Entrepreneurship in Pakistan: The Macroeconomics and Realizing the Potential

Pakistan is home to around 200 million people and is currently one of the fastest growing economies in Asia. Pakistan is an emerging economy projected to be among the fastest growing the coming years with a projected annual growth rate of ~6% through to 20268. Moreover, in 2016 MSCI reclassified the country’s status from frontier market to emerging market, easing international funding access. Despite the economy going through a difficult period, with a significant balance of payments issue and a declining currency, the intrinsic drivers suggest tailwinds for growth.

As the sixth most populous country in the world, Pakistan is home to around 200 million people. Pakistan also has the fifth largest youth population in the world in absolute terms, with roughly half the population under the age of 259. Household consumption accounts for ~80% of Pakistan’s GDP10 and consumer spending is projected to grow at ~15% in the coming years driven by the expanding middle class (Exhibit 1). 

Digital consumption is on the rise driven by an improvement in connectivity. Local telecoms boast ~152 million subscribers with ~40% of these having access to 3G/4G13. The number of 3G/4G subscribers has grown four-fold in the last three years alone, reaching ~60 million subscribers as of October this year (Exhibit 2).

In spite of these macro-economic indicators, the entrepreneurial ecosystem is presently at a nascent stage, but becoming more indigenized. In light of this, there are three main levers that can unlock the potential of the entrepreneurial ecosystem of Pakistan.

Design enabling policies and facilitate infrastructure

In terms of ‘Ease of Doing Business’, Pakistan ranked 136 out of 190 in 2018 – this reflects many of the issues that startups and businesses looking to grow face. These are problems that other countries have solved and Pakistan can emulate some of these tried and tested solutions.

In order to create a nurturing environment for startups, the very first step is to simplify business registration and taxes; establishing “one-stop shops” is one way to create transparency, simplify procedures, and help new start-ups save time and money. More than 80 economies worldwide have adopted this model and, in each of them, business registration has become at least twice as fast as in economies without such services. The second step is to invest in infrastructure. This could range from creating digital-payment gateways to modernizing government organizations, such as the Pakistan Post.

Access to Funding

According to interviews conducted with local start-ups, there is consensus that local funding organizations are more geared toward financing well-established, traditional businesses over start-ups, which are seen as typically being higher risk. To play a key part in changing this mind-set, investors in Pakistan will need to provide start-ups with access to funding. To do so, they can leverage six best practices to turbocharge growth in the coming years:

  1. Developing robust investment leveraging the local context
  2. Capturing and proactively engineering network effects
  3. Investing at scale
  4. Managing performance with a patient and programmatic mind-set
  5. Securing investment independence in governance to win the right talent
  6. Monitoring key performance indicators in line with the value-creation model

Cultivate Local Talent

Annually, Pakistan produces about 290,000 university graduates from the 190 universities that are recognized by the Higher Education Commission. At the same time, its vocational-training institutes annually qualify an additional 315,000 people. Investing in this wide pool of local talent is the third important lever to unlock the start-up ecosystem. Globally, we have seen three models leveraged to cultivate talent for start-ups:

  1. Fostering talent through university networks
  2. Teaching basic digital skills through vocational institutes
  3. Connecting expats with innovation in Pakistan

Ultimately, the government and the private sector must work together for the country to reach its full potential. While the government can create a facilitating environment for start-ups to flourish, the private sector should be looking to create value through funding the next big disruption. Together, they can cultivate the right talent to unleash a digital revolution in a country that is equipped to take off.

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