Breaking barriers to business

A thriving manufacturing sector is the backbone of any economy, serving as the foundation for innovation, job creation, and reducing reliance on imports by supporting local industries.

Pakistan's industrial sector continues on a downward trajectory, with falling shares in gross domestic product (GDP) and exports. The share of the manufacturing sector in GDP has declined from 20.5% in 2014 to 18% in 2024, while the share of the manufacturing sector (excluding textiles) in exports has declined from 13.6% in 2014 to 11.9% in 2024.

This article is based on a recent study by the Engineering Development Board (EDB), titled Facilitating Ease of Doing Business for the Engineering Industry of Pakistan, which underscores the urgent need for reforms to address these challenges.

The business landscape continues to struggle with significant barriers to entry and exit, stifling entrepreneurship, documentation, and investment. Despite government initiatives such as the one-window facility and digitisation efforts, the ground reality reveals a persistent lack of progress in creating a truly conducive environment for businesses.

A streamlined, business-friendly regulatory framework could help mitigate these risks and foster a more attractive investment climate.

Ease of doing business encompasses every stage of a business's lifecycle, from registration and operations to trade, sales, and even closure in cases of losses. While Pakistan has made commendable progress in simplifying the process of starting a business – through digitised application processes and guidance provided by the Securities and Exchange Commission of Pakistan (SECP) – the journey remains fraught with inefficiencies.

For instance, the number of steps and documentation requirements increases significantly when moving from single-member companies or associations of persons to private and public limited companies. Although these processes are standardised, they often involve repetitive paperwork and interactions with multiple government departments, leading to delays and additional costs.

Foreign businesses face even greater hurdles. To operate in Pakistan – whether through a branch, representative, or liaison office – they must obtain approval from the Board of Investment (BOI). While online portals have been introduced to streamline applications, the requirement to submit physical documents highlights a lack of coordination and data-sharing mechanisms among government departments. This undermines the very purpose of the one-window facility.

According to the BOI's website, the approval process takes approximately seven weeks. However, in practice, it often extends far beyond this timeline. Similarly, while the SECP registers companies within three to seven working days and the Federal Board of Revenue (FBR) completes tax registration in three to five working days, other steps – such as opening a corporate bank account, obtaining construction permits, and securing utility connections – can take weeks or even months.

The challenges do not end with starting a business. Closing a business in Pakistan is a complex and time-consuming process, often requiring professional legal services and taking several years to complete. The process involves settling debts and liabilities, acquiring a tax clearance certificate, cancelling business registrations and licences, closing bank accounts, and deregistering the company for tax purposes.

One of the most burdensome requirements is that defaulting or loss-making entities must maintain office space, a registered address, and personnel to manage documentation for at least five years after filing for a tax clearance certificate. This imposes significant financial and administrative costs on business owners, discouraging formal business closures and perpetuating the undocumented economy.

To address these challenges, there is a need for comprehensive reforms aimed at streamlining both business registration and dissolution processes. For registrations, further simplification of procedures is required, particularly in areas such as firm name selection, address changes, and board restructuring. The introduction of fully integrated online payment systems and fast-track services could minimise delays and ensure efficient service delivery.

For business closures, establishing clear and transparent dissolution procedures, along with online resources to guide entrepreneurs through the process, is recommended. Expedited dissolution services and alternative dispute resolution mechanisms would facilitate smoother closures while reducing financial burdens on business owners.

These reforms are not merely administrative adjustments; they are critical to eliminating barriers to entry and exit, fostering a culture of documentation, and attracting both local and foreign investment. Pakistan's engineering industry – and indeed its entire business ecosystem – will benefit significantly from a more streamlined and facilitative regulatory environment.

The government must prioritise these reforms to unlock Pakistan's economic potential. By addressing the inefficiencies in business processes and adopting a more investor-friendly approach, Pakistan can position itself as a competitive player in the global market. The time for action is now.

THE WRITER IS A RESEARCH ECONOMIST AT THE POLICY RESEARCH INSTITUTE OF MARKET ECONOMY (PRIME), AN INDEPENDENT ECONOMIC POLICY THINK TANK