Strategies for Creating New Startups in Pakistan

Startups are entrepreneurs-led companies or businesses that address a market gap or introduce a product or service that may still need to be created. They are also defined as young companies founded to develop a unique product or service and bring it to market to make it irresistible and irreplaceable for customers. Like many other countries, Pakistan's entrepreneurship set-up witnessed a transformation during the COVID-19 pandemic due to changing work patterns where entrepreneurs explored opportunities to introduce new startups as per market demand.

Since the early 2000s, Pakistan's startup ecosystem has been evolving, gaining significant momentum around 2010 with increased local and international investment. Key growth areas of startups in Pakistan have been e-commerce ventures like Daraz and PakWheels etc. and fintech with players like Careem, Uber, and Easypaisa. The years 2018-2019 marked a critical expansion phase across various sectors. Notably, with around 64% of its population under 30, Pakistan's demographic makeup offers a fertile ground for innovation and entrepreneurship.

Currently, there are approximately 12,113 active startup programmes in Pakistan. Funding for technology startups reached US$ 350 million in 2021, followed by US$ 322 million in 2022. Despite these advancements, Pakistan's startup sector must catch up with more established ecosystems. In 2017, for instance, only nine Pakistani startups secured Venture Capital funding, compared to significantly higher numbers in Nigeria (34), the United Arab Emirates (38), and India (790). This gap underscores the need for enhanced support and innovative strategies to foster Pakistani startups' growth and global competitiveness.

The role of the Securities and Exchange Commission of Pakistan (SECP) is crucial for fostering a modern and efficient corporate culture to support the country's burgeoning startup landscape. SECP aids startups through various services, including company incorporation, provision of guidance, and conducting online courses. A critical development is the introduction of section 458A in the Companies Act 2021, which focuses on ease of business procedures, enhancing regulatory efficiency, and encouraging the use of technology in corporate operations. This amendment will boost the digital financial environment and create a more investor-friendly climate.

The Government of Pakistan, under Ehsaas interest-free loan programmes, offers financial support of up to Rs. 100,000 for individuals and up to Rs. 2 million for organisations. This initiative aims to kickstart new small businesses or enhance existing ones through an interest return scheme, fostering entrepreneurial growth.

Furthermore, the Special Technology Zone Authority (STZA) operates as a one-window framework, streamlining the registration process for businesses. STZA's integrated digital system simplifies compliance and business procedures, enabling companies to onboard digitally and connect with various government and regulatory agencies. This streamlined approach enhances transparency and significantly improves the ease of business, attracting more Foreign Direct Investment (FDI) into Pakistan.

Pakistan's startup ecosystem faces challenges that impede its growth and attractiveness to investors. Political instability and deteriorating economic conditions have led to a decreased flow of investment, which is crucial for developing new businesses. The country's economic environment needs to be more progressive and stable because cumbersome procedures involved in launching businesses deter potential investors.

There is a need to introduce more investment-friendly policies and tax relaxations for small businesses and startups. Pakistan's pool of angel investors and venture capitalists (VCs) is limited. This limitation is attributed to the national economic conditions, limited bank loan options, and investors' preference for investing in public sector enterprises or continuing family businesses over exploring new startups.

A significant number, approximately 90% of startup programmes in Pakistan fail. Factors contributing to this high failure rate include lack of funding, inexperience, high initial costs, and minimal available resources. Despite increased digitisation, many consumer markets in Pakistan still prefer cash transactions over digital transactions, hindering businesses' growth capital as they cannot develop a comprehensive transaction and credit history.

Startups often need more market research, business planning, and financial management expertise. The limited talent pool at the managerial level and in product development, coupled with inadequate opportunities for interaction with professionals, further hinders the successful growth of startups. Research and Development (R&D) setups in Pakistan are minimal, leading to limited innovation and market impact. Vocational training opportunities provided by institutes and NGOs are concentrated in major cities and selected remote areas, thus not addressing the skill gap comprehensively.

For startups to thrive, basic infrastructure such as uninterrupted electricity, high-speed internet, and office space are essential. In Pakistan, these facilities are generally limited to major cities, placing startups in other regions at a disadvantage when competing globally. These challenges demand comprehensive strategic interventions to nurture a robust, innovative and sustainable startup ecosystem for Pakistan.

A comprehensive approach involving various policy recommendations is essential to enhance the startup ecosystem in Pakistan and elevate its global competitiveness. Initiatives such as introducing grants, subsidies, and supportive measures tailored explicitly for startups are vital. This includes exploring public- private partnerships to underpin national initiatives in this arena.

Implementing frameworks like the STZA Framework and introducing and regularly reviewing startup-friendly policies is imperative. These efforts should provide tax incentives, streamline registration processes, and create fertile ground for innovation. Establishing a more investment-friendly environment by creating angel investor networks and venture capital funds is necessary to facilitate vital connections between startups and potential investors.

Skill development through vocational training courses in technology innovation, marketing trends, and business management should be integrated into the education system at all levels. This strategy is geared towards equipping aspiring entrepreneurs with the essential skills needed for successful ventures. Additionally, improving online business infrastructure, specifically internet connectivity and customer-friendly digital payment methods, will significantly boost the growth of tech startups nationwide.

Encouraging R&D investment in the business sector is another crucial aspect. Incentivising investments in research and innovation can achieve this. Bridging the gap between academia and the industry is also vital. This can be done through collaborations that facilitate research, development, and innovation, thus blending theoretical knowledge with practical application.

A collaborative and strategic effort is crucial to actualising the vast potential within Pakistan's startup landscape. Policymakers, investors, and entrepreneurs must work together to overcome prevailing challenges, create a nurturing environment, and implement policies that foster innovation and entrepreneurship. By focusing on building a supportive ecosystem, enhancing digital infrastructure, and encouraging research and development, Pakistan can pave the way for a vibrant startup culture. This collective endeavour will be instrumental in unlocking the latent potential of the startup sector, propelling it towards national and global success.