The number of new companies registering with the Securities & Exchange Commission of Pakistan (SECP) has stagnated since FY21. The last significant jump was the 51pc increase in FY21, which the SECP credited mostly to its digital efforts, with 99pc of the firms being incorporated online.

Even with the monetary policy rate tapering down, the current economic climate is not conducive to starting a new business. Sky-high taxes push businesses to the informal sector, where there is no need to register a company with the SECP.

Many individuals opt to start their businesses in the informal sector primarily because of the government’s cumbersome procedures, including excessive red tape. Excessive government intervention, characterised by pervasive rent-seeking, has created a challenging business environment in Pakistan. Regulatory policies, exacerbated by corruption and inefficiency, impose significant hurdles on businesses, stifling growth and hindering economic development.

Talk to any businessman, and he will tell you that he has dual accounting books — one for official audit purposes and the other that registers actual transactions, regardless of his honesty or patriotism. Operating a business in Pakistan means accepting a certain amount of under-the-table payments that need to be made to the officials of regulatory bodies. In such a scenario, it makes more sense for companies to remain below the radar rather than attract the attention of nefarious elements that can stem from anywhere. The recent abduction and return of industrialist Zulfiqar Ahmed, CEO of Cola Next, is a case in point.

One real estate builder once said to this scribe with agitation that, “you should try to get approvals without a journalist card, and you will see how hard business is in Pakistan”. In such a scenario, what business would be incentivised to register itself with the authorities?

Published in Dawn, The Business and Finance Weekly, August 5th, 2024