How collaborative efforts by the Government and private sector can help boost Pakistan’s entrepreneurial ecosystem.
By M Bilal
The unemployment rate in Pakistan is six percent; that is 3.58 million people who remain unemployed despite being able and willing to work. For the young, the figure stands at 8.5% (2013).The situation becomes worse due to the fact that the growth rate and changes in the population are not proportionate. Today, with a population growth of 1.95% and the economy growing at 4.24%, one million jobs need to be created annually to fill the gap.
It is simply not possible to create sustainable jobs for such a huge number of young and unemployed populations. The best and long term solution to this problem is the introduction of entrepreneurial culture among youth so that they become bale to create opportunities for themselves and become job creators rather than job seekers. Entrepreneurship is viewed by economists to be a combination of innovation and risk taking. When such activity thrives, high growth rates are achieved as well as opportunities offered to all of society, including the poor. They offer benefits through growth and employment.
So why hasn’t entrepreneurship flourished in Pakistan? To answer this, it is important to first analyze the factors which have hampered entrepreneurial evolution in Pakistan. Firstly, the people of Pakistan are risk-averse. From a young age, children are instructed to opt for mainstream career choices, such as engineering, medicine and teaching; the reason being the social status attached and the income flow these professions promise. Secondly, a typical household has limited capital funds available and these are not enough to allow young people to become involved in activities such as entrepreneurship, which are deemed risky.
Entrepreneur growth requires institutes prerequisite which underpin human transactions. Those prerequisite are those that human civilization has evolved over the many years. Economical aid is working only where the policies and institutional environment is good. This again lends support to the ‘primacy of institutional’ arguments. A society that gets the institutional set up described above goes on to achieve economic development. Entrepreneurship may be directed towards the accumulation of wealth through unproductive enterprise. The system of incentives that a country sets up in its governance mechanism can either promote healthy entrepreneurship leading to economic growth and prosperity or rent seeking where productive activities are at a discount. In the latter case, a society gets stuck in a low poverty-low growth trap.
In the past several years, Pakistan’s volatile political and security environment has negatively affected the investor and entrepreneurship climate, with outside investors wary of entering the market. Entrepreneurs in the country often face major regulatory hurdles in sustaining and building their businesses, and the opaque environment acts as a deterrent for investors. Despite these many issues, there has been some progress. In 2016, Bloomberg declared the Pakistan Stock Exchange (KSE 100) as the best of the Asian markets, and the fifth-best performing stock index in the world. As a result, American stock index MSCI reclassified Pakistan from their Frontier Markets Index to the Emerging Markets Index. Violence has decreased in Pakistan as a whole, and the relatively improved security situation mean outside investors could begin to look at Pakistan more favorably.
On the ground, there is increased entrepreneurial activity happening in the country, which is both a reflection of a broader global trend, as well as increased internet penetration and migration, which has blurred national boundaries, exposed citizens to innovations and developments in other countries, and promoted exchanges between markets. The entrepreneurship ecosystem – the environment that supports the growth of businesses – is growing with a significant increase in the number of incubators, co working spaces, competitions, and other support players since 2012. In 2014, Invest2Innovate attributed the rise in entrepreneurship support organizations to a combination of factors – the globally recognized need for more robust entrepreneurial ecosystems around the world to support entrepreneurship, global efforts like the U.S. State Department-led initiative the Global Entrepreneurship Program (GEP), which highlights the Obama Administration’s commitment to use America’s entrepreneurial culture to advance entrepreneurship in emerging markets and developing countries, and the rise of global franchises and competitions like Startup Weekend and Startup Cup, which have established a presence in Pakistan.
Developing and nourishing a culture of entrepreneurship and start ups is the responsibility of both government and private sectors. Only collaborative efforts can bring the required environment up to the mark of global standards.
The Government of Punjab through its projects like Punjab IT Board and Plan9 has introduced the concept of ‘business incubation’. As the initiative was government backed, it was perceived as credible. In contrast, services offered by a new sector or by lesser known agents may be categorized as potential scams. In addition, the Government has a national outreach. As the message was spread, a new narrative was shaped.
Conceptually, entrepreneurship began to be embedded in the minds of young people and incubation became a new buzzword. This was furthered by Plan9’s efforts to encourage universities to replicate the incubation model. As a result, entrepreneurship received attention from academia as well. At present, 20 universities across Pakistan have set up incubators in collaboration with Plan9.
Furthermore, as the effort had an objective to impact the economy at large, entrepreneurship had to be categorized as a ‘public-good’. Therefore, going by basic economics theory, the cost associated with its provision may be ‘too-high’ for the private sector to operate on its own. This has positioned the IT Board in a critical way.
The Federal Government has set up the National Incubation Centre in Islamabad and is now working on the National IT Policy. The Provincial Government of KP, spearheaded by the KP IT Board, has set up technology parks in Peshawar and Abbottabad and a KP Digital Strategy is set to be launched. In addition, Digital Youth Summit – a premier tech conference and start-up expo – is supported by the provincial government.
The private sector, having assessed the feasibility of the concept in Punjab, has stepped up and is participating actively. Corporate players such as Mobilink and Telenor have powered business incubators, while academic institutions, such as LUMS, have set up centers for entrepreneurship that provide research input as well as practical, hands-on facilities to budding entrepreneurs. Initiatives such as Basecamp, Invest2Innovate, DotZero and Daftarkhwan highlight the thriving entrepreneurial culture in Pakistan. The Nest I/O in Karachi, powered by P@SHA and Google for Entrepreneurs is changing the game in Sindh and has made a plausible contribution to cementing the landscape with Punjab.