Tale of Pakistan’s entrepreneurship spirit

Such ventures have largely been necessity driven in Pakistan, limiting their potential

Naveed Iftikhar July 31, 2016
The crux is that alongside focusing on education and investment climate, we really need to create a right ambiance for enhancing and utilising creative abilities of our people. PHOTO: FILE

DELAWARE: Entrepreneurship is widely appreciated as one of the significant determinants of economic growth and prosperity. The research on international variations in entrepreneurial trends has been occupying a considerable amount of attention of policy makers and academicians, so do the reasons behind the uneven entrepreneurial performance.

The recent international datasets compiled by the Global Entrepreneurship and Development Institute (GEDI), Global Entrepreneurship Monitor (GEM) and the World Bank (WB) Entrepreneurship Project provide interesting insights into international variations in entrepreneurial activity and aspirations.

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Unsurprisingly, Pakistan performs quite poorly in all of these entrepreneurship indicators according to the latest available reports. Pakistan ranks 109 in GEDI dataset while Egypt (89), India (98), Kenya (104), Indonesia (103), Brazil (92) and Nigeria (85) rank higher than Pakistan and it seems no comparison with Turkey (28), Malaysia (56) and South Africa (52).

The number of limited liability companies, as reported by the World Bank in the case of Pakistan is 10 to 20 times lower than the aforementioned countries.

According to ‘new business density indicator’ of the World Bank, number of new companies, as a ratio of per 1,000 population aged between 15 and 64 is 0.04 in the case of Pakistan while for the aforementioned countries, it ranges from 0.29 to 2.88.

Total early-stage entrepreneurial activity (percentage of 18-64 population, who are either  nascent entrepreneurs or owners/managers of a new business) in Pakistan as reported by the GEM was 11.6% as of 2012, which is relatively better than few countries but still lower (as per latest available data) than Turkey (12.2%), Brazil (17.2), Indonesia (25.5) and Nigeria (35).

Importantly, GEM 2012 report mentions that in Pakistan, “most entrepreneurial activity is necessity-driven (those with no other option for work); the level of opportunity-motivated entrepreneurship is much lower.”

It’s understandable that these international comparisons do have limitations particularly on account of variations in size and nature of the informal economy and also due to various forms of business registration. For example in the case of Pakistan, it is often reported that a parallel and equal size of informal economy exists. No doubt, many of them are entrepreneurs and have been contributing to employment generation for low-skilled labour force and supporting formal businesses through value chain process.

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There is also a notion that many of the businesses in developing countries start informal but later turn into formal sectors of the economy. Despite this importance of the informal economy, it is known that these entrepreneurs are “necessity-driven” which means that they are doing this business because they could not find a decent job. In this case, they neither grow much nor do they utilise their own abilities to exploit opportunities in creative sectors of the economy. Thus, it is important that more formal businesses are established as ‘opportunity driven’ by those who really want to become entrepreneurs to advance their passion and ambitions.

Researchers have also classified entrepreneurship into ‘productive’ and ‘non-productive entrepreneurship’. Former rely on market opportunities and personal capabilities while the later exploit rent seeking through nexus with governmental apparatus or following other deceptive practices. The entrepreneurial capital of society encourages opportunity and productive entrepreneurship while distortions and regulatory burden promote necessity-driven and non-productive entrepreneurship.

A distinguished Professor of Economic Development at the Indiana University David Audretsch defines entrepreneurship capital of society as institutions, culture and historical context that is conducive to the creation of entrepreneurial activity. He has advanced ‘the knowledge spill-over theory of entrepreneurship’ and shares that entrepreneurial focus has shifted from big corporations to small and creative firms and from physical assets to knowledge acquisition.

This theory explains the role of knowledge in entrepreneurial decisions and conversion of ideas into commercial activities through the establishment of new firms. Recent literature and experiences from Silicon Valley to Seoul and Bangalore indicate that from setting up the stage of better investment climate, countries have moved on to developing entrepreneurial ecosystems and human capital advancement.

No doubt, export of every good/ service is important but in the current revolutionary phase of printed electronics, artificial intelligence and 3D printing, what can we gain from the export of mangoes and kinnows?

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There was also a time when resource scarcity was considered a barrier for entrepreneurship but creative and innovative human capital has falsified these myths.

In this regard, Richard Florida has written a book - ‘The Rise of the Creative Class’ – in which he elaborates 4Ts as the foundation for the rise namely, Talent, Technology, Tolerance and Territory Assets (Quality of Place) that makes a difference in the development and prosperity of a region.

It is widely believed that the creativity transcends beyond educational attainments as it is commonly said that university drop-out Bill Gates may not be ranked favourably in conventional measurement of human capital. Some may say these concepts are too advanced for a country like Pakistan but we can witness it in a recent wave of information technology entrepreneurship in Pakistan.

It would be important to share that Richard Florida addressed an international conference on ‘Framework for Economic Growth’ in Islamabad organised by the Planning Commission in 2012. During his talk and engaging conversation, he elaborated how these concepts are even more related to Pakistan which has a growing young labour force. The proceedings of the conference are still available on the website of the Planning Commission but the following excerpt from one of his responses is very relevant here, “Every single day, entrepreneurs come to America from Pakistan building great technology companies, service companies and call centres etc. I think the talent base is there and we need to focus much on entrepreneurship spirit.”

The crux is that alongside focusing on education and investment climate, we really need to create a right ambiance for enhancing and utilising creative abilities of our people. Entrepreneurial ecosystems and quality of life in our cities can make a huge difference towards this goal.

The writer is public policy researcher and practitioner


Published in The Express Tribune, August 1st, 2016.

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Takuya Nakaizumi | 4 years ago | Reply Thank you for good article every time. I agree with the comment that The crux is that alongside focusing on education and investment climate, we really need to create a right ambiance for enhancing and utilizing creative abilities of our people. In addition, Regulatory reform for better investment climate is essential. And attempt for devolving gender-gap is also important. Women's entrepreneur is very important role even in Japan where gender-gap is as severer as Pakistan.
Suhaib | 4 years ago | Reply Dear Hamza Yes absolutely, the overpopulation phenomenon has increased labour supply and increased unemployment. We need to reduce the birth rate to reduce labour supply.
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