KARACHI, Feb 13: Karachi is at the top in Pakistani cities for doing business as it is the most business-friendly place in the country, said a World Bank report.
Doing business became easier in India and Pakistan in 2005-06, according to a new regional report released on Tuesday by the World Bank and its private sector arm, IFC, entitled ‘Doing Business in South Asia 2007’.
The report covers eight countries in South Asia region and examines 12 major cities in India, six in Pakistan, and four in Bangladesh.
Karachi is at the top in Pakistan, while Dhaka ranks best in Bangladesh, said the report.
Five reforms measures in India and two specific steps in Pakistan are mentioned to have reduced the time, cost, and hassle for businesses to comply with legal and administrative requirements, it said.
No other South Asian economies improved business regulations in 2005-06, ranking the region last in the pace of global reforms.
The report compares business regulations in the region with 175 economies around the world.
The top-ranked countries are the Maldives (53) and Pakistan (74), followed by Bangladesh (88), Sri Lanka (89), Nepal (100), India (134), Bhutan (138) and Afghanistan (162). The report finds that entrepreneurs in South Asia face large regulatory obstacles to doing business and taxes are high.
A standard company in India pays 81 per cent of commercial profits in taxes, while in Pakistan it takes 560 hours per year to comply with all tax regulations.
In 2005-06, the pace of reform was slower in South Asia than in any other region, with only India and Pakistan starting to improve their business environment.
In Pakistan, implementing each city's best practice would result in a 22-place jump in the global Doing Business rankings, from 74th to 52nd place.
Within India, Hyderabad has the most business-friendly regulations.
Mumbai is in 11th place, ahead of Kolkata. Typically, large urban centres, such as Mumbai and Kolkata, have a high volume of business, so regulatory and administrative bottlenecks create serious congestion.
Our reporter adds from Islamabad: The cumbersome procedures and documentation for start-up business has placed Pakistan even behind Bangladesh and Nepal among the South Asian countries, says World Bank report.
A large number of federal and provincial institutions are still involved in start-up, and documentation requirements are heavy. Start-up in Pakistan still requires a high number of procedures (11) — more than in 116 other countries, including Bangladesh (8), Nepal (7) and Sri Lanka (8). In the region, only India requires an equally high number (11).
According to the World Bank report on Doing Business in South Asia, Pakistan’s procedures are cumbersome, require considerable documentation and involve six different agencies.
On positive side, reforms in the early part of the decade cut start-up time by half. Start-up now takes 24 days, 8 days less than the South Asian average (32 days) and less than Bhutan (62 days), Sri Lanka (50 days), Bangladesh (37 days) and India (35 days).
The cost of business is 21 per cent of income per capita, well below the South Asian average of 47 per cent, and compares favourably to all regional averages apart from those of the OECD (5 per cent) and Europe and Central Asia (14 per cent). Like all South Asian countries except for the Maldives, Pakistan did not impose a minimum capital requirement.
City-wise analysis showed that costs are 25 per cent higher in Karachi than in other cities. By removing the stamp duty requirement in 2004, Faisalabad, Lahore, Sialkot and Peshawar all eliminated one procedure, one day and considerable cost — 16 per cent of income per capita — from the start-up process. Start-up time did not vary significantly across cities, with two more days required to register with the Registrar of Companies in Quetta than in Faisalabad, Lahore, Sialkot and Peshawar.
As a first step, it was proposed that Karachi and Quetta can follow their neighbours’ example and eliminate the stamp duty for registration. Then the system for the different tax and social security registrations can be simplified.
Pakistan ranks 89th in the world on the ease of dealing with licenses. Obtaining the necessary construction permits, licenses and inspections and securing utility connections for building a warehouse involves only 12 procedures, the fewest in the region after the Maldives. The process takes 218 days, fewer than only Nepal (424 days) and India (270 days) among the South Asian countries.
The number of procedures and time needed to obtain construction licenses have increased in cities outside of Karachi — particularly in Faisalabad, Lahore, Sialkot and Peshawar — in part due to earthquake-related requirements and added environmental protections.
Karachi, Sialkot and Faisalabad remain the more expensive cities in which to build a warehouse, but for different reasons. In Faisalabad and Karachi high costs for electrical connections made worse in Karachi by the high costs of water and sewage connections — account for almost a fifth of total costs and are estimated at almost 10 times the costs in other cities.