Without a ‘regulatory guillotine’ easing doing business to remain a dream

LAHORE: The cost and ease of doing business are interlinked and expensive inputs usually increase the overall cost, but hurdles created in the way of smooth business operations through over- or irrelevant regulations add to the cost more than inputs.

In Pakistan reducing the bureaucratic hurdles is an uphill task. In fact governments in the past made half-hearted efforts to reduce over-regulations that never proved effective. Federal government efforts in this regard are still disappointing.

Punjab Industries minister Mian Aslam did launch a bold initiative recently to introduce Punjab Smart Regulation Act 2019 by the end of this year. It is a challenging initiative based on the successful experience of numerous economies. These success stories are documented in a World Bank report “The Regulatory Guillotine in Three Transition and Developing Countries”.

This goes without saying that conducting business without regulations would be barbaric. But the regulations should be prudent as they are essential to protect the interests of consumers.

The tragedy in Pakistan is that regulations introduced in the economic system a century back have not been removed and instead more regulations are introduced from time to time. Each ministry and its department have over a period made rules or in some cases are still pursuing past practices on regulations that are no more valid in modern times.

For instance to make structural changes in Dyal Singh Mansion at Lahore’s Mall Road, the official requirement includes taking a no-objection certificate from the irrigation department. Now this makes no sense as irrigation department has no interest in Mall Road. However after some research it was revealed that canal tributaries passed through the area for irrigating farm lands in the surrounding. Now this regulation should be removed.

In fact the Irrigation Department should have pointed out its irrelevance. But baboos do not want to be deprived of any power that was vested in them a century back.

Punjab industries minister also pointed out that the industrialists pay Rs1000 per month to the Social Security Institutions for medical and social welfare of workers family. The social security hospitals screen the registered workers on health-related issues every year.

Yet, he pointed out, the Food Department also charges Rs2000 per employee every year from the industrialists to carry out certain medical tests despite protests by the industrialists that these tests are yearly conducted by social security hospitals. He said such duplication are costing the businesses dearly.

The main challenge for the government is to identify the number of interferences in the affairs of businesses by all government departments. These rules and regulations may run into thousands and many might have become obsolete by now. Some regulation may have no relevance and some would need to be improved in accordance with current needs.

Above all the regulation would have to be made simple; some inspections that are in fact rent-seeking opportunities for corrupt officials would have to be replaced by self regulation except in cases where consumer interest is supreme.

And we are talking about Punjab alone then there are federal regulations and some taxes and duties imposed on other provinces goods by the provincial government of Sindh. Simplification of these regulations through transparency is what smart regulation is all about.

Jahanzeb Burana, chief executive officer Punjab Board of Investment and Trade (PBIT) , said some critics termed smart regulations as over-regulation, which was not true. Burana said it would simplify rules and regulation and club many taxes and inspections to reduce the contact of businesses with government officials.

He said Vietnam, South Korea and Kenya had gone through similar exercises spreading over a period of 10 months to 30 months after which their economies grew by leaps and bounds. The PBIT chief initial draft for act would be presented in the provincial assembly by December this year. Completion of full exercise would be determined after all departments furnish the information on regulations they apply on businesses, he said.

According to the World Bank report reforming the business environment is a broad agenda but at its core is the regulatory reform; particularly for small enterprises that are disproportionately harmed by regulatory costs; barriers to entry, risks and uncertainties and associated cost of corruption.

Another report says economic transition requires massive legal change and such legal change goes beyond policies and formal legal instruments. This is because the role and style of regulation in a society is deeply embedded in traditions, capacities, interests and the organisation of power, the report said.

Much development work is focused on adjustments to legal system to support new economic and democratic needs. The challenge is finding ways to shift this complex system of instruments and behaviors to support the rapid economic growth needed to reduce poverty.