It is more than 3 years since this government took over – and 8 years in its recent stint in the parliament to work out the sort of regulatory reforms required to put the Pak economy in the right direction. Regulation is crucial in delivering fairness, efficiency and effectiveness in an economy and as we know that ‘regulation’ per se has come a long way since the financial crisis of 2008, in stabilising leading global economies. Basel, MI fid and Dodd Frank have strengthened financial systems, while other regulations have been effective in calming markets and strengthening key financial centers, institutions and industry. The day of the Brexit result, where no real shock waves went through any of the Euro-Zone economies (except that of Britain of course) is a good example by itself of how prudent regulations and reforms have in recent years enhanced economic stability.
However, a strong belief amongst management gurus exists that devising regulations and reforms is not a simple exercise. They need to evolve over time; they have to become smarter to adapt to ground realities and also to the realities of global commerce; and that as the process goes along more and more cooperation cum dialogue between regulators and policymakers, the regulated interest groups, and professional institutes becomes essential if the endeavour has to yield desired results. And it is in this context the PML-N economic leadership has to view its current regulatory and revenue collection drives, both at the center and provincial levels in order to avoid an ‘over-kill’ and to keep them from turning counter productive. At present the aggressive oversight/regulatory drives by provincial governments and the complete disharmony between the revenue collection authorities of the center and the provinces is resulting in added costs and double taxation for businesses, and if not timely checked can seriously hurt an already compromised competitiveness level of the Pakistan manufacturing. Regulations and reforms are good but provided they are carried out sensibly. For example, in its recent report the IMF points to the drawbacks of “regulatory fragmentation” and its resultant negative effects on the ability of an economy to withstand shocks, to grow, to trade or to compete successfully. What it advises economic leaderships is to strive to achieve coherency in an economy, so as to discourage regulatory arbitrage and encourage fair play not just between private sector to private sector, but also between the government and the private sector. Clearly, this can only be achieved through political prudence, partnering with the real stakeholders, adherence to the principles of good corporate governance and by working along with global guiding institutions so that they independently encourage and monitor our regulatory bodies in order for them to work as per international fair practices.
Another major issue that we face in Pakistan is nurturing more ethical company cultures. Regulations, reforms and compliances are not panaceas. Encouraging stronger corporate governance and embedding ethics cum values into organisational culture is essential for growth and stability, as well as addressing issues of corporate misconduct. Ultimately the state needs to devise a way to reward good behaviour, something that is at present lacking from our remuneration structures.
It is also really important that regulators, the regulated, and other stakeholders work together – looking forward to identify emerging problems and address them early, rather than looking backward to ensure compliance. This forward-looking collaboration can help head off a potential market failure. Other significant challenges endure, particularly with the regulation of industry or manufacturing. Simply put, while new regulations to meet international standards were clearly needed in wake of declining investment and dwindling exports, some of the newly introduced rules are overly complex and burdensome, and in-turn promote corruption, higher costs and inefficiencies. For example, today a typical small to medium-sized industry in Punjab has to contend with more than 70 different departments (at federal, provincial and district levels), levies and compliances. And the human resource required, to simply cope with such unhealthy and excessive regulation, invariably dwarfs most other operational departments and costs in an organisation. In Pakistan today there exist more than 27,000 different standards and regulations, which not only leave the industry confused but also seriously undermine the element of cutting costs and optimising efficiencies through economies of scale.
The thing is that there are no easy solutions with regard to regulatory simplification. Important to remember is that while the larger institutions may afford to bear the additional cost of resources required to comply with an enormous set of complex regulations, it is for the smaller firms where proportionality in regulatory applicability will be required. One size does not fit all companies, and it definitely cannot apply to regulations and taxes. There needs to be flexibility and exemptions to ensure that the small and medium sized firms (SMEs) – widely regarded as the lifeline of economic growth and employment generation – are not strangled by red tape but are rather enabled by a legislative structure that strengthens firms in this sector. One must admit that stronger regulations over the years have undoubtedly created stronger institutions that will be able to sustain better than before, however, in an evolving global marketplace, there is a critical need to review and evaluate regulations on an ongoing basis. Regulators need to strengthen ties across the bureaucratic chain (that is with one another) and reach a consensus on major issues, especially after the eighteenth amendment and devolution of a lot of sectors/services to the provinces. Also, they need to be pragmatic enough to adapt to circumstances – thereby pre-empting problems while remaining clear about the objectives of regulation. This coupled with good corporate governance, can help create a better corporate environment and brighter growth prospects for the national economy. Clearly, these are the very areas where we here in Pakistan are struggling today and need to urgently fix such anomalies. The job of creating smarter regulations that also are aligned with global norms is crucial to the future of Pakistani industry and it will be foolhardy to believe that we are even anywhere near achieving the optimum mix and content of industrial regulations in Pakistan – incompetence or complacency will only result in further erosion of the share of our goods in the global markets.