Promoting Domestic Commerce

Sana ShahidPlanning Commission

• Flow Chart

• Potential of domestic commerce

• Current features and quality of domestic commerce

• Constraints to growth of domestic commerce

• Reforms for domestic commerce

• Conclusion

2

Outline

Domestic Commerce Process

Overall Regulatory Environment

Storage and Warehousing Transport Wholesale and

Retail Trade

• Competitiveness• Eliminating Protectionism:• Subsidies and

incentive regimes

• Market Regulation in Pakistan

PRODUCTIVITY INDUCED DOMESTIC COMMERCE

Potential of Domestic Commerce

Domestic Commerce Share in GDP

Source: Pakistan Economic Survey 2009-10

Sectoral Share in Employment

Source: Pakistan Economic Survey 2009-10

Retail is the front end of the market and will allow many upstream industries to be developed (e.g. Chen One)

Brand names will be developed and innovation in products and services is brought to the consumer through retail networks (e.g. Nirala, Masoom’s café)

Openness and competition will bring international quality at competitive price to consumers (e.g. telecom sector)

Jobs and skills will be created in modern retailing and supply chain networks and develops credentials of suppliers of goods etc. (e.g. Metro)

7Source: Haque and Waqar (2006)

Potential of Domestic Commerce cont’d..

Current features and quality of Domestic Commerce

Business Sophistication

Source: Global Competitiveness Report 2010-2011

Lower number implies higher ranking out of 139 countries

Goods Market Efficiency

Source: Global Competitiveness Report 2010-2011

Lower number implies higher ranking out of 139 countries

Constraints to Growth of Domestic Commerce

Constraints to Domestic Commerce

• Outmoded Urban Management and Land Utilization

• Legal Issues and Regulatory Environment

• Regulated and Inefficient Transport Sector

Outmoded urban zoning and building regulations do not facilitate commercial development

Commercial plots are as small as 100sq yards and seldom over 600 sq yards

High commercialization fees discourage commercial development.

No zoning for warehousing and distribution – result: warehousing is mostly in dilapidated old housing

Urban Management responsibilities not well-defined: too many regulatory bodies with non-uniform building bye-laws

13Source: Haque (2006), CDA (2005)

Aabpara Market, Islamabad

Urban Management and Land Utilization

Blue Area, Islamabad

CDA has outlined the following standards for residential schemes being built in zones 2, 4 and 5:

Residential 55%Open/Green Spaces/Parks 8%Roads/Streets 26%Grave Yards 2%Commercial and Parking 5%Public buildings 4%

Source: CDA Modalities & Procedures, (1993)

Emphasis is on residential housing with only 5% allocated to commercial areas and parking – result: small and cramped shopping areas

Islamabad Residential Scheme Planning Standards

Weak contract enforcement hinders supply chain development

Lack of intellectual property right protection

Acquiring land very difficult, uncertain and time consuming - Issues of titles and consolidation

Taxes like stamp duties and property tax, and outdated rental laws also discourage commercial development

Govt. locates industry in industrial zones, no commercial or retail parks

15Source: PIDE (2006), Global Competitiveness Report 2010

Legal Issues and Regulatory Environment

Regulated and Inefficient Transport Sector

Truck fleet is aging, truck sizes are small and transport efficiency is very low

Rail System handles only 4% of domestic cargo (a decline from 14% in 1990)

Source: Economic Survey of Pakistan 2007-2008

Reforms for Domestic Commerce

• Commerce-friendly urban management and zoning

• Making Farm to Market Supply Channels Efficient

• Demand-Driven Approach for Domestic Commerce– Improving Quantity and Quality of Retail Outlets

– Competition in Value Chain Development

Reforms for Domestic Commerce

Excess Demand for Hotels, Restaurants,

Office Space

Excess Demand for Retail Space

No Space for new ideas and poor entrepreneurs

Develop City Centers Set up Retail Parks and Bazaars

• Construction boom: employment generation• Real estate agents, contractors, lawyers, technicians, architects, construction workers

• Excess office/retail demand fulfilled• Employment generation once the city centre is developed and businesses crop up

Shor

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Term

Domestic Commerce Model

• Poor retail vendors (khokhas, rehri walas) have space to set up business

• Young entrepreneurs can display new products – promoting innovation

Commerce-friendly urban management and zoning Urban management that encourages mixed use

areas, city centers and commercial development

Taxes, legislation and zoning and building regulations should not penalize commercial development

Provide clarity in zoning and building regulations to allow for more and bigger warehouses and cold chain services

City center government land should be privatized and those large tracts be made available for mega commercial projects

20Source: Haque and Waqar (2006)

Urban Management and Land Use Reforms

The proposed policy strategy starts with consumers and works back to link into supply systems with the producer

Improving Quantity and Quality of Retail Outlets Weekly bazaars and other public markets should be expanded to more

locations and should cover more or all days of the week

Competition in Value Chain Development Free entry and exit of participants in the market (without special

privileges or licenses) promoting healthy competition Liberalizing policy allowing for mobility with greater fairness and

competition for Wholesalers Private investment encouraged

21Source: USAID Report 2010

Demand-Driven Approach for Domestic Commerce

Adapting best practices

Following the example of the ‘best city’ in each of the indicators, an average business can save on average, US $ 1,580

Indicator Avg. Amount saved (US $)*

Starting a business 73.28

Dealing with construction permits(better procedures) 48.84

Dealing with construction permits (better time) 845.43

Registration of property 612.85

Total 1,580.39

*Calculated using data from the ‘Doing Business Report 2010’

How to do this?• Merge steps and offices:

– In Pakistani cities currently, five offices have to be visited before one can start up a business.

– In Jordan and Egypt, tax registration was given to the registrars, which considerably reduced time for businesses

• Simplification of the system: – Average time taken to file taxes in hours per year is 560 in Pakistan compared with the

South Asian average of 284.5 hours.– Pakistan can help firms by reducing the procedures and making the system less

complicated through fewer administrative procedures.

• Strengthen Alternative Dispute Resolution (ADR) System: – ADR systems have proved successful in Pakistan.– The Karachi Centre for Dispute Resolution (KCDR) was set up to settle disputes through

ADR system and has proved successful

Source: Doing business in Pakistan 2010

• Deregulation of cities to allow growth of domestic commerce

• Openness and competition to bring international quality goods to the market and promote innovation

• Legal framework must be made supportive of the complex needs of diverse domestic commerce development

24

Conclusion