The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation and stronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses. Pakistan is ranked 136 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Pakistan improved to 136 in 2018 from 147 in 2017. The World Bank’s 2018 ‘Doing Business’ report finds a strong correlation between inclusive growth and the regulatory environment for business activities. There is a direct positive correlation between ‘Doing Business’ ranking and inclusive, job-creating economic growth, when the ease of doing business improves and a country rises in the rankings, it means that its economy is performing better mainly because of expanded small and medium enterprise (SME) business activities.
The Doing Business report was first published in 2003 and at present, the Doing Business report covers 48 economies in Sub-Saharan Africa, 32 in Latin America and the Caribbean, 25 in East Asia and the Pacific, 25 in Europe and Central Asia, 20 in the Middle East and North Africa, 8 in South Asia, and 32 OECD high-income economies. Doing Business looks at domestic small and medium-size companies (SMEs) and investigates the regulations that enhance business activity and those that limit it. Doing Business captured a record 314 regulatory reforms between June 2, 2017, and May 1, 2018. Worldwide, 128 economies introduced substantial regulatory improvements making it easier to do business in all areas measured by Doing Business. The economies with the most notable improvement in Doing Business 2019 are Afghanistan, Djibouti, China, Azerbaijan, India, Togo, Kenya, Côte d’Ivoire, Turkey and Rwanda.
The Prime Minister of Pakistan, in his speeches, emphasized on the enthusiasm of the current government to improve the ease of doing business and the conducive regulatory environment for business operations in the country. An economy cannot thrive without a healthy private sector. When local businesses flourish, they create jobs and generate income that can be spent and invested domestically. Any rational government that cares about the economic well-being and advancement of its constituency pays special attention to laws and regulations affecting local small and medium sized enterprises (SMEs). Effective business regulation affords micro and small firms the opportunity to grow, innovate and, when applicable, move from the informal to the formal sector of an economy. UNDP’s chief economist, Thangavel Palanivel, defines inclusive growth as “Growth is inclusive when it takes place in the sectors in which the poor work (e.g. agriculture); occurs in places where the poor live (e.g. undeveloped areas with few resources); uses the factors of production that the poor possess (e.g. unskilled labor); and reduces the prices of consumption items that the poor consume (e.g. food, fuel and clothing)”. In other words, inclusive economic growth is not only about expanding national economies but also about ensuring that we reach the most vulnerable people of societies. The ‘equality of opportunity’ and ‘participation in growth by all’ with a special focus on the working poor and the unemployed are the very basis of inclusive growth. Therefore the country needs reforms to facilitate local small and medium size enterprises connected with the agro-based businesses to improve the inclusive growth and human development in the poor areas of the country.
The Pakistan National Human Development Report 2017 points towards large disparities in human development across districts and cities of Pakistan. The Human Development Index (HDI) of 0.877 for Lahore is on average equal to that for France and Spain. It is higher than the average HDI for Saudi Arabia, United Arab Emirates and many other countries. Lahore and five other cities of Pakistan fall in the Very High Development Category. On the contrary, 14 districts of Pakistan, mostly in Balochistan, are worse than the poorest countries such as Nigeria, South Sudan and others in terms of their HDI values. Similarly, according to the Pakistan National Human Development Report, the HDI for women is 25 percent lower than for men. Women labor force participation of 24.9 percent is the lowest when compared to India, Bangladesh and Sri Lanka. Factoring inequality in human development across regions and using gender as a measure, shows that growth in Pakistan has been less inclusive. Therefore, just attracting indigenous and foreign investment in mega projects and push the economy in the hands of investment heavyweights will be the dark side of so called “Ease of Doing Business”.
Human Development Index (HDI) of 0.877 for Lahore is on average equal to that for France and Spain. It is higher than the average HDI for Saudi Arabia, United Arab Emirates and many other countries. Lahore and five other cities of Pakistan fall in the Very High Development Category. On the contrary, 14 districts of Pakistan, mostly in Balochistan, are worse than the poorest countries such as Nigeria, South Sudan and others in terms of their HDI values
There are however huge opportunities for inclusive growth in the country. The growing youth population, if provided skills and capacities, will not only drive growth, but their participation will also make it more inclusive for two reasons. First, they constitute the largest population segment. Second, like women, they have not fully benefited from the growth process thus far. Youth unemployment is higher than the overall unemployment rate in the country. Policy makers must chalk out the reforms needed for ease of doing business not to link it with the GDP growth but with the inclusive economic growth across the country based on region and gender.
World Bank measures the “Doing Business Rank” based on the areas shown in Figure. Doing Business benchmarks aspects of business regulation and practice using specific case studies with standardized assumptions. Based on an economy’s performance in each of the 11 measured areas, scores the efficiency and quality of the business environment. This approach facilitates the comparison of regulation and practice across economies and allows for changes to be tracked over time. The ease of doing business score serves as the basis for ranking economies on their business environment: Government should take care of all the areas of measurement for Ease in Doing Business Reforms. Policy makers need to identify areas for regulatory reforms to investigate the links between changes to labor regulation and economic outcomes. Given the changing dynamics of work, determining the right level of regulatory intervention in the labor market is critical. Shifts in labor market demand also call for new ways of thinking about skills development and training, including national policies and funding strategies that economies can utilize to prepare their citizens for the future. Innovation in technology and other sectors is creating new avenues for growth and livelihoods. Federal and provincial governments have to set up funding windows and incubation facilities to promote innovation and entrepreneurship, especially local small and medium size enterprises.
The writer is an Associate Professor in COMSATS. He can be reached at [email protected]
Published in Daily Times, December 22nd 2018.