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PAKISTANI INDUSTRIES
PRESENTATION
COST OF
DOING
BUSINESS
SUBMITTE
D BY:
ARSALAN WASEEM
(07192)
FAIQ MEHFOOZ
(07383)
Syed Muhammad
Raza (07380)
UMER RIZWAN
(07191)
TABLE OF CONTENTS
Pakistans Economy...................................................................................................2
Pakistans Economy
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Pakistan main exports are mineral fuels (19 percent of the total
shipments), manufactured goods (19 percent) and beverage and
tobacco (13 percent). Others include: food and live animals (11
percent), crude materials (11 percent), chemicals (11 percent),
machinery (8 percent) and miscellaneous articles (8 percent). Main
export partners are United States (13.6 percent), China (11 percent of
the total export), United Arab Emirates (8.5 percent) and Saudi Arabia
(8.5 percent). This page provides - Pakistan Exports - actual values,
historical data, forecast, chart, statistics, economic calendar and news
The present government is earnestly trying to restore the confidence of
foreign
3 | Page
Starting a Business
Labor Force
Trading across borders
Inflation
Electricity
Registering Property
Taxes
Interest Rates
4 | Page
Starting a Business
Doing Business sheds light on how easy or difficult it is for a local
entrepreneur to open and run a small to medium-size business when
complying with relevant regulations.
Pakistan is ranked among the bottom half of the rankings of the
countries where cost of doing business is quite high. It is not high for
any particular reason but because of our bureaucracy totally sitting on
their seats without taking actions or decisions in time. Unless there is
some pressure or incentive for them, the normal businesses
particularly the small and medium businesses have serious problems
at the hands of bureaucracy. Even if we have investors who are
welcomed by the federal government, when it comes down to
provincial and local governments there are given a run around the
land is not available, the water is not available, the gas is not available,
electricity is not available, road is not available. Lack of coordination
among various government agencies, innumerable laws and
regulations that are antiquated and outdated have proved to be
serious impediments. Labor laws, inspections by multiple agencies, the
delays in the court system, infringement of intellectual property rights
and evasion of taxes by competing firms in the informal sector have
rendered some of the well established firms unprofitable, or the
feasibility of starting near ventures questionable.
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6 | Page
Labor Force:
Pakistan is the sixth most populous country in the world. The estimated
labor
force
is
55.8
million.
Labor force comprises all persons ten years of age and above, who
fulfills
the
requirements
for
including
among
employed
and
Labor Force
37%
Agriculture
20%
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43%
Industries
Services
Pakistan has five different laws relating to the payment and fixation of
wages. These are:
Pakistan's first minimum wage was introduced in 1992 when it was set
at Rs.1,500 (US$ 14.75) per month. It was, subsequently, raised:
in 1996 to PKR 1,650 (US$ 16.22) per month
in 1998 to PKR 1,950 (US$ 19.17) per month
in 2006 to PKR 4,000 (US$ 39.33) per month
in 2007 to PKR 4,600 (US$ 45.23) per month
in 2008 to PKR 6,000 (US$ 59.00) per month
in 2010 to PKR 7,000 (US$ 68.83) per month
in 2012 to PKR 8,000 (US$ 78.66) per month
in 2013 to PKR 10,000 (US$ 98.32) per month
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10000
8000
WAGES
6000
4000
2000
0
1992
1996
1998
2006
2007
2008
2010
YEARS
RUPEES
9 | Page
2012
2013
2014
250000
150000
100000
75000
75000
75000
50000
500000
300000
150000
125000
100000
100000
80000
40000
30000
30000
70000
50000
50000
20000
20000
15000
15000
15000
15000
10000
985000
30000
30000
30000
30000
20000
20000
15000
1700000
(Non-Executives)
Foreman
Supervisor
E Data processing
Supervisor
Boiler man
Electrician
Clerk/Typist
Data Entry Operator
Security Guard
Driver
Unskilled worker
Total
For any business you need Human Resource, its an essential part of
successful business. Therefore its a fixed cost of business which it
need to pay. By looking at the pay scale it is evident that if a business
starts with the above mentioned Human resource than its cost varies
from Rs. 9,85,000 17,00,000. Thus human resource affects the cost of
business.
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All documentation
Inland transport and handling
Customs clearance and inspections
Port and terminal handling
Official costs only, no bribes
INSIDE
INSIDE
DOOR
DOOR
LENGTH
WIDTH
HEIGHT
WIDTH
HEIGHT
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CAPACITY
TARE
MAXI
WEIGHT
CARGO
7'8"
5.900m
2.350
7'10"
2.393m
7'8"
7'6"
2.342
1,172CuFt
2.280m
33.2CBM
4,916lb
47,900l
s
bs
2,230Kg 21,770K
REFORMS:
Some of the reforms to provide ease in doing the business
2011
Pakistan
reduced
the
time
to
export
by
improving
electronic
KARACHI
Time (days)
Cost (US$)
200
inspections
Documents preparation
Inland transportation and
10
4
110
200
handling
Ports and terminal handling
Totals
3
20
150
660
Stages to Import
Customs clearance and
KARACHI
Time (days)
Cost (US$)
2
220
inspections
Documents preparation
Inland transportation and
10
2
155
200
handling
Ports and terminal handling
Totals
3
17
150
725
The cost associated to import and export add on to the cost of doing
business in Pakistan. All the incurred in documentation, custom
clearance, transportation and lack of facilities accumulates and
increase the cost of business.
INFLATION
Inflation is the increase in the general price level of goods and services
in an economy over a period of time. When the price level rises, each
unit of currency buys fewer goods and services. Consequently, inflation
reflects a reduction in the purchasing power per unit of money a loss
of real value in the medium of exchange and unit of account within the
economy.
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INTEREST RATES:
The benchmark interest rate in Pakistan was last recorded at 8.50 percent. Interest Rate in
Pakistan averaged 12.48 percent from 1992 until 2015, reaching an all-time high of 20 percent in
October of 1996 and a record low of 7.50 percent in November of 2002. Interest Rate in Pakistan
is reported by the State Bank of Pakistan.
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Interest rates highly affects those business which are dependent on credit. The rise in interest
rates reflects that the cost of borrowing also increases. As now the business will have to pay
more therefore their cost increases while vice versa is also possible.
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YEAR
EXCHANGE RATE
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
21.71
23.80
25.08
28.11
30.57
31.64
36.08
41.11
45.05
49.50
53.65
61.93
59.72
57.75
58.26
59.51
60.27
60.74
70.41
81.71
85.19
86.34
93.40
101.5
101
petroleum
and
petroleum
products,
chemicals,
transport
ELECTRICITY
Access to reliable and affordable electricity is vital for businesses. To
counter weak electricity supply, many firms in developing economies
have to rely on self-supply, often at a prohibitively high cost. Whether
electricity is reliably available or not, the first step for a customer is
always to gain access by obtaining a connection.
Pakistan had 60 MW of power generating capacity for 31.5 million
people in 1947, and this was extended to 119 MW by 1959, just as the
country was entering a period of development that required consistent
infrastructure. In 1952 the government acquired a majority
shareholding of the Karachi Electric Supply Company (KESC) and in
1958 formed the Water and Power Development Authority (WAPDA).
The purpose of the formation of WAPDA was to manage the growth of
schemes in water and power.
WAPDA expanded the electricity generation capacity to 636 MW.
WAPDA produced 3000 MV in 1970, 7,000MV in 1990, 19,550MV in
2005 and 22,263 MV in 2010. However, fast urbanization and
industrialization increases the demand of electricity day to day
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Registering property
In Pakistan private companies are regulated and incorporated by
companies Ordinance 1984, while SEPC is the regulatory authority
established for companies ordinance, 1984. SECP is the Securities
and Exchange Commission of Pakistan, it is the financial
regulatory agency in Pakistan whose objective is to develop a modern
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TAXES
Taxes in Pakistan play a very vital role for formulating the cost incurred
while doing any business, the journey from starting a business towards
its end contains different transactions, situations where at each and
every step tax is deducted from each and every purchase, or from
salaries or in any investments.
Pakistan's Current Taxation system is defined by Income Tax Ordinance
2001, promulgated on 13 September 2001, which became effective
from 1 July 2002.
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Personal Tax
All individuals, unregistered firms, associations of persons, etc., are
liable to tax, at the rates ranging from 10 to 35 per cent.
Tax on Companies
All public companies (other than banking companies) incorporated in
Pakistan are assessed for tax at corporate rate of 35%. However, the
effective rate is likely to differ on account of allowances and
exemptions related to industry, location, exports, etc.
Good economic governance in areas such as taxation, regulations, and
business licensing is a fundamental pillar for the creation of a favorable
business environment
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INDUSTRY ANALYSIS
Cement Industry
Since the industry faces a situation where sales price will be fixed by
mutual consensus, the cost of production will be the most critical factor
of profitability. Due to increased cost of input such as electricity, coal,
paper bags, mark-up rates etc, the cost of production of cement has
increased over the years.
Energy cost is a major component of total cost of production. It
contributes at an average 40 to 45 percent towards total cost of
cement production. Energy cost is even higher in case of those plant
which use wet process. A cement plant based on wet process
consumes 165 kg of furnace oil to produce one ton of clinker as
compared to 85 kg of furnace oil used in dry process to produce the
same quantity of clinker. Since cement plants use both furnace oil and
electricity, any increase in the prices of these two products is
detrimental to profitability of the industry. Ever since October 1995,
however, there has been more than 60% increase in the price of
furnace oil.
Another significant cost component is packaging material. Cement is
rarely sold in bulk in Pakistan almost all cement sales are in four-ply
paper sacks. Cost of paper sacks has gone up by almost 90% since
December 1994. The packaging cost has also increased due to new
taxes being imposed on import of sack kraft paper.
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A price level of Rs.260 per bag seems to be a viable price for cement
industry, although it is still lower than the cement prices in other
countries. Undue pressure of government to keep the prices lower
than the prices of other countries would prove to be counterproductive
for the economy.
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Taxes on Cement in Pakistan are the highest than most of the countries
i.e. about 30 percent, as compared to 10 percent in Indonesia,
Philippines, Egypt, 7 percent in Thailand and zero percent in Iran and
Malaysia. As such, rationalization of taxes on cement in Pakistan
should be considered.
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Textile Industry
The Pakistan textile industry contributes more than 60 percent (US $
9.6 billion) to the countrys total exports. However, currently this
industry is facing great decline in its growth rate. The major reasons for
this decline can be the global recession, internal security concerns, the
high cost of production due to increase in the energy costs etc.
Depreciation of Pakistani rupee that significantly raised the cost of
imported inputs, rise in inflation rate, and high cost of financing has
also effected seriously the growth in the textile industry.
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Gas Shortage
Gas load-shedding continues in Punjab and NWFP despite a significant
increase in temperature. A spokesman for the All Pakistan Textile Mills
Association (APTMA) claimed that 60 to 70 per cent of the industry had
been affected and was unable to accept export orders coming in from
around the globe. He said the textile industry had already endured
over 45 days of gas disconnection over a period of four months,
causing extraordinary production losses and badly affecting capability
of the industry. In Punjab, energy supply disruption only was causing an
estimated loss of Rs1 billion per day.
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CONCLUSION
Pakistans textile industry is going through one of the toughest periods
in decades. The global recession which has hit the global textile really
hard is not the only cause for concern. Serious internal issues also
effected Pakistans textile industry very badly. The high cost of
production resulting from an instant rise in the energy costs has been
the primary cause of concern for the industry. Depreciation of Pakistani
rupee during last year which has significantly raised the cost of
imported inputs. Furthermore, double digit inflation and high cost of
financing has seriously affected the growth in the textile industry.
Pakistan's textile exports in turn have gone down during last three
years as exporters cannot effectively market their produce since
buyers are not visiting Pakistan due to adverse travel conditions and it
is getting more and more difficult for the exporters to travel abroad.
Pakistans textile industry is lacking in research & development (R &
D).The production capability is very low due to obsolete machinery &
technology.
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INDIA
To begin with here is just a brief overview of the rankings between India and
Pakistan for the different factors/drivers of the cost of doing business.
INDIA
PAKISTAN
Now well look into these factors simultaneously and have an idea of how
much cost is needed or required to do this in each country.
India currently ranks much lower in terms of starting a business than in
Pakistan which clearly shows us that setting up a business in Pakistan is
much more feasible for any random person. The question is why is it feasible
to do it in Pakistan?
While setting up a standardized company in India, it requires nearly 100,000
INR in paid in minimum capital requirement along with a startup capital of 10
times GNI per capita. On the other hand setting up the same kind of a
business in Pakistan requires 0 PKR in paid in minimum capital requirement
along with a start- up capital of 10 times GNI per capita which shows us how
it is much more beneficial for a person to start a business in Pakistan rather
than India and therefore India is ranked lower in this case.
Pakistan is ranked higher in terms of dealing with construction permits than
in India because of the estimated cost associated with constructing a
building in Pakistan currently is PKR 6,601,001 while in India the same cost
would be around INR 4,496,273 which when converted into Pakistan ruppes
would cost around PKR 7425795.40. In terms of registering a property in both
countries, same costs are applied.
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PAKISTAN
It can be seen here that in terms of inflation rate, India has been able to
obtain a much more sustainable position because of its huge population
which results in less inflation. On the other hand, in Pakistan we can have a
fair idea from the above graph that there has been a rise as well as a decline
over the years which affects the cost of doing business in the country and is
one of the most vital factors.
The graph above provides us with a clear picture of how both the countries
over the years have been in terms of interest rates. We can see here that the
interest rate in both the countries over the years have had ups and downs
but recently Pakistan has a relative lower interest rate when compared with
India.
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IN TERMS OF TAXES:
Its clearly
obvious from
the figure to
the right that
in terms of
taxes India
would be more
preferred while
doing a
business
because of its
los sales tax
rate which means that there could be more profit and higher revenues.
Furthermore, here is another picture which shows us the Tax Revues
generated in Pakistan and India comparatively.
Tax Revenue is basically the amount the government receives from its
citizens because of the tax rates.
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COST TO IMPORT
1111111111111
BANGLADESH
Here is just a brief overview of the rankings of Pakistan and Bangladesh in
terms of doing business in their respective countries
BANGLADES
PAKISTAN
Pakistan and Bangladesh are not much parted from each other in terms of
setting up a new business with there being only 1 place in difference. To
make things easier for tis citizens, the government in Bangladesh has
launched various reforms like launching a full-fledged online business name
clearance and registration process, eliminating the requirement to buy
adhesive stamps and further enhancing the online registration system and
automating the registration process and reducing the time required to obtain
a trading license and to complete the tax and value added tax registration.
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It can be seen in the graphs posted above that the inflation rate in Pakistan
is relatively a bit higher than in Bangladesh which tells us that the cost of
doing any business in Pakistan would be slightly higher than doing the same
business in Bangladesh.
The graph above provides us with a clear picture of how both the countries over the
years have been in terms of interest rates. We can see here that the interest rate in
both the countries over the years have had ups and downs but recently Pakistan
has a relative lower interest rate when compared with Bangladesh.
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We can see that in this graph given above as well that sales tax rate in
Bangladesh for quite some time now has been stable since the year 2006
which shows that the cost of doing any business is not much affected by the
taxes. Bangladesh would be preferred while doing business over Pakistan in
terms of taxes because of generating higher revenues and greater profits.
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COST TO IMPORT
EXCHANGE RATES:
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The picture above shows the exchange rates of the currencies of each
currency with US Dollars. We can see it in the graph that in terms of
exchange rates Pakistan has the highest, with Bangladesh and India being
just slightly less than Pakistan.
BIBLIOGRAPHY
Abbasi, N. (2014). Inflation dilemma. Lahore: LCCI.
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