Pakistani start-ups: The next innovation district
Published in Nov-Dec 2018
The evolution of the entrepreneurial ecosystem in Pakistan has been impressive to say the least. It has grown from a state of non-existence 15 years ago to a multi-stakeholder industry that is fast being validated globally.
The ecosystem – a snapshot
A 2017 report by Planet N and supported by Karandaaz Pakistan and the Lahore University of Management Sciences examined the challenges of the start-up ecosystem. It estimated that the number of start-ups launched after 2010 increased to 723, with 68 raising funding, of which six secured an investment greater than $500,000. An accumulated $20 million was raised by start-ups and $49 million by mid-stage companies. This growth has been supported both by infrastructural and policy measures. Over the past six years, start-up facilitation centres, including business incubators, accelerators and co-working spaces, have emerged across Pakistan, some backed by the Federal Government’s National R&D Fund. International business competitions are held all year round, thereby providing young entrepreneurs with the opportunity to have their business idea validated at an early stage. The year-round activity of the industry culminates into two large-scale international platforms, 021Disrupt and Momentum. Not only do they bring the entire ecosystem together, the sector is pitched in a holistic manner on a global level.
Policy and the ecosystem
On the policy front, measures have been taken by the Government to promote high-growth firms, thereby strengthening the ecosystem. As a result of the orientation towards one-window operations for legal paperwork, Pakistan now stands at 136 on the World Bank’s Ease of Doing Business Index, a jump of 11 places from last year. This compares to India’s 77th position and Bangladesh’s 176. To tackle the issue of seed capital, an entrepreneurial loan scheme for young people was launched by the Federal Government in 2014. This provided subsidised financing on an eight percent annual service charge basis. In the FY18-19, it is expected to benefit 2,800 applicants with Rs 3.7 billion. (A similar policy, Arabuma, was launched in Sri Lanka under the ‘Enterprise Sri Lanka’ programme in which a tax exemption was introduced for start-ups in 2017, acting as a financial incentive to scale; in Pakistan, start-ups are still struggling for such exemptions). The National IT Policy was launched in Pakistan in 2016 and if implemented in its true spirit, it will further level the playing field for start-ups. The digital policy presented by the incoming government makes mention of creating Knowledge Economy Authorities across Pakistan, ensuring standardisation of enterprise systems to improve governance, with an emphasis on ensuring the integrity and security of national databases.
As a result of the orientation towards one-window operations for legal paperwork, Pakistan now stands at 136 on the World Bank’s Ease of Doing Business Index, a jump of 11 places from last year. This compares to India’s 77th position and Bangladesh’s 176.
Although the Government aspires to create special economic zones (SEZs) to increase the ease of doing business, the focus should rather be on building IT parks and innovation cities like those created in China and Malaysia for example. This will create massive opportunities for start-ups to grow into SMEs (traditional SMEs in Pakistan create over 80% of the jobs in Pakistan).
So are we there yet? Nurturing infrastructure and supporting policies are in place for entrepreneurship to thrive and the private sector is contributing to the ecosystem as well. The numbers are showing an encouraging trend. However, there is still a lot that needs to be done.
Let’s consider the three major stakeholders: entrepreneurs, government and investors.
Young people need to examine the socio-economic situation in a larger context in order to identify problems they can solve by bringing in innovation. Apart from providing solutions to real life challenges, scalability and replicability can be drivers of job creation and attract seed investment – and add value to the economy. As innovation is the core feature on which ideas are based, the start-up is categorised as transformational and will have the capability of impacting other sectors through a ‘knowledge spill-over’.
Must play a multi-dimensional role. To enable start-ups to become a part of global value chains and contribute to the economy effectively, the Government has to maintain a structural growth level. This implies facilitating supporting sectors such as digital payments both in a horizontal and vertical dimension. In addition, the Government needs to play a proactive role in helping start-ups access finance. For example, to attract and facilitate foreign investment, the operational process must be simplified with one-window operations and the legal and minimum amount requirements lowered.
To enable start-ups to become a part of global value chains and contribute to the economy effectively, the Government has to maintain a structural growth level. This implies facilitating supporting sectors such as digital payments both in a horizontal and vertical dimension.
The local business community should adopt a more risk-favourable approach and support start-ups. Idea Croron Ka, Pakistan’s first business reality show, is playing an active role in this respect.
The entrepreneurship ecosystem has been developing fast. However, to step up the game, it is imperative that opportunities are created for stakeholders to acquire international exposure. Tech giants such as Amazon, Facebook and Google are supporting local entrepreneurs. However, we need to learn from international systems and replicate them in our ecosystem with cultural modifications. Collaborations have been taking place on an international level with start-up exchange programmes and the time has come for the Government to initiate bilateral ties based on entrepreneurship and innovation. Global issues need to be resolved together.
The entrepreneurship landscape of Pakistan is progressing, yet the journey has only just begun. Every ecosystem comprises four core elements: founders, investors, mentors and facilitators.
We need more founders who are passionate, experts in their work and willing to pivot but never give up on their dreams.
We need more investors willing to invest money and, more importantly, their time and contacts. CEOs from the SME sector need to take a leap of faith and invest in young entrepreneurs rather than invest in real estate. This shift needs to happen!
They should be intrapreneurs or entrepreneurs themselves. They need to have the ability to ask the right questions and give strategic direction to the founders as well as follow up and take responsibility for the advice they give. Our ecosystem still lacks dedicated mentors in large numbers. Young founders can become the mentors of tomorrow – they must give back.
They are the people who run incubators and accelerators, want to become bridges between start-ups and the industry, and are willing to go the extra mile.
Nabeel Qadeer is the Chair of UNCTAD – Commonwealth Entrepreneurship Project in Pakistan, and the CIO of the Superior Group.
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