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The Need for Reducing the Cost of Doing Business in Pakistan

Riaz Ahmed Tata

President
Federation of Pakistan Chambers of Commerce and Industry
 
t is now universally acknowledged that global movement of capital and goods, termed as ‘globalization’, offers immense opportunities as well as serious threats to businesses around the world. In the final analysis it is the ‘competitive advantage’ of business units of countries that will determine how far global opportunities are converted into national benefits and how far potential threats from intense international competition result in serious economic repercussions. Competitive advantage essentially means the ability of business units to excel internationally in production, distribution and marketing of goods and services. Competitive advantage is acquired and sustained through provision of superior product and service features and lower cost of production, distribution and marketing. Globalization of production and distribution is changing the nature of international competitiveness at a pace unimaginable three decades ago.

International competitiveness requires ready access to production inputs at internationally competitive prices. Competitiveness also requires a strong base of human and technological resources, which are able to support business enterprises in acquisition of new technologies for improved operations and marketing of products and services in sophisticated and demanding global markets.

Competitive advantage of business units is built around superiority of product features or lower cost of operations. Like most developing countries Pakistan produces and sells basic products of ordinary features therefore cost of operations is the critical factor in attaining competitive advantage. Certain elements of operational costs are within the control of a business enterprise, while others are beyond its control.

An important component of total business costs is the cost related to the socio-economic environment in which the business operates. Due to inefficient and unfriendly socio-economic environment, the cost of establishing and operating a business in Pakistan is considerably high. Consequently, Pakistani businesses are at a comparative disadvantage in respect of operating costs. n spite of continuous representations by FPCCI to the Government Policy Makers and Top Executives, no worthwhile effort has been made towards reducing the high socio-economic cost of doing business in Pakistan. The main ‘factors’ of cost of business in Pakistan are raw material, utilities cost of finance, human resource, technology, infrastructure and supporting institutions. The cost competitiveness of business units in Pakistan is comparatively weak and there are no significant positive signs of improvement over the years.

Some of the glaring examples of inefficient business environment, which adversely effects cost of business in Pakistan are as follows:

  • Despite of repeated claims of the government of ‘one window’ operation for setting up new businesses, it takes at least six months to start-up an industrial unit against less than seven days in most countries.
     
  • The tariff rates of electricity for industry and commercial concerns are considerably higher in Pakistan than competing countries basically due to over 50% line losses and theft.
     
  • Businesses are required to pay innumerable federal, provincial and local taxes under a complex taxation system.
     
  • Exporters have to wait for six to twelve months for refund of taxes paid on exported goods.
     
  • It usually takes over 6 months to secure electricity, gas and phone connection.
     
  • Less than 1% population has access to bank credit.
     
  • The supply of skilled and technically trained manpower is inadequate.
     
  • There are no national institutions for acquisition and dissemination of modern technology.

Time and cost of transportation of goods is another important cost of business. A study conducted recently has shown that the logistics and transportation cost of commodities exported from Pakistan is as high as 15% of the commodity cost against 8% in the developed countries. To keep Pakistani products competitive it is essential to streamline the operating procedures so that delays and associated costs are minimized and timely deliveries are insured. Another issue that has gained great prominence in recent years is the requirement of security and safety in respect of all exports to the developed countries, specially USA. It is now essential to ensure that all shipments consigned to USA and other developed countries are secure and safe against any type of threat to life and property of the importing country. The exporters have to urgently upgrade their systems and equipments to meet these requirements, if they are to trade with the trading partners of the West.

Over the last two years, UNCTAD and NTTFC have been working together with the government organizations, FPCCI and the private sector business units to adopt and promote various measures aimed at facilitating trade and transportation. Success has been achieved in some areas, such as Customs procedures and freight forwarding standards. However, considerable work remains to be done, especially relating to transport legislation and foreign exchange regulatory procedures. Meeting the new security regulations is another challenge that needs to be addressed urgently. Thus, continued efforts to facilitate trade and transport in Pakistan remains an important means for reducing the cost of doing business. FPCCI, as the apex body of trade and industry in Pakistan will continue to support all activities and institutions related to facilitation of trade and industry and reducing the cost of doing business in Pakistan.

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