In our recent conversation with Syed Ahmad: CEO of DPL we discussed the macroeconomics for fostering entrepreneurship. He highlighted the main reasons for why when have lagged behind wen it comes to IT.
We have lagged behind when it comes to capitalizing on IT. What do you believe the reasons are?
There are many reasons; some of them were out of our control. The biggest reason has been the War on Terror after 9/11. In terms of the infrastructure, our ranking is not that bad. However, if we look at it from the perspective of political instability, that is the reason for big IT contracts not coming to Pakistan. We’re in a knowledge economy where trade happens with the movement of people, not movement of goods. This issue related to the free movement of people has not been resolved and no one has worked on it. For big IT contracts, one needs to meet potential clients face to face. Law and order, country’s perception and political instability are some of the other big reasons. I think some of those things have improved. Another big issue has been the lack of good leadership for the IT sector. People who look after the trade and business sectors understand the industrial side of things and not IT; they don’t understand the knowledge economy. You would find IT savvy bureaucrats very rarely. This discourages people from doing and growing IT businesses, which is a major problem.
It is due to this that many accidents also happened, like the call center industry in 2006, which went down when the only fiber optic channel got cut off. When you don’t have people at the top who understand these things, it becomes very difficult for the IT industry to prosper. These things happened because of which we lost 15-20 years in which Pakistan could have prospered in this sector. When they come into that market with the aim to generate revenue, they realize that it’s not easy to work in Pakistan. Until they stay in incubators, they do fine, but when they go out into the real world and are faced with the policies and regulations and opportunities, they face problems. These are the same problems that are not letting businesses grow. Unfortunately, we’ve done a lot of drumming for startups, but we have not tried to fix the macro-economic issues and market fundamentals to give them a more enabling environment, perhaps because those are bigger problems. We have not solved the bigger problems that make these startups fade. These problems are very big – startup is mostly going to be about innovation – you disrupt the market with something new. Internationally, there is greater understanding of these dynamics and a disruptive innovation is not killed. Over here, regulators don’t allow innovation and discourage it.
If it’s a big company making the innovation, it can mostly pay itself out of the problem. This doesn’t apply to small startups that have just started out. All over the world, the government is the biggest enabler and buyer of startups’ solutions. No one can give an idea the level of scale that government can. Here, government discourages startups and it starts doing the same thing itself. There are infrastructural issues. If the government promotes digital payments, people would instantly adopt. These are a few examples that at the policy and regulatory level and infrastructure level – the consumer awareness and trust. All these are things that are part of the basic platforms that a government needs to provide upon which a startup can build its systems and offer the solution.
An example is that Jeff Bezos started Amazon in America where the road network was already there, FedEx was already there, and all the addresses were already organized. All he needed to do was connect the dots. When he went to India, he had to work on the road infrastructure, last mile delivery solutions, cash on delivery – he had to spend 6 billion dollars right off the start just to get things going to bring e-commerce to that level where it would start working. Pakistan is significantly behind India, so a huge investment is required to resolve the e-commerce issue – something that our startups are unable to deal with. Even if a startup reaches the Series A level, there are incorporation and structural challenges due to which startups are encouraged to incorporate abroad and apply from there mainly because of the country’s perception.
Any startup that gets investment from abroad is asked to go abroad and shift teams there. So, when they grow, it happens abroad. It is unfortunate that our entrepreneurs are not succeeding and they don’t even know the reason. Another example is Knowledge Platform, which has made an incredible edtech product, for which they were facing problems in scaling – within months of going to China, they’ve reached 100x in terms of customers – again it’s about the fundamentals. It’s a chicken and egg situation – It is difficult for people who work on technology to generate revenue. These are things that are not being talked about. We don’t see what led to success and what led to failure, especially failure. No one wants to look at failure – from the government and otherwise. Talking about failure creates a lot of hostility here, but it’s important to talk about the failures because until we do, we won’t know all the problems. If we want to come up with solutions, we need to be on the same page about what the problems are.