Bilawal Kamran
Every investment, whether domestic or foreign, carries a certain level of risk. However, this risk should be managed in an environment where the rule of law is firmly established, agreements are honored, and robust mechanisms exist to resolve conflicts. The presence of these fundamental pillars is crucial for any business to thrive. Without them, investments will continue to shy away from a country that is seen as unstable, untrustworthy, and inefficient.
Pakistan, unfortunately, finds itself in a situation where the hassles of doing business are endless. Unless significant structural changes are implemented, the country will continue to face a bleak future in terms of attracting both foreign and local investments. A stark reminder of this reality was highlighted in the Business Recorder on December 14, 2024, under the headline: “Entities asked to address issues facing investors.” Despite numerous lists and strategies proposed to attract investments, the results have been disappointing, to say the least.
In developed economies, there is a continuous cycle of feedback and improvement aimed at enhancing the business climate. For instance, in the United States, exit interviews are conducted when employees quit or businesses decide to shut down or relocate. The reasons for their departure are carefully analyzed, and policies are adjusted accordingly. This ongoing process helps in refining the environment for both employees and investors, ensuring that the system remains competitive and welcoming.
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But in Pakistan, despite various attempts to improve, the environment remains stifled by inefficiency and corruption. The country’s approach to business is often marred by endless litigation and political interference, making it a nightmare for entrepreneurs. One can draw an analogy to the situation faced by the Independent Power Producers (IPPs) in the 1990s, when despite receiving tax waivers and presidential guarantees, the system still functioned against them. For instance, the CEO of Hub Power Company (HUBCO) had to deal with customs authorities demanding bribes, despite a letter from the President, which should have guaranteed smoother operations. Such incidents exemplify the systemic flaws and the bureaucratic hurdles that business owners in Pakistan are forced to navigate.
The entrepreneurial environment in any country can be classified into three categories: positive, neutral, and negative. Countries like Japan, South Korea, and China have positive environments where businesses are facilitated and supported. In the United States, there is a hands-off approach with minimal interference, which fosters entrepreneurship. Unfortunately, in Pakistan, the business environment can be described as negative, largely due to political instability, corruption, and an inefficient bureaucracy. This negative environment is a major deterrent to investment, as businesses need a stable, predictable environment to grow.
Looking back, Pakistan’s early years post-independence (1947-1958) were marked by honest hard work, growth, and a thriving free enterprise system. During this period, the role of the state was minimal, allowing businesses to flourish. However, over time, Pakistan fell into the trap of a patronage-based system, which led to corruption and a rise in the misuse of power. This shift led to the gradual decline of the business environment, and the country found itself in a debt trap. The easy access to money fueled corruption, and those with genuine entrepreneurial spirits were increasingly pushed aside.
The negative business environment is further exacerbated by the overwhelming presence of corrupt officials. There are over thirty inspectors, all of whom demand their share, often leaving entrepreneurs at their mercy. The system seems designed to drain businesses, making it nearly impossible to succeed without paying bribes or compromising on ethical standards. The state, instead of acting as a facilitator, often plays an active role in hindering progress. If Pakistan wants to reverse this trend and make itself an attractive destination for investors, it must first define its entrepreneurial environment clearly and decisively.
One of the primary issues is the bureaucracy. The multitude of inspectors, each with their own set of demands, has created a hostile environment for businesses. The solution is not just to implement directives but to reform the system. Officials who see themselves as gatekeepers to success must be held accountable, and their power must be curtailed. The state must play a neutral role, ensuring that businesses can operate without fear of harassment or undue interference. Only then can the entrepreneurial spirit begin to thrive again.
To truly foster an environment conducive to business, the government must either actively support businesses or step aside entirely, allowing the market to function without interference. The example of the United States under former President Donald Trump is worth considering. Despite facing multiple bankruptcies, Trump’s resilience and refusal to give up on his business ventures ultimately led to his success. This is the type of environment that encourages risk-taking and entrepreneurship. Countries that prioritize their businesses and provide the necessary support for them to grow and succeed are the ones that drive economic prosperity. In Pakistan, however, the perception of businessmen is often negative, with many viewing them as shady characters. This perception needs to change if the country hopes to attract investment and encourage entrepreneurship.
During my time in government, it took a great deal of effort to convince my colleagues that honesty and integrity are essential for long-term business success. Despite the challenges, I emphasized the importance of treating entrepreneurs with respect. Unfortunately, the system was designed to discourage honesty, and as a result, many potential investors were deterred by the corrupt practices that permeated every level of bureaucracy. Timing is another critical factor in business, and in Pakistan, the delay in resolving business-related issues has become a significant hurdle. The country needs a dedicated system to address business disputes quickly and efficiently. Instead of a “Constitutional Court,” Pakistan could benefit from specialized “Business Courts” that can expedite the resolution of commercial disputes. The current legal system is overwhelmed with cases, and business owners often find themselves caught in a web of prolonged litigation.
Rule of law is the foundation upon which any thriving business environment is built. Without it, businesses will continue to face roadblocks, and investors will shy away. Pakistan’s government needs to do much more than issue directives. There needs to be a systemic overhaul to ensure that the country is genuinely open for business. It requires a commitment to eradicating corruption, empowering entrepreneurs, and providing a stable, predictable environment where businesses can flourish.
Attracting investment is not just about promises and speeches; it requires tangible reforms and a clear demonstration that Pakistan is committed to protecting the interests of investors. Without these changes, the dream of a prosperous and business-friendly Pakistan will remain elusive. The road ahead is difficult, but if the government is willing to put in the hard work, Pakistan can reclaim its status as an attractive destination for investment and growth.
