Policy environment biggest hurdle in growth of start-ups: World Bank

Report highlights taxation, online payments, intellectual property rights, investor regulations as barriers to growth


Shahram Haq November 19, 2017
Many start-ups are reluctant to officially register and as they grow, they fall into the practice of ‘double books’ to avoid paying levies. PHOTO: REUTERS

LAHORE: The World Bank has advised Pakistan to ease the policy environment for the country’s start-up eco-system as issues related to taxation, payments system, intellectual property and investor regulations continue to be major barriers to innovation and access to capital in this sector.

The complex regulatory environment in Pakistan not only impedes entrepreneurship, but also acts as an obstacle to commerce and investment. As a result, the country does not fare very well when evaluated against ‘finance’ domain of start-up ecosystem, said the global watchdog in a Pakistan Development Update report.

Looking to make the next Silicon Valley in Pakistan

The report covers a 360-degree analysis of Pakistan’s start-up ecosystem in which it appraises the developments in this area but also points out the challenges hindering its growth both from the government as well as incubation and acceleration centres.

According to the analysis, start-up entrepreneurs in Pakistan can be categorised as young- and technology-abled. Globally, nearly half of the entrepreneurs are between the ages of 25 and 44 and the trend is even more prevalent in emerging economies experiencing a youth bulge, such as Pakistan where the youth unemployment rate is 10.8%.

The report stated that incubators and accelerators need to measure impact and success by outcome indicators such as the average percentage revenue growth of a company, the amount of funding raised and the number of start-ups that continue to be operational after they leave a support system.

The incubation centres may measure success by the number of graduates; this merely focuses on an output and does not necessarily imply that the business is more equipped to survive once the program ends. Such programs need to continue strengthening their curriculum and offerings to improve their outcomes and provide value to start-ups.

The report mentioned that the strength of an entrepreneurial ecosystem is also measured by how inclusive its programs and support are. The country’s entrepreneurial ecosystem has grown considerably since 2012. Where just two major business incubators and accelerators were present with almost no investors and funding sources it has significantly increased up to 12 incubation and five acceleration programs in 2017 across Pakistan with nine co-working spaces and more than 20 running competitions, conferences, forums and nine active investor groups or funds.

However, most of the activity is concentrated in Pakistan’s major cities. There is a need to expand support, launch initiatives and build capacity of young entrepreneurs in other urban areas that have a large number of universities and technical schools such as Hyderabad, Sialkot, Abbottabad and Sukkur.

The taxation system in Pakistan is applied across the board, regardless of whether the business is a start-up or and established one. Not only are these cost and issue for businesses overall, but they are most debilitating for start-ups.

akistan’s freelancing industry is thriving

As a result, many start-ups are reluctant to officially register and as they grow, they fall into the practice of ‘double books’ to avoid paying these levies. The issue of double or even triple books ultimately increases risk for investors as well, affecting the level of interest they may have in the start-up space.

The analysis also highlights payments as a major barrier to start-ups and investors in Pakistan.

Technology-based companies are globally perceived as being high-growth and exciting for investors but global payment platforms such as Paypal is not present in Pakistan mainly due to regulatory barriers. The report said that players who try to resolve this problem, be it a payment service provider, payment processor, or an ATM switch, are required to obtain costly licenses that make it impossible to run their initiative.

The World Bank also suggested that players like the State Bank of Pakistan, Board of investment, Ministry of Interior and the Federal Board of Revenue can play a crucial role in overcoming these regulatory challenges to improve the health of Pakistan’s start-up ecosystem.

Published in The Express Tribune, November 19th, 2017.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

COMMENTS

Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ