Western companies continue to exit Pakistan citing corruption

Source:  Pakistan Herald Published in Business & Economy on Saturday, January 31, 2015

It’s not just the increasing cost of doing business in Pakistan driving away western investment. It is the ease of conducting business that is becoming a problem for many companies.

Many companies find problems with the speed in which tasks are accomplished in Pakistan. With an energy crisis leaving many  without power for hours a day and oil and gas shortages as just the tip of the iceberg; it is corruption that many are finding a problem in Pakistan.

Walt Disney pulled approximately$200 Million dollars worth of yearly textile production from Pakistan and put the country on a banned list of approved supplier countries. The company labeled Pakistan as a risk to their flow of business.

"After much thought and discussion, we felt this was the most responsible way to manage the challenges associated with our supply chain," said Bob Chapek, president of Disney Consumer Products in a statement.

He added that the decision is based on a recent report from the World Bank, which assesses how countries are governed, using metrics like accountability, corruption and violence, among others.

Last week Canadian menswear label and retailer Kanati Co. also recently announced major losses in Pakistan due to corruption, extended down-times and supply chain issues. 

“As an organization that serves clients globally, we just can't afford the disruption and down time in Pakistan. Our clients depend on a fast and reliable service. We can no longer wait and hope for improvements in Pakistan" said company co-founder Liam Massaubi in a press release on the International Business Times. He continued to say "We recognize when it is time to cut losses and move on. There are added benefits of a domestic manufacturing approach where we are able to control all of the variables, which we cannot do in Pakistan"

Kanati Co. followed Walt Disney in placing Pakistan on a banned list of approved countries it will accept as a supplying country.

Western companies are finding themselves in a situation in Pakistan where they are completely unprotected.The overall perception is that Pakistani law enforcement is ineffective and corrupt.

But it is not just the government who businesses need to deal with in Pakistan. Many companies cite substantial losses from dishonest business associates in Pakistan. When something like this happens; the police do not act and they are left with no recourse.

An environment such as this is extremely unattractive to foreign investment. Instability drives prices and there is no real benefit from doing business in Pakistan. If a company can re-shore and accomplish the same job for a similar cost by time you account for all the added costs and down-time in Pakistan; the country becomes an unnecessary risk.

“South Asia now is the worst region in the world when it comes to corruption based on our studies,” said Srirak Plipat, Transparency International’s regional director for Asia Pacific.

The watchdog group found serious problems with anti-corruption efforts in Bangladesh, India, Maldives, Nepal,Pakistan and Sri Lanka.

All six countries have public bodies charged with stopping corruption, but “their hands are tied by political control over the staff appointments and budget,” the group said in a report.

“The lack of political will on the part of the governments to make laws work means that government action to fight corruption is largely ineffective,” the report added.

Pakistan is a country on the decline according to the World Bank’s “Ease of Doing Business” ranking system that places the country at only 128 of 189 countries. 

Unless the Government of Pakistanis willing to step in and offer foreign investment protection and make drastic improvements to law enforcement; we may continue to see more western companies making exits from the region hastily.

 

 


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Written by Nondo Bezi

Author Information: Nondo Bezi is a business analyst who spent years in the financial sector before...


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