Easy business

The PTI government is beginning to deliver on one of its promises: making Pakistan more business-friendly. After Finance Minister Asad Umar promised to ease the bureaucratic and tax hurdles faced by businesses in the country, the Board of Investment Chairman Haroon Sharif followed up last week by detailing the measures that the government will take to make it easier for businesses. One of the key developments is the reduction in the number of corporate taxes from 47 to 16. The BOI has also said that businessmen can pay taxes online now, instead of having to go through the paper bureaucracy that creates hurdles. Pakistan stands at 136 in the global index on ease of doing business. The government has said that it aims to bring it down to less than 100 in two years, and in the top 50 countries in the next five years. One of the ways to do so will be government’s efforts to make investment in the country possible through a one-window facility.

While these measures would certainly go a long way towards improving Pakistan’s image as a place for investment, the trouble is that this might not be enough to spur an economic revival if the larger macroeconomic issues remain unaddressed. It’s simple: if an economy is stable and shows promise, investors flock to it. Companies flock to the Middle East and China, despite both regions posing some significant bureaucratic hurdles. In the case of Pakistan, it is the unstable economy and the poor infrastructure, that has limited investment, despite the huge size of the domestic market and the country’s access to regional markets. Moreover, international investors flock to an economy when domestic business is doing well. This is an area which has remained largely ignored in our planning, in favour of focus on international investors and trade partners.

The PTI government may need to address this issue first. While its mini-budget does well to announce support for SMEs in Pakistan, the broader policy changes under it do little to encourage them to take advantage of the loans it wants them to take. For example, why would a small enterprise take a loan to expand production for the domestic market when China is able to dump a similar good in the consumer market for a cheaper price? The proposals for investment look great on paper, but their ability to bear fruit depends on offering protections to business against economic chaos, which includes a stable currency, low interest rates and constant power supply. We remain far from that dream right now.