Tuesday, 19 November 2013

The Forgotten Sector: Domestic Commerce

The Forgotten Sector: Domestic Commerce

It has been 8 years since the minister of commerce accepted my advice and research and announced that the Ministry of Commerce also undertake some work on providing a supporting policy framework for pulling domestic commerce out of its suffocated state. He had also announced that the Ministry of Commerce would produce a "State of Commerce" report annually.

At considerable expense consulting reports on domestic commerce were done. But then where is the "State of Commerce (SOC)?" When will the MOC have that?

The following outline for the SOC was agreed between the MOC, DIFD and the UNDP.

The report was to consist of 2 section with 11 chapters.

The first section was designed to cover external Trade. MOC agreed to speak to the country's competitiveness, develop local indicators and analyse trends in competitiveness to determine the appropriateness of policy and regulatory framework. In understanding competitiveness, MOC would also analyse the appropriateness of the macroeconomic framework (fiscal policy, interest rate and exchange rate etc), the benefits and the costs of regulation and the quality of public service provision (electricity, roads railways, legal framework, set-up costs etc).

Note MOC will not be able to affect most of these indicators directly but through the development of these indicators, it will be able to identify the impediments to commerce in the country. Then through public dissemination, it will be able to develop a dialog for change. In any case, the discussion of subsidies and incentives can be put in the perspective of true costs to business. For example, if there are huge regulatory barriers and legal framework problems in doing business, then an interest rate or a transport subsidy is not the appropriate instrument for generating commerce.

For too many years now, we have offered to many industries such as cars through banning or placing high tariffs on competitive imports. MOC would do well to explain this protection policy in a clear transparent manner and tell us how consumers are being taxed for this protection. By giving us a complete picture of protection policy and the costs and benefits of such policy, MOC could develop a discussion of the maintenance of protection policy.

Similarly, many industries are offered subsidies without any transparent public debate. The SOC should provide a tabulation of all subsidies and incentives that the government is offering.
The second main section of the report covers domestic commerce. Internal commerce is the key to economic growth Developing high margin and high value-added products that could lead to acceleration in export growth. Most of our employment is in this area and most if the poor find refuge in this area. Yet MOC explicitly neglects this area. MOC needs to develop work in this area and deepen it over time. This is an area that is crying out for attention. Sectors such as retail, wholesale, construction, storage and warehousing, transport, agricultural inputs and commodities are so underdeveloped that better policies, more information and clearer directions could have a huge payoff.

Understanding the current structure of market regulation in Pakistan, we will attempt to quantify the cost of regulation and its effectiveness. Through this analysis, we can attempt to understand regulation policy as well as competition policy.
It is imperative that the MOC produce this report and the media and intellectuals must push for it. It is only then that we will learn what is happening in the economy. Currently, car import policies are changed at will and with no transparency' the resulting tax burden on the population is not clear. Subsidies are again announced with no transparency or analysis. We have no idea on the state of regulation that prevails in our markets.

Domestic commerce where most of our employment is and where most of our poor are situated remains an orphan child of our economy We have no serious construction. No tower cranes, no large projects. We have no retail chains or serious departmental stores. We have no hotel chains other than Pearl. We have no warehousing or grain storage of any consequence. We have no shopping malls. We have no leisure industry. The list is long. I could go on the whole night.

I ask you in the 21st century why do we not have these major activities to help increase employment and reduce poverty. Because our ministries have no serious thinkers and idea makers Because the donors are not serious about development. UNDP and DIFD hired the consultant who recommended that the MOC should be restructured to take on the responsibility of promoting domestic commerce and the SOC. After the consulting assignment, the donors moved on to the next consulting assignment and the MOC reverted to the usual bureaucratic make-work. Domestic commerce remains stifled and dead.

I guarantee you without domestic commerce reform we will never make economic progress Truncated economies cannot perform at peak.

So please get MOC to produce the SOC in the interests of good governance and economic progress.

As a footnote, it should also be noted that DFID and UNDP upon directions of the bureaucracy refused to pay for the best advice given to he MOC.

A  further footnote: the bureaucracy in the MOC has spent over a billion rupees on building capacity for domestic commerce without any results.