Excessive regulations hurdle to foreign investment

Islamabad:Despite improvements on Ease of Doing Business (EODB) index, massive, costly and time-consuming business regulations at the federal, provincial and local level still appear to be the major stumbling block in the way of attracting the foreign direct investment (FDIs) and businesses to flourish. To achieve the substantial FDI inflows and help thrive the businesses, especially the small enterprises, the government needs to rationalize the excessive business regulations.

This was the crux of the thoughts expressed by experts during a meeting titled “Better business Regulatory Environment: Way forward for Pakistan” and organised by the Sustainable Development Policy Institute (SDPI) in collaboration with members of National Network of Economic Think Tanks in Pakistan here on Monday.

The SDPI also presented findings of its report titled 'Quality of Foreign Capital in Pakistan'. Senior economist (IFC) at the World Bank Group Amjad Bashir while highlighting the systemic, institutional and procedural (SIP) challenges of business regulation said Pakistan, after the 18th Constitutional Amendment, had five different regulatory regimes, where, at the system level, there was weak federal-provincial or inter-provincial coordination, and weak inter-agency coordination.

He added that at institutional level, there were more than 60 regulatory agencies with heavy compliance coupled with a lack of transparency and poor feedback mechanism. "At procedural level, he there is weak automation of business processes and mostly business-related procedures are performed manually, which increase uncertainty in trade and investment operations," he said.

Bashir said those challenges were significantly undermining the FDI inflows and were not allowing more cities to become hubs of growth and job creation.

He suggested the development of an online portal where the government should ensure the provision of inventory of all the regulations and laws at one place which can be easily accessible to businesses and investors. "In consultation with stakeholders, the government should validate the relevance and usefulness of all business regulation and eliminate unnecessary regulations, documentation and compliance requirements.

"Also, there is a need to automate the compliance with business regulation and ensuring e-payments of all relevant charges," he said. The economist highlighted the need for research at sector level and what difficulties each sector faces in registration and licensing, and operations at provincial and local levels.

He said there was a need to use digital technologies for reducing cost of regulatory compliance, while regulatory impact assessments might be conducted at sector level to clarify costs, benefits and actual effects of regulation.

Chief Executive Officer of the Khyber Pakhtunkhwa Board of Investment and Trade Hassan Daud Butt said previously, the vision of KPBoIT was mainly focusing on attracting the investments, particularly, FDI and there was little focus on the Ease of Doing Business (EODB).

He said as part of the prime minister’s initiative on de-regulation of businesses, the KPBoIT had developed its industrial policy which embedded the EOBD and likely to be presented to the Cabinet next month.

"To re-brand the KP’s business outlook, we have done mapping of all business regulations and duplication of any NOCs by engaging all stakeholders and trying to improve the pre-investment business environment," he said.

SDPI Joint Executive Director Dr. Vaqar Ahmed said the research indicated that large and growing firms in Pakistan would like to see quick improvements in better enforcement of business contracts and getting credit.

He said greater efforts were required to improve dispute resolution mechanisms available to the business community.

"The foreign investors would require confidence, as they have witnessed their peers resorting to International Centre for Settlement of Investment Disputes' for claiming their entitlements – a practice which only comes in to force once the country’s own dispute resolution mechanisms do not deliver," he said.

Dr. Vaqar said that such improvements in business climate could be termed as a necessary but not sufficient condition for increase in future investments.

“The need now is to understand the inventory of regulations by sector and then rationalize or eliminate any unnecessary regulations which hurt business growth,” he said.

The SPDI JED said reform momentum needed to be maintained through regulatory easing, improved coordination across federal, provincial and local tiers of the public sector, shared understanding between the government and regulators, and continued public-private dialogue.

He said business community was disappointed that federal and provincial revenue authorities remain unable to arrive at a common understanding to harmonize the tax system across provinces.

"This has resulted in small businesses filing multiple return forms, in turn adding to tax-related compliance costs. The large enterprises remain apprehensive for unanticipated changes in tax policy; only in fiscal year 2019, the government changed the tax code thrice, through a federal budget and two supplementary finance laws latter in the year. This has particularly hurt the investment plans of potential investors on large-scale manufacturing, oil and gas, IT, and finance sectors," he said.

Acting Director of the Office of Economic Growth and Agriculture, USAID, Robert Beadle said through Pakistan Regional Economic Integration Activity and Small and Medium Enterprise Activity projects, USAID was focusing on business and trade promotion and facilitation in Pakistan.

He said an enabling business environment and improved policy on business regulations are the keys to the economic growth of the country. He offered the USAID support for the government and private sector in building capacity and providing technical support on the subject.

Director of the Board of Investments Mahmood Tufail said the government is very much focusing on better business regulation and expanding the EODB outreach at provincial and local levels.

He said the government is also working on ease of doing technology businesses as well to help thrive the technology-based business in the country.

Deputy Secretary, Investment Department, Sindh, Bilal Saleem called for mapping and publishing of different rules and procedures at all levels and also stressed the need for simplification of procedure and capacity building of the government institutions. Representing the telecom sector, Ali Faisal from Mobilink said that the future lies in digitalisation of the economy, financial inclusion and digital payments and that is the area where Pakistan needs to improve further.

He said expedient implementation of reforms towards efficient payments gateway were much desired to enhance digital financial services and also to achieve the goal of financial inclusion. The meeting was also attended by the representatives of SECP, IPPA (Independent Power Producers Association), Ufone, SGS Pakistan, Shifa International Hospital, Think Build Scale (Pvt) Ltd, Nestle Pakistan, ICAP, members of civil society and media.