Pakistan can benefit from Dubai’s ‘structured’ approach to boosting startups

KARACHI: Business in general, and startups in particular, love to set up shop in Dubai. And why wouldn’t they?

It has tax regulation and economic free zones that benefits them, and, as Mohamad Ibrahim, Regional Director at trading platform Exness told Business Recorder, its “vibrant urban lifestyle” is the cherry on top that attracts the best talent.

Dubai has a “proactive and visionary government that vies to put in place the appropriate frameworks and conditions that companies look for in a home base, as well as favourable tax laws which mean businesses get to channel more profits into growth,” Ibrahim said.

“The strategy that saw the creation of special economic zones has helped create sector-centric clusters which help attract companies and talent alike,” he added.

There is an endless stream of startups that have made it, or are well on their way, to success.

E-commerce platform and the Middle East’s first unicorn – a start-up valued at more than $1 billion - Souq.com, was acquired by Amazon in 2017 for $580m.

Careem needs no introduction — it’s a shining example of a quintessential startup success story. It became the region’s second unicorn in late 2016.

“Dubai has become the region’s tech hub. Their regulatory policies allow for easy movement of capital,” Junaid Iqbal, former managing director at Careem, told Business Recorder.

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“You have access to talent from all over the world. And companies based there can easily access and operate markets ranging from Morocco to Pakistan.”

Then there’s the Egyptian company Swvl that has its headquarters in Dubai, which has also announced plans to list on the Nasdaq stock exchange.

This trend is only going to grow in coming years as the UAE hopes to become home to 20 unicorns by 2031 as part of a programme it launched earlier this year.

The initiative will see the region offer support to small businesses through a series of public-private partnerships that help entrepreneurs set up in the UAE, expand their businesses and export their products.

The UAE also plans to set up a Dh1bn private equity fund for lending to SMEs.

This kind of “structured approach” is exactly what Pakistan needs if it wants to see its startup scene thrive, Salman Sattar, co-founder of Bagallery, told Business Recorder.

Bagallery is a beauty and fashion e-commerce business that has just raised $4.5 million in Series A funding in a round co-led by Zayn Capital, along with existing investors Lakson Venture Capital and UAE-based Hayaat Global.

While its headquarters and operations are in Karachi, the founding couple themselves are based in Dubai.

And this has helped them immensely, said Sattar. “The ecosystem in Dubai for startups is way more developed in Dubai than in Pakistan.

“The connectivity with investors and access to global market is unmatched,” he said, and it’s easier to scale and expand to other countries like Saudi Arabia and Kuwait.

Plus, he has had the chance to learn from the likes of Souq.com and grocery shopping app InstaShop. “You learn from their journey, how they started off, the experiments they did, how they manage the customer experience.

“And you also learn from those that failed – you take all these learnings from a mature market and implement that in Pakistan.”

However, he added that compared to five or ten years ago, when internet speed, getting the right expertise and security were major issues in Pakistan, things have vastly improved.

The Securities and Exchange Commission of Pakistan (SECP) has also recently announced the Companies Amendment Bill 2011, which it said will “significantly promote startups, business innovation, entrepreneurship and improve general business climate in the country”.

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But challenges like getting loans remain. Sattar said the government can be more supportive and make it easier for young people to get loans with minimal documentation.

“Banks need to be less stubborn about their requirements for giving loans otherwise fintechs will take over,” he said. “Fintechs are coming into the market with the thought process to give small loans to young people with less hassle so they can implement their ideas.”

Iqbal meanwhile said that even though the State Bank of Pakistan “has started to bring initiatives like [relaxing] rules around foreign holding companies, the movement of capital is still not easy”.

“We have not yet understood the potential our tech sector offers.

“Sugar and wheat are subsidised through support prices but there is tax on computers, mobile, and the internet,” — things that are crucial for any startup.

Despite this, startups are booming in Pakistan and attracting international attention - global investment in Pakistani startups has crossed $300 million just this year.

Delivery app maker Airlift raised $85 million in the largest-ever funding round for a Pakistani startup. Its investors included some high-profile names like Bain Capital’s chairman and a former Disney CEO.

Bazaar, a Pakistani B2B marketplace, raised $30 million in August with investment from Silicon Valley-based Defy Partner and Singapore-based Wavemaker Partners.

Sattar remains optimistic about the future, though. He expects startups could attract as much as $1bn in investment next year and $2bn after that.

“The next two to three years will see hyper growth, it may taper down after that but a population of 220 million population has needs and requirements that can only be fulfilled via innovative ideas.”

“I think if the safety situation stays the same, startups in Pakistan will be unstoppable.”

Copyright Business Recorder, 2021