For Pakistan’s start-ups, the ‘journey has just started’

DUBAI: The year 2021 was a record year for Pakistan’s start-ups. Investors around the world saw the country as a booming hub, leading to an incredible inflow of venture capital funding.

Small businesses began to mushroom and grow, and it seemed like Pakistan had finally announced itself on a grand scale. The country attracted $350 million across 81 deals, according to a Deal Flow Tracker by Invest2Innovate (i2i), with the amount more than 5x of what was raised in 2020 i.e. $65 million. Ecommerce was the biggest attraction followed by the fintech sector.

Yet, just a few months down, while start-up funding has still poured in, the country has seen a downward slide in the growth graph, with many businesses closing shop and several foreign investors either pulling out or scaling down their investment.

Driven by the slump in the global economy, fears of recession and inflation, the situation has impacted Pakistan in more ways than one. In fact, in Pakistan, the situation has been especially acute due to its own dynamics as well.

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So, did we celebrate too soon? Where does the future of start-up industry find its way in Pakistan? What are the challenges, and how do we counter them?

Kamal Jabbar, Partner at Keystone Law, an international law firm in Dubai, looks at the situation optimistically, believing that Pakistan is at the beginning of the journey and has the potential and vibrant start-up scene to scale heights much like Indonesia and UAE have.

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Jabbar, who recently published a book titled ‘UAE Business Essentials’, is well-versed with economic ground realities in both Pakistan and the UAE. His book aims to educate individuals, SMEs and start-ups, both looking to launch their business as well as those that are established. A barrister, Jabbar advises individuals, start-ups and SMEs in mitigating legal risk and expanding their operations in the Middle East and beyond.

“Pakistan has popped up on the radar of VCs globally because of untapped potential,” he told Business Recorder in an interview. “We have a huge population, a median age of 22, about a 110 million people with broadband internet access that is larger than most of Europe, and a big portion of English-speaking people. Given these factors, I think for Pakistan, the journey is not over, it’s just started.”

In addition to these factors are a number of initiatives by the government including the setting up of special technology zones, similar to freezones in the UAE, which have an improved ecosystem and are purpose-built for start-ups.

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Another important factor, Jabbar notes, is that driven by last year’s surge in SMEs and start-ups, an increasing number of Pakistani youth is encouraged to experiment.

Whereas, previously perhaps, there was an interest to either move overseas or to join a multi-national firm, young Pakistanis now want to be more involved in start-ups because they have seen the potential, a big shift.

Having said that, the next few years will be quite challenging. To those struggling to survive, Jabbar’s advice is to “cut cost and be cautious”.

“We can’t pretend its 2021, and I think investors generally are currently playing defence.

“That doesn’t mean investment will not come in or that venture capital funding has completely dried up; it hasn’t. But VC funding has slowed in the last two quarters and probably likely to slow in further at least in the near term.”

Along with business openings at the home front, a number of Pakistani companies are also exploring opportunities on other frontiers, including the UAE which ranks 16th out of 190 countries in terms of doing business.

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Many factors contribute to this score, such as a large talent pool, connectivity, the country’s position as the ‘gateway’ to the West and the rest of the MENA and MEA region. Moreover, it offers ease of visa facility and setting up of businesses on the back of a supportive ecosystem and strong infrastructure.

Dubai, in particular, is considered somewhat of a tax-haven, with a vibrant tech sector and all kinds of innovative companies coming up and acquiring funding as well.

“I feel the UAE is a good option for Pakistani companies to have as headquarters and a lot of Pakistani companies that wish to scale should consider having a holding company in the UAE for attracting equity injections from investors globally,” said Jabbar.

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”It would definitely cost more compared to setting up headquarters in Pakistan, but in terms of showcasing and in terms of credibility and gravitas it would add to that company and pay dividends in terms of attracting investors who would otherwise shy away from investing in a Pakistani company directly.”

Copyright Business Recorder, 2022