Pakistani Government and dwindling small businesses

7 Mar 2017

If we take a close look at the economic situation of Pakistan, the investors hailing from the middle and lower classes seem to bear the brunt of government’s aloof economic policies. It feels like as if small businesses lie at the bottom of our government’s priority list. The small businessmen who make up the backbone of this country’s economy are being neglected through and through, middle and lower class businessmen in particular, and even the media seems to disown them. Moreover, small businesses are scorned upon by public, at large. The main reason behind lies in the fact that common man as well as the media isn’t aware of their actual dynamics. The popular perception among masses is that businessmen are looting the country and that government’s restrictions or interventions are, therefore, totally justified. However, in reality, this is an immensely dangerous approach to take. In order to understand the entire situation, we first need to understand how the economy actually works.

A few years ago, CNG industry was flourishing and thriving at a remarkable pace. The impetus behind its success was high profitability. The media, however, started a witch hunt against the industry. Media attention further put the industry into government’s crosshair. Government regularised the CNG sector thereby, slashing the profit margins and upsetting the feasibility of the business. Adding insult to the injury, the gas supply to CNG sector was curtailed. Consequently, the industry began collapsing and thousands of people ended up being unemployed. Here, the question arises, Should all small and medium businesses, having high profitability, be dealt in similar manner? Is the “Robin Hood” mindset of Media and government beneficial or detrimental to the business activity in the country?  What is government’s constitutional responsibility in this regard? This is an issue that requires deliberation. First of all, we need to understand what makes some businesses achieve high profitability?

There are broadly three reasons behind some businesses generating huge profits. First of all, not everyone has an ability to run a business; it requires specific technical capabilities that not everyone possesses, such as in the case of CNG industry or food industry. As a result, a lack of competition gives rise to large profit margins. Secondly, for some business to be registered and become operative, certain government licenses are required that not everybody can get. Thirdly, a colossal amount of money is required to set up a large scale business such as fertiliser and cement industries. All these entrance barriers to business lead to lack of competition, resulting in high profits. In other words, monopolies and business cartels are created. Here, the question arises; what exactly is our government doing to encounter this? All it ends up doing is putting unjustified regulations on all such businesses and tell the general masses that the said businesses were looting them. Regulating the prices and slashing the profit margins does more harm than good. These measures do not address the problem of monopoly rather destroy the business. This particular approach has ruined a number of businesses and consequently, Pakistan’s economy. CNG industry, for example, had to go through utter rough time as the working and middle class people who sold all their properties, jewellery etc., and invested in the business, now stand unemployed and at loss. This, in turn, induces a constant fear in foreign and domestic investors. They are now wary of investing in any new businesses in the country, fearing that the government will eventually leave them bankrupt, on account of its irrational and ill planned regulatory policies. It’s the country’s economy that suffers at the end of the day. The next question here is, is generating higher profits right or wrong?

So what exactly what should be done in order to make sure that public is benefitted, all the while safeguarding the business community’s interest too? According to the natural economic process that every business goes through, huge profits better the country’s economy and create more jobs for the unemployed. Subsequently, more people start entering that particular lucrative business and hence, the competition accelerates. Competition directly translates into lower prices and better services. Instead of making the whole process easier for the business community, our government prefers to implement policies that are convenient for them but harmful for the former. For instance, these days, people belonging to the construction industry in big cities are considerably agitated and worried. Metro bus service has recently been launched in Multan which is, undoubtedly, a good step. However, the project will be beneficial only if the private sector brings in development through constructions, here. Building plan approval is an important part of the construction process and it has been put on hold for the past few months that is harming not only the business community but the common man as well. There used to be time when Multan Development Authority’s approval was required to pass a map but due to lack of interest by the provincial government, the task has now been assigned to district committees, chaired by DCO. It’s unfortunate that there is no permanent head of a department as important as this. The DCOs were given temporary charges owing to which approvals took months because of multiple layers of bureaucratic hierarchy and busy schedule of the District’s Head, the DCO. Even this practice has been put on hold now. The Commissionerate system has been restored in Punjab; district management systems are in total disarray as officials are still not clear about their roles. Amidst all this chaos, common man doesn’t know where to go; if it’s the Mayor that handles the Map approval or the Deputy Commissioner? On account of these and other such associated delays, business community suffers terribly. It is the need of the hour that government makes things easier for its Small Medium Enterprises, in order to uplift the country’s economy.

Published in “Pakistan Today” on 07 March 2017.

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