Why Cost of Doing Business in Pakistan is Increasing?

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Interview with Mr. Imtiaz Rastgar Chairman, Rastgar Group

Mr. Rastgar is involved in manufacturing and is an exporter, dealing with all stake holders relevant to his business. With his experience, he speaks on the escalating costs associated with doing business inPakistan.

Professional background

Rastgar Group was started in 1967 at a very small level, with a starting capital of Rs. 2500. Mr. Imtiaz Rastgar started with a small foundry, and the advantage of a good education. In the first 2 years, Restgar group decided to setup in the cement industry. By 1983, Rastgar group were able to produce cement with quality matching European standards. From that point, import of cement stopped and Rastgar group started supplying the cement of same quality at a lower price.

 

“We have a strong metallurgical base. Our understanding of the metallurgical processes and metal casting are the core strengths of the company”, says Mr. Rastgar. Along the way, in order to sell the products, Rastgar group formed a distribution company by the name of Rastgar . Simultaneously, they acted as a vendor for the tractor industry by making an investment in an entirely new foundry setup and went on to make parts for truck, buses, and cars. 72% of the production is exported to other countries. The difference between Rastgar and other vendors is that most companies inPakistanare inward looking and look for government protection. Rastgar,in the early 90s made investments in technology, capital equipment and market expansion, that have made them a major exporter of auto parts fromPakistan.

 

World wide trend of inflation

With China’s average growth rate of 10%, coupled with India and other South and South East Asian countries, the demand for Rastgar’s products have also increased to meet the rising requirements of construction material, steel, machineries, raw materials and food stuffs. So it resulted in a quantum jump in demand of many kinds of goods with the result that in the last ten years some countries have held onto sources of raw material like gold, iron, oil, copper etc. These countries import the raw material and add value to them for their own usage and to earn high profits by exporting the value added product. Increasing demands and global monopolies of raw material are the major cause of world wide inflationary trends.

 

Factors responsible for increase in cost of doing business in Pakistan

I personally think that Pakistanis are living beyond their means. They are not working hard enough and they want to enjoy a better life. Most of the inflation is imported. We have been sending Pakistanis abroad to bring in just a few billion dollars against which no goods and services have been produced inside Pakistan. We have exported man power which should have worked inside Pakistan by adding value to raw materials inside Pakistan and would have become a producer and a consumer of goods. We have exported manpower to earn but we actually caused a cultural damage to Pakistan instead of earning. This imported inflation has changed the attitudes.

Similarly the Government has allowed the real estate prices to shoot up which has given an unearned income to many people, and it has disturbed the social balance. It is not only inflation that is affecting or increasing the cost of doing business in Pakistan, it’s a deterioration of work ethics and attitudes which has taken place. From top to bottom, we are a less productive nation.

The worst examples of lack of productivity are the offices of the Government of Pakistan. Government employees are not productive at all, but still they are getting their salaries. So the system and procedures have created frictions. We must focus on the productivity within the government sector. Government should be an example of productivity. There are organizations that even got ISO 9000 certificates but somehow but still they are not performing well. Corruption and lack of transparency are rampant.

There are also some hidden factors which are increasing the cost of doing business in Pakistan. We may have cheap labor – but it is less productive with poor work ethics. The government rules, regulations, attitudes and procedures play a vital role in increasing the cost of business. The cost of doing business is not only the cost but actually it’s a frustration of a citizen from a government officer who creates friction in doing the work.

 

Effect of this increasing cost on the economy

The government made very good policies but when it comes to implementation level, every one of us knows that there are no proper implementation procedures. The high skilled workers of Pakistan and young and innovative entrepreneurs, prefer to go and work outside Pakistan because of frustrations with the system here. So the actual loss to the economy is the loss of talent, otherwise known as brain drain. We should have created conducive conditions for young new entrepreneurs. In Pakistan one cannot be sure about the real ownership of a piece of land. The biggest problem is getting land, and the associated hurdles of getting electricity and gas connections, which are often fraught with bribery.

 

Measures that should be taken

The government authorities should play their respective role by removing cumbersome and bureaucratic hurdles to doing business inPakistan. I remember in my childhood, it used to take 5 to 8 years to get a Pakistani passport and then in Bhutto’s era, they created a procedure in which any Pakistani could get a passport with in 3 days. So if a procedure of 5 to 8 years can be reduced to 1 day, then I think that lots of other things can be done but it would need the political will. In theUS, if you want to buy insurance, you can get it online in a very transparent manner, or if you want to register a car, you can get the registration number online as well. These paperless or E-Government procedures can reduce costs vastly and can also remove the hurdles created by the clerks of control authorities who annoy the businessmen. If we can setup procedures of E-Government, we can reduce the cost of production and we can speed up things because we would have by-passed many clerks of the control authorities who create hurdles to get their own benefits.

 

Opportunities of business in Pakistan

Every sector has a potential of doing business. We have a very healthy work force and we are a young country and we will remain young for a long time because the average Pakistanis are young. If we can train them and provide them jobs in factories, value addition jobs, hospitality jobs, then the possibilities are immense in Pakistan. The population of 160 million is not a liability; they are a market as well as a resource. If we can train them carefully by producing a skilled labor force, Pakistan will automatically move towards higher value added sectors.

 

Comparison with other countries

Pakistan led most countries in the South and South East Asian region until the period of nationalization. We were not able to create opportunities for employment and a large number of trained and skilled labor left Pakistan. And our educational and training institutions were not up to scratch, and still leave much to be desired. So we are lacking in proper skilled workers and now we are at a stage where our industries import people for technical jobs from Korea and Philippines. That is a sad commentary that in a country of 160 million people, we don’t have people with certain skills to support our industrial growth.

A right environment should be created for entrepreneurs to do business in an easy and transparent way. And it is the media who is responsible for creating an environment.

 

Advice to young entrepreneurs

Anyone coming to the business, should start small, especially where experience is lacking. Start small and grow with it and don’t take short cuts. When one builds a company or an institution it’s like bringing up a child. You have to groom it appropriately at every level of its life. There is a difference between reading books of business with words like entrepreneurships and actual business; business means doing things, for which you have to go in the market. Business or trade is even blessed by Islam but neither our teachers nor our parents encourage the younger generation to go into business. Students are advised to get into jobs rather than to start a business. If Bill Gates would have taken up a job, what would be the situation of the world today? There would be no such thing like Microsoft.. I think there are many Bill Gates in Pakistan but they never dared to take the risk of entering into business.

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