UNDERSTANDING BUSINESS IN PAKISTAN
With this background, PIDE held a series of Focus Group Discussions
with businessmen of Lahore, Sargodha, Sialkot and Gujranwala to elicit their
views regarding the state of entrepreneurship in Pakistan. The following
discussion is based on the common themes that emerged in the focus group
discussions.
Our discussions revealed two interesting themes;
· Innovation which is the key to entrepreneurship seems to be nearly
absent. Most of the businessmen seem to be involved in inherited
business. The few entrepreneurs that we met had stumbled upon their
business, did so as a result of some information advantage. Either they
were employed in that business or involved in trading in it or some
acquaintance provided some information. This is in keeping with
entrepreneurship stories in other countries.
Most of the businesses were 'imitation.' Investment fashions appear to
dictate entrepreneurship. Investors seem to rush into areas that are in
vogue. For example, textile wave was followed by the garment factory
wave, the socks wave and so on. In the past the waves because of
government policy incentives. Now we need to understand
why this trend remains dominant.
· Business is not dynamic; few businesses seem to grow to be large
conglomerates and multinationals. Small businesses seldom seem to
even develop across cities leave alone grow into international
conglomerates. Why?
For business and market growth, innovative entrepreneurship and
dynamic markets which allow businesses to grow are a prerequisite. It
is in such an environment that employment grows and opportunity
expands. Such an environment is also the most poor friendly and
conducive to social mobility. Hence we focused on these areas in our
discussions in 4 major business cities of Pakistan. Our respondents
identified the following factors that were responsible for the poor
business environment.
(a) The Attraction of Rents
In all the focus group discussion the businessman, by and large, expected
of the government to provide incentive of one or another kind that would either
place their business in a favourable position vis-a-vis other businesses or that
would protect their business that has run its course. For example businessman in
smaller towns of Sargodha and Gujranwala demanded government protection
against Chinese goods. Besides, the businessman in Sargodha also wanted some
relief on account customers lost to Lahore with the construction of Motorway.
Given the Schumpeterian process of 'creative destruction' the businesses that
have lost their customers to another city/country, due to being less efficient,
should be close down and in their place new businesses should have emerged.
Given the rent-seeking culture that has now been established,
businessmen, rather than focusing upon innovation expect that the will
government help. For example, most were always seeking a tariff or a subsidy
advantage. Consequently, they were not comfortable with free trade in all
products. Another example was the demand for cheap credit regardless of the
cost to the tax payer. However, when pushed they admitted that credit constraint
was not major factor constraining their growth. There was also a serious lack of
knowledge of other financial instruments and an excessive focus on bank
financing.
B- The Costs of Corruption
Corruption is a serious impediment to the growth of entrepreneurship.
The businessmen involved in manufacturing of various products, told that
numerous government departments (numbering around 15-20) 'visit' enterprises
with various threats to extort small sums. They collect anywhere from 0.2
percent of annual sales to about 5 percent. Obviously the tax incidence is higher
on smaller firms. Businesses dedicate from 1 to 3 employees for dealing with
this extortion.23 Their view was that if there could be a single tax that could be
collected by Central Board of Revenue (CBR) and distributed to these people
transaction costs could be significantly reduced.24
(c) Lack of Research, Expertise Skills and Knowledge
Business in Pakistan remains largely owner-operated and resistant to
developing professional management. Partly this is because business growth has
traditionally depended on policy favors rather than on professional management
and strategy. However, there is also a clear mistrust of professional managers
given that the legal and judicial systems may not prevent fraud, theft and
outright misuse of business information.