BizCLIR

Certain issues and dynamics are so prevalent across an analytical framework that they bear special mention. They can be thought of as crosscutting themes or topical “layers” that fall over all areas of review. The assessment is organized so that the typical components of a healthy society and a prosperous economy are discussed discretely and then related to each other where appropriate. This format represents much of the Western mental construct about civil society and an individual’s relationship to the state and other organizations. Thus, in order to appreciate the true impact of the unique themes that permeate the findings and recommendations in this report, it is important to keep in mind that they not only overlap and affect all of the separate analytical areas, but each other as well.

Against this backdrop, a number of primary crosscutting themes emerged during the course of this assessment: (a) the place of women in the economy, specifically the impact of Pakistan’s socio-cultural and legal environment on women in the business environment; (b) over-burdened and ineffective court systems; (c) opacity and confusion relating to land ownership and registration; (d) poor education, including especially the education and training of lawyers and judges; (e) inefficient and ineffective institutions; and (g) fragmentation of strategy and reform efforts. The issue of corruption surfaced in many of these themes.

Women
The place of women in Pakistan’s economy emerges as a critical issue across all areas of assessment. Throughout a multitude of interviews, team members were reminded of constraints and compulsions regarding the place of women in Pakistani society, especially in Pakistan’s business and commercial sectors. Perennial issues include women’s participation in organizations and industry; the ability of women to professionally run their own organizations; the special needs of the female entrepreneur; equal access to resources and opportunity; and integration of women workers.

While the quality of life for women and girls in Pakistan has improved in recent years, through better access to paid employment, education, and health, women still lag significantly behind men in all aspects of commerce and society in Pakistan—and Pakistan still lags significantly behind other economies in the Asia-Pacific region. According to the World Economic Forum’s Index on the Economic Empowerment of Women, Pakistan is the “second worse performer of all 58 countries surveyed,” ranking 53rd in terms of economic participation of women and 54th in terms of economic opportunity for women. This has significant implications for Pakistan’s economic growth: it has been observed that “linkages between female participation rates and economic growth rates are quite clear in all instances.” From 1970 to 1990, Asian-Pacific economies experienced a GDP growth rate of 1.96% for every 1% increase in women’s participation in non-agricultural employment, and women’s economic participation may have contributed 35% to 40% of the annual economic growth of newly industrialized countries over three decades.

The many reasons for the gap are mostly rooted in cultural and societal norms. A number of employers interviewed in this assessment, for example, indicated that they would hire more women, but that women generally leave the workforce once they become married. In a highly patriarchal society like Pakistan’s, women take on limited stereotypical gender roles that confine them to the home as a matter of “honor.” Family loyalties (which can extend to distant relatives and tribal members) are accorded priority over other connections, including social and business relationships. Another topic of debate associated with more women in the workplace is the impact on the employability of men: will women be competing with men (including their husbands, brothers, and fathers) for a limited number of jobs, or will their presence contribute to an expanded Pakistani economy and, therefore, more job opportunities for everyone? As noted in the World Bank’s 2005 Pakistan Country Gender Assessment, “the interaction between custom and law within the domain of the family [and within the larger cultural and sociopolitical context] essentially defines the de facto set of opportunities available to women, as well as the barriers they confront in fulfilling other basic needs such as education and health.”

The team did observe, however, that issues of culturally defined inequality, access to education and paid work, and the overall integration of women into the business and commercial arenas in Pakistan are heading slowly in a positive direction. Pakistan is in a period of prolonged economic growth—it has grown 6% to 7% annually for several years—and that growth creates greater openness to social change. The government is generally reformist vis-à-vis the economy. Many men are beginning to discover that having their wives or daughters economically active benefits the household. Colleges and universities are graduating an increasing number of women, and women now constitute more than half of the student population in some disciplines.

Gender constraints and opportunities tend to vary significantly across socio-economic strata. For poor, rural women, a deeper level of customary restrictions on activity and mobility undermines economic opportunity outside the home. At one extreme, within FATA, reportedly less than 2% of girls have access to formal education, and that figure is barely higher in the North West Frontier Province. Throughout Pakistan, micro-lending to women is limited compared to other countries, but seems to be slowly opening minds.

At the upper end of society, there are a number of high-profile women entrepreneurs and businesspeople who tend to perceive less discrimination based on gender. In the vast center, among the urban and peri-urban populations, the roles and restrictions described above still predominate. Programs to assist women should account for these differing conditions among socio-economic groups.

Courts
In a series of landmark decisions from 1997 onward, the Pakistan Supreme Court held that the right of access to justice is a fundamental right. Yet access to justice in Pakistan remains a significant problem, with stakeholders reporting that the courts do little to resolve disputes and serve mostly as a tactical distraction or lever between the parties to a disagreement. Many cases are filed not for the purpose of seeking ultimate relief, but instead for “strategic reasons,” such as to obtain interim relief in order to get the opposing party to negotiate on preferential terms.

A study conducted for the Asian Development Bank found that the average time taken for a civil dispute to be adjudicated in the Sindh High Court (excluding appeals, the allowance of which is almost inexhaustible) was 118 months. One High Court Justice in Pakistan commented that there are at least 25,000 cases currently pending before his court alone. In the lower civil courts, the problem is considerably worse. Real property disputes, which can account for as much as 75% to 90% of the civil docket in the district courts, generally languish in those courts for up to 10 years. The fact that the system is clogged with property disputes means that even non-property disputes (such as breach of contract cases) take incredibly long to adjudicate: a simple lawsuit to enforce a contract involves more than 50 procedures and takes almost 900 days to conclude. According to practitioners, this estimate is understated, with simple suits sometimes taking as many as four years to collect upon. And the use of specialized courts does not improve the problem. In matters brought before the labor courts, for example, a period of 8 to 12 years (including appeal to the provincial High Court) is not uncommon.

Assertive case management by the judges is non-existent. Judges often spend the day calling attorneys to appear before them in person in order to simply issue another continuance in their case. Legal reforms aimed at a more efficient judiciary have not gone far enough. There is little public confidence that the courts—as currently structured and given the subsistence wages paid to most judges—will soon fulfill their mandate of timely, efficient administration of justice. Reform will require both long-term institutional work with the courts and shorter-term solutions focusing on self-help and alternative dispute resolution (ADR). Automation and case management improvements will not overcome inherent defects; they will only allow courts to do the wrong things more quickly. The levels of dysfunction identified by respondents suggest that there are design flaws in the judiciary that cannot be corrected through efficiency gains. Better education and training of judges are needed (the current six-month judicial academy is inadequate because most of the time is spent teaching the basic principles of law that were never learned as part of the fundamental LLB education). Judges need to be better paid. Clearer procedural rules need to be implemented and judges need to be instructed in effective methods of case management, including the use of summary disposition, cost (wasting) orders, and striking of pleadings, where appropriate.

Courts should be the last resort for resolution of disputes, but this requires other viable options. Recent legal reforms have introduced court-annexed arbitration and mediation, but these new tools are underutilized. Judges complain that these tools impinge on their jurisdiction, describing ADR as “outsourcing of justice.” Unfortunately, there is reason to believe that some of this protest arises from the loss of rents (i.e., informal and illegal fees) collected by judges at some point during a case. Practitioners note that judges are seriously underpaid, and most interviewees perceive that rent-seeking behavior is common. This is echoed by the findings of Transparency International, which ranks Pakistan 142nd out of 163 in its most recent Corruptions Perception Index. Moreover, the arbitration law is fundamentally flawed: arbitration decisions are not binding, and thus can be ignored by a recalcitrant party and even overturned in court. This may explain why various business and professional associations have been slow to develop the ADR services that are common in many other countries. As a result of the weakness of ADR in Pakistan, the overall enforcement system is weaker and less reliable.

Unsurprisingly, women experience greater problems with the courts than men. The judicial system is generally unsupportive of women claimants because of their lower levels of education and business sophistication, and because of general norms against women in public places. (Norms against women in public places persist particularly in rural areas, where women are sometimes not allowed to travel without a male escort, much less appear in court on their own behalf.) Exceptional women are able to use the court system as effectively as men, but they are, indeed, exceptions. Women are less likely to use the court system to enforce their rights, to the extent that enforcement is currently possible, and are less likely to be able to defend their interests in court against a claim.

Land ownership
The ability to freely own land and to easily transfer and register that ownership is a fundamental requirement of business and economic growth in a free-market economy. Land and improvements to land are the foundation for wealth creation. A strong legal and institutional framework for land ownership is imperative in order for businesses to own, use, and sell all types of property; manufacture and sell products and services; raise capital; and obtain credit. Indeed, secure ownership of property and an objective, transparent, and uniform system of property registration are necessary in all economies. Throughout this assessment, a recurring theme is that problems with land registration and clouds on land title (including leasehold interests) are severely impeding a variety of desirable outcomes: the ability of entrepreneurs—especially women—to start businesses and obtain capital; the security of investments in real property; the efficiency and effectiveness of the courts in all civil matters; access to credit; and the overall economic growth of Pakistan.

An overwhelming majority of interviewees identified problems with land registration and transfer of title as the single biggest problem confronting Pakistan’s ability to create a more effective enabling environment for business and trade and to promote stronger economic growth. The legal and institutional systems relating to land registration and transfer of title are quite slow (measured in terms of months and years). They are also complex, opaque, and inconsistent within and between the several provinces (and especially between rural and urban areas). In addition, there are important social concerns arising from poor understanding and awareness of the laws, access to the implementing institutions, and enforcement of property rights, especially among women.

Real property—land and buildings—can be a major source of security for credit, especially mortgage and construction lending. As very little land or other real property (such as apartments) has clear, registered title, use of real estate to secure credit is problematic in Pakistan. Banks may lend up to 70% of the value of titled property, but remarkably little property with clear title is available. The land registries, such as they are, do not register ownership of land, but rather tax obligations based on use. Registration may be evidence of ownership, but it is not universally accepted as proof of ownership. In fact, it is possible under existing law for a person to make a gift of land to another without registering the exchange, and what appears to be good registered title may have been superseded by an unregistered transfer of title. A lender cannot know whether the land being offered as collateral has been given to another person who may have a legitimate claim on the property should the borrower default. Consequently, banks are reluctant to rely on mere registration.

Even when a bank is willing to lend money in such cases, it may decide only lend up to 50% of the value of the secured property in an effort to minimize the bank’s risk. In other countries with more robust systems of title, it is not unusual for financial institutions to lend 90% (or more) of the value of a property. That 40% differential is dead value, an opportunity for economic growth lost as a direct consequence of a dysfunctional system of property regulation. This loss is further magnified by relatively high interest rates imposed due to the inherent risks involved. Without extensive improvements in the land titling system, Pakistan’s real estate lending will remain stunted and relatively unavailable as a source of capital for commercial expansion and overall economic growth.

Problems with land registration and lack of clear title also severely impact access to justice for all Pakistanis. The huge numbers of land disputes that clog the courts prevent other litigants from pursuing legal redress and prevent the system from enforcing other areas of legal rights. These disputes arise primarily from inaccurate records (including multiple registrations by different parties of the same land interest and poor boundary descriptions that cause overlapping claims), a multiplicity of institutions with jurisdiction over the registration processes, and many opaque processes.

The opacity of the processes of land registration and lack of clear title also lead to a further social issue: significant opportunities for rent-seeking by the people involved in the processes. In most areas of the country, for example, a low-level government revenue official—the Patwari—has enormous and exclusive power. The Patwari holds the only land registration records in the jurisdiction, and has exclusive authority to note any changes in the land ownership. The Patwari is also the only official surveyor of the lands within a given jurisdiction, and, as such, determines the boundaries and is the sole arbiter of any boundary disputes. The Patwari’s records are all manual, usually carried with the Patwari, and most Patwaris maintain no official office for conducting their duties. The system is opaque, subjective, and subject to abuse. The system is also is widespread: while generally thought of as a system that is only used in rural areas, Patwaris also have authority over lands in urban areas (such as nearly a third of urban Karachi) that, while legally defined as rural or “agricultural” lands, have actually been subsumed by urban growth and, in many cases, are actually owned by urban development authority.

Education
From 2002 to 2004, Pakistan spent less than half as much of its money on education as did nearby Iran and Kyrgyzstan, and considerably less than India and Bangladesh. As a result, literacy levels are low, though improving. There are some excellent schools producing well-educated professionals, but the supply is far below the demand.

Historically, Pakistan’s business community has seemed unaware of the need for an educated workforce. In fact, many in the business community may have preferred a less educated workforce which, in turn, is less aware of its rights and less likely to challenge management.
The quality of education, however, has a major impact on Pakistan’s ability to create an enabling environment for business and trade. The ability to employ workers, for example, is negatively affected, because the supply of even semi-skilled labor is extremely limited. The various vocational and technical institutions operating around the country graduate just 250,000 students annually. A common complaint of industry about government vocational and technical training schemes—especially those that are centrally planned and managed—is that they are unresponsive to the needs of tomorrow’s industry. The national annual requirement is thought to be one million graduates.

The quality of the courts and overall access to justice and enforcement of legal rights are also directly affected by poor education. Several judges interviewed for this assessment decried the low quality of the bench and bar. In the first instance, higher education in Pakistan is only now beginning to emerge from decades of neglect. Pakistan’s highly educated lawyers with international experience do handle sophisticated legal matters, advise and comment meaningfully on existing laws, and even propose legal reforms. But these lawyers are virtually all foreign-educated: traditionally, lawyers educated in Pakistan are graduates of law colleges, only some of which are even loosely associated with universities. Despite graduating with LLB qualifications, their actual knowledge of most areas of law is limited and quite uneven across parts of Pakistan. Because property disputes have been the staple of most Pakistan-educated lawyers, higher quality legal education has not been viewed as a priority in the past. As the Pakistan economy grows and globalization continues to take effect in Pakistan, however, a shortage of lawyers with expertise in subjects of business and commercial law, corporate law (including mergers and acquisitions), tax law, intellectual property law, and other more sophisticated areas of both domestic and international practice will directly affect economic growth and business expansion.

The quality of the judiciary is directly related to the quality of the bar from which judges are selected. One interviewee commented that it is “easy to get a law degree, but hard to practice,” and unemployment pushes unsuccessful lawyers to become judges. As a result, time is spent in judicial academies teaching basic law that ideally would have been learned in law schools, and even then relatively little can be accomplished in the training period of only six months. Judges lack expertise in many areas of law that are brought before them, a problem that is especially crucial in adjudicating complex rights such as those that arise in the context of intellectual property and company law. Moreover, there is no judicial continuing legal education program at present, although there reportedly are plans to implement a program in Karachi.
The bar associations in Pakistan are not effective in promoting better education and training of lawyers. In other countries, the organized bar is often a source of basic and continuing legal education, information and expertise on cutting-edge legal developments, and the promotion of legal and regulatory reforms. The bar associations in Pakistan vary in their organized efforts in this regard, although there were reports of regular meetings among chambers of commerce and lawyers to examine reform needs.

Apart from legal education, overall university education has also suffered years of neglect. Until very recently, there was little research of value being conducted in any of the universities, especially in areas other than the hard sciences. To the extent there was any work being done with respect to the social sciences, such work was often conducted by an intelligentsia still mourning the demise of the Soviet Union. While there are now some signs of improvement (such as the new school for Law and Public Policy at the Lahore University of Management Sciences), this lack of institutional capacity (especially in the social sciences) has led to an increasing absence of leadership in government and business, and to a general lack of understanding and awareness across all sectors of the Pakistani economy about how to develop a strong free-market economy.

Fragmentation
Pakistan’s existing systems of economic governance and regulation reflect the piecemeal interventions of history, not a planned, strategic approach to market oriented reform. As a result, many of the regulatory systems are fragmented and disparate, with no overall direction toward a strategic goal. Labor suffers from more than 150 separate regulations and laws that have been introduced in a piecemeal fashion. Land is burdened by disaggregated systems, a holdover from an unreformed colonial legacy. Credit is hindered by gaps between sections of the separate parts of the overall credit framework. And socio-economic disparities are a challenge for all reforms, as changes affecting one group—rural, urban, or peri-urban—may not achieve desired results for another.

This situation is understandable. Pakistan inherited a system designed under colonial rule, partially adapted at independence, and rearranged repeatedly in accordance with fluctuating political and ideological changes in government. As a result, there is no focused, comprehensive vision for what is needed in the disparate parts of the economy, much less for the economy as a whole. A number of very effective reforms have recently been championed by solid leadership in the banking sector under the State Bank of Pakistan (SBP), but the impact on overall access to credit was limited because the reforms did not reach the problems affecting banking in other sectors.

The situation is reversible. Meaningful change will require deliberate, strategic analysis of each of the areas covered in this report, together with extensive use of participatory processes. The current government is generally business-friendly, and has begun some forays into better communication with stakeholders. But more work is needed. Continuing piecemeal reform may achieve some benefits, but will not result in the transformations required to give Pakistan the economic capacity it needs to provide for its future.