Shadow Entrepreneurs Dominate Pakistan's Underground Economy
By Riaz Haq
Pakistan has 109 informal entrepreneurs for every formally documented entrepreneur, ranking the country 4th in the world for the size of its shadow economy, according to a study published by Professor Erkko Autio and Dr Kun Fu of the Business School of London's Imperial College.
Pakistan's 109 shadow entrepreneurs for every officially registered one rank it 4th behind Indonesia's 131, India's 127 and the Philippines' 126. Egypt ranks 5th with 103 shadow entrepreneurs.
The UK exhibits the lowest rate of shadow entrepreneurship among the 68 countries surveyed, with a ratio of only one shadow economy entrepreneur to some 30 legally registered businesses.
Shadow entrepreneurs are individuals who manage a business that sells legitimate goods and services but they do not register it. This means that they do not pay taxes, operating in a shadow economy where business activities are performed outside the reach of government authorities.
The shadow economy results in loss of tax revenue, unfair competition to registered businesses and also poor productivity - factors which hinder economic development. As these businesses are not registered it takes them beyond the reach of the law and makes shadow economy entrepreneurs vulnerable to corrupt government officials.
In a study of 68 countries, Professor Erkko Autio and Dr Kun Fu from Imperial College Business School estimated that business activities conducted by informal entrepreneurs can make up more than 80 per cent of the total economic activity in developing countries. Types of businesses include unlicensed taxicab services, roadside food stalls and small landscaping operations.
A 2011 World Bank report titled "More and Better Jobs in South Asia" showed that 63% of Pakistan's workforce is self-employed , including 13% high-end self-employed. Salaried and daily wage earners make up only 37% of the workforce .
M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE), have published their research on their estimates of the size of Pakistan's shadow economy.
They have explored several published different approaches for sizing Pakistan's underground economy and settled on a combination of PSLM ( Pakistan Social and Living Standards Measurement ) consumption data and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08".