Skewed tax rates, poor HR policies discourage investment in Pakistan

LAHORE: Investment remains elusive in Pakistan due to government flaws and the reluctance of the private sector to commit to the welfare of its human resource.

Government policies that increase the cost of doing business include duties on basic raw materials, flawed labour laws, skewed tax rates bad governance and corruption.

The cost of production also increases if the manufacturers fail to provide clean and comfortable working environment to their workers. Working in harsh conditions reduces a workers’ productivity and it impacts the final cost of a product.

In this scenario, improvement on the government side would not improve productivity but may lower cost. However, the manufacturers would remain non-competitive if the productivity is not enhanced.

We have seen that in the past three decades, productivity of our exporting sector has remained much above the productivity of similar industries catering to the domestic markets only. The exporting industry in Pakistan faced problems mainly because they failed to upgrade their technology.

The productivity of their workers remained satisfactory but the output of their machines was much lower than the output of high-tech machines deployed by their foreign competitors.

This shows that enhanced productivity from the same inputs is essential to remain in the global markets.

The government policies are unfortunately formulated and fine tuned by bureaucrats who are not carrier traders or business experts. A water and power ministry secretary was transferred to commerce when the country faced long load shedding in March and April last year due to his wrong decision of allowing most of the power plants to go on yearly maintenance.

He thought that the power needs would be lower and country could be managed on hydro-electricity and other alternate sources.

Transferring a bureaucrat from power sector to commerce on alleged non-performance shows the importance the state gives to trade and industry. Labour is the integral part of any industry. Its well being and job security is essential to ensure smooth operations.

Labour law on paper gives undue security to the workers, but in practice they do not enjoy any security. Hiring and firing the world over is the prerogative of the employer.

In Pakistan it is extremely difficult for an employer to remove a worker. To avoid this drawback most of the workforce in the country is employed either on contract or through third party.

These workers can be fired without any notice and do not enjoy perks like provident fund or house rent etc. So despite stringent laws to protect the workers, they practically work under threat of being dismissed without any notice. In developed economies, the employers have the option to hire and fire their workers at their will, however, they are bound by the law to give severance pay and all social benefits.

Stringent labour laws are the major impediment for the foreign investors. The foreign investors see the law of the land and are certain that these laws are followed in letter and spirit.

They want hiring and firing powers and are fully committed to be socially compliant to ensure workers welfare.

The other impediment for foreign investors is the Intellectual Property Rights. The state has failed on both these counts. It attracts foreign investment of guaranteed rate of return that is creating distortions in the economy.