Pakistan’s unexplored startup potential

It's a massive, untapped market with significant potential for international venture capital and private equity firms

In recent years, the startup space in Pakistan has exploded, with startups raising nearly $365.8 million in 2021, a staggering 450 percent increase over funding raised in 2020. Airlift and Bazaar were two notable startups that raised capital last year, raising $85 million and $36.5 million respectively. These emerging startups are primarily focused on revolutionising the country’s ecommerce, fintech and transportation sectors. However, despite the exponential growth in the startup space over the last two years, much progress remains to be made before we can compete with global benchmarks.

Global investment in startups grew rapidly in 2021, reaching a whopping $621 billion. This was aided by the coronavirus pandemic, which made companies realise that innovation and digitalisation in the traditional ways of doing business was required. Furthermore, advancements in communication technology, such as video conferencing and file transfer systems, has made it easier for international investors to enter untapped markets such as Pakistan.

Pakistan is dominated by small-scale businesses that are not able to obtain financing from banks and public markets. This can clearly be seen from the fact that out of 60,000 businesses registered with the Securities and Exchange Commission of Pakistan (SECP), merely 576 are listed on the Pakistani Stock Exchange. Hence, there is a large proportion of companies that have little access to capital that could be used to finance their growth and provide employment opportunities within the country.

Venture capital and private equity provide much-needed assistance to small and medium-sized businesses. These businesses will benefit not only from additional funds, but also from the advice of professional investors who can help them get on the right track and tweak their business models to raise their chances of success. Aside from the benefits for local companies, the Pakistani market offers numerous opportunities for international investors to profit as well.

Pakistan is a massive, untapped market with significant upside potential for international venture capital and private equity firms. One of the country’s greatest assets is its large population of nearly 225 million people, two-thirds of whom are under the age of 30. Despite the rise of digital payment systems and ecommerce, the majority of Pakistani citizens still shop using cash, and the number of people with bank accounts is still relatively low. However, the country’s internet user base has grown by 300 percent in the last five years to 110 million.

Furthermore, many Pakistanis are comfortable conversing in English since it is commonly used in courtrooms, schools and organisations. This factor facilitates foreign investors’ discussions and coordination with local entrepreneurs, making Pakistan much easier to operate in. Entrepreneurs in Pakistan have also demonstrated a willingness to go the extra mile, and instead of simply copying ideas from businesses in similar countries such as India and Indonesia, they are working on developing innovative solutions tailored to local market needs.

However, Pakistan must continue to implement supportive policies in order to attract much-needed investment. This is because foreign investors are usually wary of entering the Pakistani market due to issues such as weak law and order systems. Under normal circumstances, the government and social networks are required to get things done. Besides that, competing with large local businesses that have dedicated back offices for the sole purpose of going through cumbersome processes is difficult. To deal with this difficult environment, international investors must hire powerful lawyers with the ability to push things through.

In addition to a complex regulatory framework, Pakistan’s macroeconomic landscape is highly volatile, with the Pakistani rupee rapidly depreciating due to an unfavorable balance of payments, rising geopolitical tensions and a fluid political regime. Even now, Imran Khan’s government is in danger of being deposed by a no-confidence vote. Due to these factors, international investors are hesitant to invest in Pakistan.

Given that Pakistan is the fifth-largest state in terms of population, primarily made up of young people, there are numerous opportunities for global investors to enter this untapped market. Furthermore, it is high time for Pakistan to begin focusing on these areas and start working to provide international investors with a peace of mind when investing in companies within the country. Now is the time to act because global investment in startups is rapidly rising, and Pakistan must work to take full advantage of these dynamics by making it easier for Pakistani entrepreneurs to convince international investors to fund their businesses.