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Business environment in Pakistan

Published on 7th Apr, Edition 14, 2014

 

Rising cost of doing business, energy crisis & security issues are cause of concern for overseas investors

To attract foreign investment is one of the top priorities of the present government with a view to improve economic growth in Pakistan. In this respect the Ministry of Finance is holding road shows at least six in six major cities including Dubai, Los Angles, New York and London this week. Although these road shows are aimed at attracting foreign investors in Treasury Bills, which have been recently allowed to be traded through bourses in Pakistan, yet the state of economy calls for attracting investment in other segments of the economy as well such as energy, agriculture and food, large scale manufacturing sectors.

It is important to note that satisfaction of the existing foreign and domestic investors over the prevailing doing business environment is also important to win the confidence of the new investors. The overseas investors in Pakistan always keep an eye over doing business environment here and they frequently point out to the government about the areas, which need corrective measures to improve the situation.

In the latest survey about business environment in Pakistan conducted by the Overseas Investors Chamber of Commerce and Industry (OICCI) has invited the attention of the present government towards what they said frequent power cuts and gas shortage was listed as the biggest single reason for lower confidence (49% in March 2014 vs 47% in August 2013). Despite steps taken by government including paying out circular debt to improve supply of electricity and hike in power tariffs to reduce subsidy, energy crisis, it seems, has not eased for a vast majority of business entities.

Asad S. Jafar, President OICCI while talking about ‘Doing Business Environment in Pakistan’ has said that the minor decline in Business Confidence Index (BCI) in March 2014 was due to rising cost of doing business, persistent energy crisis and deteriorating security environment. Deteriorating law and order environment led as the second biggest deterrent of business confidence (47% in March 2014 vs 42% in August 2013). In particular, street crimes, kidnapping and terrorism incidents have increased alarmingly over the last few years and negatively impacting business and investments.

The most surprising part of the survey has to be the fact that these obstacles to doing business have become a much bigger issue in 2014 with 39% of firms listing it as the top problem faced by their business, a sharp increase from 26% in August 2013. This is quite surprising as expectations were high that the new federal and provincial governments would improve governance and transparency. The rent seeking behavior of different government departments, including in the provinces and regulatory bodies seem to be a major cause of concern, for day to day normal running of businesses.

Businesses across Pakistan have communicated a minor (1%) decline in business confidence at the start of the year 2014 mainly due to rising cost of doing business, energy crisis and deteriorating security environment. The OICCI Business Confidence Index (BCI) declined to 1% in March 2014 compared to 2% in August 2013. This was revealed in the Wave 8, Business Confidence Index (BCI) survey announced in a press conference on March 25 by the Overseas Investors Chamber of Commerce and Industry (OICCI), the chamber responsible for conducting this important survey since the year 2010.

OICCI President, Asad S. Jafar quoting the survey findings mentioned that Business Confidence Index remains in positive territory for the second consecutive survey with more businesses hinting at expanding capacity and planning new investments as well as seeking to increase the work force. However, the businesses have also pointed out critical issues that need to be addressed. According to Asad S. Jafar, confidence had picked up strongly in 2013 on the back of smooth political transition and the expected reforms program of the new PML (N) government.

 

Business sector performance

Talking about the performance of sub-sectors in this survey, Asad S. Jafar informed that manufacturing sector posted stronger confidence than retail and services sector. Manufacturing surged to 12% in March 2014 against 4% in August 2013. This is inline with the strong 6.4% year on year growth posted by the manufacturing sector during July to December 2013.

The services sector confidence index dipped to negative 3% in March 2014 vs 5% in August 2013. The retail sector has lagged behind and posted the sharpest decline as confidence index was down to negative 15% in March 2014 vs 6% in August 2013.

Speaking on the occasion Secretary General, OICCI, M. Abdul Aleem said that business confidence is positive but borderline, hence offers great opportunity to provincial and federal governments to capitalize on the positive vibes by ensuring improved business environment in the country. He added that in general the street crimes, kidnappings for ransom and life threats are fueling further fear in business community. On the energy front, government should shift gas supplies to efficient users, rationalize power/gas tariffs, ensure due payment of energy bills by state enterprises and control the line losses to bring meaningful savings.

“OICCI has submitted comprehensive taxation proposals to the government that includes recommendations such as settlement of all sales and income tax refunds within 30 days, streamlining minimum tax on turnover and to reduce corporate tax rate and document the economy to broaden the tax base amongst others,” said Aleem.

He said a better implementation of existing policies and removal of all kind of irritants in smooth functioning of businesses is crucial. He urged government to improve governance, policies and processes in line with today’s business challenges, introduce strict accountability measures at highest level, ensure regular engagement with business chambers and private sector, control the cost of doing business and work seriously on capacity building in SOEs and government departments.

OICCI BCI survey is largely attitudinal and is carried out bi-annually to evaluate business sentiments. The survey reflects feedback from a cross section of business people representing approximately 80% of the GDP and operating in major cities of Karachi, Lahore, Faisalabad, Multan, Peshawar, Quetta and Islamabad-Rawalpindi. The respondents profile was the CEO or the owner belonging to three key economic sectors of manufacturing, services and trade.

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