Competitive blues

It’s funny how the hue and cry over power load shedding hasn’t gone up in the last few weeks but according to NTDC data, power outages in Aug-Sep 2015 have increased by 55 percent year-on-year. While that in itself should raise eyebrows, here are a few interesting numbers that shed light on why Pakistan remains uncompetitive for businesses.

The recently released private sector development data book by the World Bank shows that power outages faced by firms in a typical month, which is measured as the average number of power outages that establishments experience in a typical month, is one of the highest in Pakistan, compared to its peers and competitors.

The closest in the region is faced by Bangladesh (64 times) but the difference between Pakistan and Bangladesh is that in Pakistan it went from 31 times in 2005 to 69 times in 2013 whereas in Bangladesh it came down from 100 to 64 times. Keep in mind that Bangladesh is low income group country, whereas Pakistan is a lower middle income group.

As far as the second biggest devil, taxation woes, is concerned Pakistan’s profit tax measured as profits paid by the business as a percentage of commercial profits is comparable to some of its peers, though it is higher than its peer countries in the lower middle income group. But the time to prepare, file and pay taxes is simply horrendous.

In Pakistan it takes 594 hours per year to prepare, file, and pay (or withhold) three major types of taxes: the corporate income tax, the value added or sales tax, and labour taxes, including payroll taxes and social security contributions. This has worsened from 560 hours eight years ago, whereas in Bangladesh it has improved from 400 to 302 hours, and in India it has improved from 264 to 243 hours. Need one say more!

Pakistan’s biggest risk is its competitive advantage, Ali Naqvi, Head of Equities for Asia Pacific Credit Suisse told BR Research in a soon-to-be published interview. Turning that dynamic around will require much more efforts than box standard ‘macro economy stability’.