Doing business in Khyber Pakhtunkhwa

More innovative approaches can cut down the cost of doing business in KP

Doing business in Khyber Pakhtunkhwa

A debate on significantly reducing regulatory costs for new businesses is timely. The financial support and facilitation provided by the government amidst the Covid-19 pandemic was not sufficient for all sectors. The evolving situation in Afghanistan is bound to impact the business climate in Pakistan, particularly in Khyber Pakhtunkhwa which could see both an influx of refugees and a deterioration in the security perceptions.

Additionally, global supply chain disruptions and inflation could remain high until mid-2022. It is, therefore, timely to identify what lessons can be drawn from 2021. More innovative approaches might be needed for 2022 to cut down the cost of doing business in the KP and attract lucrative foreign investments.

Let us take a look at some of the major trends during the past year.

First, the provincial government is focusing on creating economic zones (EZs) as a way forward for business development. Over the past three years, local taxes, charges, levies and tolls have increased the cost of doing business in KP despite some business-friendly policy measures. Given the investment-friendly policies of the government and efforts of the Khyber Pakhtunkhwa Economic Zones Development and Management Company (KP–EZDMC) and Khyber Pakhtunkhwa Board of Investment and Trade (KP-BoIT), the province is expecting significant investment and employment generation. These are attracting foreign as well as domestic investments expected to spur economic growth.

The government needs to focus more on barriers to investment and business activity that can be addressed by legislative, regulatory and policy actions. The regulators have to reform and modernise in line with the international practices or risk being excluded from the global value chains.

Second, the growth of the informal economy due to indirect incentives is not a healthy trend. It hands competitive advantage to informal businesses that can avoid some of the direct as well as indirect costs and avoid certain taxes so that they have an incentive to stay in informal. The private sector is stagnant and there has been no visible growth recently. Post-pandemic facilitation by the government has been welcomed but is not accessible to all stakeholders. The State Bank of Pakistan’s assessment on the tax bracket is also questionable. Support to small and medium enterprises has been limited to banking infrastructure. The automation part is being addressed through public-private partnerships for startups. National incubation centres are supporting these in the hope of boosting the gross domestic product for the country. Ultimately, the solution lies in better communication and coordination that should be resilient and more transparent.

Under the Pakistan Single Window (PSW) initiative, 75 departments are being connected to ensure the ease of doing business. Exporters from the KP face serious logistics and security issues. Automation is work in progress.

Third, comparative advantage for several districts in the KP depends upon the CPEC routes and the Afghan transit trade. This has opened new avenues for business and investment for the business community. The major gap identified in the Afghanistan market is regional connectivity. The relevant government departments should work in collaboration with the private sector to solve this problem. There is a need to focus on district-level or city-level business reform strategies.

Fourth, coordination with the industries is the backbone of the economy. One-window and ease- of-doing-business initiatives need strong follow up. The previous industry policy had suffered from implementation and enforcement issues. There is still hope for the 2020 industrial policy. Local industries should be supported in terms of regulation. Long-term goals should be result-oriented. Short-term goals too should be set in such a way that they emphasise sustainability. Solution-based mechanisms and proposals for coordination are needed. Business associations and chambers of commerce can play a pivotal role in this regard.

Fifth, the one-window operations should address the issues related to transit trade. Under the Pakistan Single Window (PSW) initiative, 75 departments are being connected to ensure the ease of doing business. Exporters in the KP face serious issues logistics and security issues. Automation is a work in progress. As transit routes get aligned nationwide, the export sector will be better able to respond to opportunities. Provincial taxes are another area of concern. A single invoice can make for a better regulatory environment.

Sixth, extensive research is required for facilitation and reform. Think tanks, academia, civil society and the private sector must come together with the single objective of discussing and finding solutions for the regulatory aspect of the ease of doing business. Research can also create immense support for the business community by shedding light on sub-provincial business reforms. The recommendations should be forwarded to the government. These steps can be pivoted to the way forward for bridging the policy gaps between the industry and the research body of the government.

Last but not the least, for an effective and sustained impact a research-based economic policy should be implemented countrywide. For this purpose, public-private coordination is of utmost importance. Policy and academic research should focus on identifying missing links and loopholes for the regulators.

The writer is a researcher associated with the Centre for Private Sector Engagement at Sustainable Development Policy Institute

Doing business in Khyber Pakhtunkhwa