance burden. In China, a business only has to make three payments a year.

Similarly, many countries have simplified their clearance, customs inspections and port handling procedures so much that the whole process takes about an hour. We, on the other hand, still take 5-6 days for exports and 11-12 days for imports.

Doing business indicators provide a good starting point for policy reforms. Nevertheless, the government must realise that it is only beginning to scratch the surface. More serious issues like adverse security, corruption, limited access to credit, poor infrastructure and non-availability of skilled labour also need to be tackled if we are serious about creating enough jobs for almost two million youth entering the workforce every year.

Published in The Express Tribune, January 11th, 2018.

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Altaf Hussain, Mumbai | 5 years ago | Reply In Bombay it took me 5 days to get a new electricity connection for a business premise. In fact, the single window clearance system got me water connection, sewerage connection, electricity connection, Fire NOC and the Municipality NOC within 14 days. I don't know which Indian city takes 29 days for providing electricity connection to a business premise, but that is too long a time to be sitting idle after a business premise has been rented or bought over.
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