The objective of this policy research was to identify the binding constraints within the business environment framework in selected priority sectors. This work aimed to support the Government of Punjab in achieving greater investment, employment, and women’s economic empowerment, and DFID Pakistan and International Finance Corporation in improving the design of their business environment reform programmes. This research should also help improve outcomes for intended beneficiaries of DFID’s programmes directly (through employment opportunities for workers and wealth creation for entrepreneurs) and indirectly (through improved competitiveness and economic growth). This research is also expected to improve the quantity and quality of evidence available to other DFID central policy teams and country offices looking to support priority sectors.
The key steps taken by the BERF team to conduct this research were:
- review existing documentation on the business environment in Pakistan and, specifically, in Punjab,
- review existing documentation on the binding constraints faced by domestic firms operating in, or contemplating entry into the agriculture; livestock; manufacturing (with a focus on textiles and garments); and automotive sectors,
- analyse existing data on the overall business environment and the constraints faced by domestic businesses in the selected sectors,
- arrange and conduct consultations with the Governments of Pakistan and Punjab, domestic and international businesses (both large and Small and Medium Enterprises) and business associations,
- assess quantitative and qualitative information which already existed and that was generated during the course of this research about the potential of these priority sectors in terms of investment, economic growth, job creation, women’s economic empowerment, linkages with multinational firms and other spillovers to the local economy,
- identify relevant sector specific business environment reform policies which have been implemented in other countries or regions and assess their feasibility in Punjab,
- develop recommendations for the Government of Punjab to address the sector specific business environment-related constraints based on the above analysis.
Businesses in Punjab face a number of challenges across all aspects of the business environment. Sectors were unanimous in identifying tax policy and administration as the biggest constraint to businesses. These constraints were cross cutting and sector specific, and have been exacerbated by the 18th Constitutional Amendment, which has resulted in duplication of taxes. Tax policy is not consistent with the economic growth ambitions set out in the Punjab Growth Strategy, and in many cases actively undermines broader objectives. Equivalent concerns apply to the Labour Department, whose mandate focuses on worker protection but at the expense of employment.
Aside from the specific recommendations, there are three more fundamental conclusions to be drawn from this research.
Government departments need better mandates which go beyond their narrow focus and reflect broader growth aspirations. These mandates need to be supported by incentive structures for employees which are carefully thought through and consider the potential unintended consequences.
Improved mandates should also support improved coordination of policymaking between different stakeholders. Departments need to be better at sharing information, and better coordinated during enforcement.
Finally, policy needs to be based on better evidence. A better understanding of the impact of changes to policy and regulations will only come with more proactive involvement of the private sector at earlier stages of the policy making process. There are positive efforts being made by the Government of Punjab in Public Private Dialogue, but these will only succeed if businesses believe there is a real appetite across government for positive change.