Ease of Doing Business and Inclusive Economic Growth: Pakistan’s Prospective

By Dr. Aqeel Ahmed Bazmi; Daily Times: December 22, 2018

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 the “Doing Business” ranking and inclusive, job-creating economic growth,
when the ease of doing business improves and a country rises in the rankings, 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 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 size 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”.

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.
Word 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 reform 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.

**********

Dr. Aqeel Ahmed Bazmi

Associate Professor,

Department of Chemical Engineering,

COMSATS University Islamabad, Lahore Campus,
Defence Road, Off Raiwind Road, Lahore
Tel: +92-42-111001007, Ext: 152
Cell: +92-3324470569
Email: ABazmi@cuilahore.edu.pk, engr_aqbazmi@hotmail.com
URL: https://scholar.google.com/citations?user=R_5hd1MAAAAJ&hl=en