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The rising cost of doing business

The rising cost of doing business plays a role in stalling economic development much like a lethal weapon does after being fired. It strikes at the heart of economic vitality, creating barriers that prevent businesses from thriving and economies from growing. In a globalized world where businesses constantly seek out the most advantageous conditions, the rising cost of doing business can be as destructive as any weapon, crippling both enterprises and the broader economy.

The cost of doing business refers to the total expenses incurred by companies in their day-to-day operations. These costs can be categorized into several key areas.

Operational Costs include the expenses directly related to production and service delivery, such as wages, rent, utilities, and raw materials. Administrative Costs encompass the broader expenses necessary for a business to function, including office administration, legal services, and marketing efforts.

Regulatory Compliance, which may involve taxes and licensing often, adds a significant financial burden. Costs related to financing, such as interest rates and the availability of credit are critical. High financial costs can deter new ventures and limit the expansion of existing businesses.

Consequences of High Business Costs on the business sector are scariest. When the cost of doing business escalates, the impact on companies can be severe. Increased costs directly reduce profitability, limiting a company’s ability to reinvest in growth, research and workforce expansion.

Businesses operating in high-cost environments may find it challenging to compete with those in regions where operating expenses are lower, leading to a potential loss of market share.

Over time, sustained high costs can lead to stagnation. Businesses may scale back operations, reduce their workforce or even shut down, leading to broader economic repercussions, including higher unemployment and slower economic growth. High costs create substantial barriers to the market entry, reducing competition and innovation. This can result in a less dynamic business environment, dominated by a few large players.

On the global stage, countries with high costs of doing business often struggle to attract foreign direct investment. Investors are naturally drawn to environments where they can achieve the best returns, and high operating costs can make a region less appealing. This can be particularly damaging for emerging economies, where additional challenges like inadequate infrastructure, bureaucratic inefficiencies, and corruption exacerbate the issue, widening the gap between developed and developing nations.

The question is: how to address the challenge? Both governments and businesses must take proactive steps to mitigate the high cost of doing business.

Simplifying and rationalizing regulations to reduce bureaucratic red tape and compliance costs can create a more business-friendly environment. Investing in infrastructure improvements such as transportation, energy and communications, can lower operational costs and increase efficiency.

Facilitating access to affordable credit and financial services is crucial for business growth, especially for small and medium-sized enterprises. Investing in education and skills training ensures that businesses have access to a well-trained workforce, which can enhance productivity and reduce costs.

Encouraging innovation through financial incentives, grants for research and development and support for startups can help businesses discover new ways to reduce costs and improve their market position.

Addressing the issue of cost of doing business requires a concerted effort from both the public and private sectors. By implementing thoughtful policies and fostering an environment conducive to business, countries can counteract the negative effects of high operational costs. This will pave the way for a more vibrant economy, characterized by robust growth, job creation, and improved living standards for all. The challenge is substantial, but with strategic action, it is a challenge that can be overcome.

Here, I would like to mention that this August marks 17 years since my father, the late Muhammad Shafi Malik, returned to his Creator. He was a man of great honor, recognized with the prestigious Sitara-i-Imtiaz for his contributions for the country. Despite the passage of time, it feels as though the days of my childhood and youth, spent under his protective and guiding presence, were just yesterday. His influence and the values he instilled in me remain vivid as if they were imprinted only a moment ago.

August has taken on a profound significance in my life. It is a month that symbolizes the dual blessings of freedom and remembrance. On one hand, it is a time when our nation celebrates the precious gift of independence—a freedom that was hard-earned and is cherished by all Pakistanis. On the other hand, it is a month of personal reflection for me, as it marks the time when my father completed his journey in this world and transitioned to his eternal life.

In August, I find myself immersed in a blend of pride and nostalgia. Pride in the independence our nation enjoys, and nostalgia for the man who shaped my life, who played his role on the world’s stage with dignity and grace before embarking on his eternal journey. His memory remains a guiding light, a reminder of the values he upheld, and the legacy he left behind.

Iftikhar Ali Malik, "The rising cost of doing business," Business recorder. 2024-08-14.
Keywords: Economics , Economic development , Business costs , Operational costs , Financial services , Innovation , Employment , Muhammad Shafi Malik , Pakistan

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