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Spurring Indigenous Entrepreneurial Growth in Pakistan

Posted by: Jonathan Ortmans on December 20, 2010 Source: Policy Dialogue on Entrepreneurship

Jonathan OrtmansAs the Defense Department’s public review last Thursday of its war strategy in Afghanistan points to a slow troop withdrawal in 2011, efforts to better understand how to spur growth after such conflicts are speeding into top gear. A new cadre of economists, military leaders and other specialists are writing a long-needed canon to guide how to re-build economies during their transition from war to peace using indigenous entrepreneurship. Expeditionary Economics (ExpECON), as the field is now known, is informing large questions of national security strategy, positioning economic growth as a more important component of the formula for strategic success. While I defer to these experts in assessing the entrepreneurial health of current war-torn economies, I thought it timely to take a look at some of the neighbors engaged in their conflicts.

I begin today with Pakistan – a nation whose political history, up to recent times, can only be described as tumultuous. The country spent more than half of its short independent life under a succession of military dictators and largely ineffective civilian regimes. With constant news about security threats, extremists, assassinations, corruption and, most recently, devastating floods, one should have little reason to expect much good news in terms of entrepreneurship.

I was therefore surprised when I first read that, although a minority, Pakistani entrepreneurs, particularly those in the high-tech space, have backers among the pickiest investors in the U.S. venture capital community. Entrepreneurship has not traditionally been encouraged in Pakistan where failure has always been “the kiss of death. Yet these investors see the country’s vast human assets as a tremendous market opportunity for great ideas with entrepreneurs with local knowledge behind them. Among the local companies that have received financial support from overseas investors is Naseeb Networks, a provider of numerous communications and e-commerce services.

According to an MIT analysis, there are other carrots luring investors in Pakistan beside the fact that Pakistan is the 6th most populous country in the world and is a low-cost base. In particular, Pakistan has an important entrepreneurial expat/diaspora to tap for resources. There was a time not too long ago when those who wanted to do something different than employment in the government or engineering companies had to go abroad. Now a diaspora is involved in turning Pakistan into a major market for outsourcing and IT product and services.

A question that worries me is whether such outside investment is really in the interest of a nation that has wrestled between its Islamic and secular natures and whose people should own their own economy. As Carl Schramm writes in Foreign Affairs, “venture capital financing, which is based on investors’ ability to cash out quickly, may not be desirable in developing countries…(where) one should prefer to see local entrepreneurs hold on to their ventures and eventually build iconic homegrown firms”.

I do not want to imply there is no role for other actors in Pakistan in supporting and educating the upcoming entrepreneurs. For example, OPEN is an organization that has extended its support to startups in Pakistan through initiatives like the Business Acceleration Program (BAP),which is co-sponsored by MIT Enterprise Forum Club of Pakistan (MITEFP). Now in its fourth year, BAP is a mentoring program that helps IT/ITES/Telecom/New Media companies operating in Pakistan to accelerate their business to the next level. This is part of the MITEFP and OPEN overall goal of building and sustaining the entrepreneurial ecosystem in Pakistan.

And it does appear that Pakistan’s top entrepreneurs are trying to expand an important indigenous network of entrepreneurial support, finance and learning. For example, together with Lahore University of Management Sciences, they organized TiECon 2010 Pakistan, which took place last October 29 and 30. The Indus Entrepreneurs (TiE) has three chapters in Pakistan; Karachi, Lahore, and Islamabad, all operated by locally renowned entrepreneurs. There is a clear effort to build a Pakistani entrepreneurial ecosphere.

But to achieve this, Pakistan´s educational institutions and the government will need to take a more active role in fostering the entrepreneurial culture in Pakistan. Governmental policy has been placed historically on large-scale manufacturing as opposed to young, or even small, business. In the World Bank's Doing Business 2011 report, Pakistan ranks 83rd in the ease of doing business. According to a paper by Nadeem ul Haque, who is now the Minister of Planning and Economic Development, profound reforms (including legislative changes) are required to fully develop Pakistan´s entrepreneurial potential, which will allow all Pakistanis to benefit from opportunities for entrepreneurship, growth, employment and innovation.

If policymakers expand opportunities for entrepreneurship beyond the pockets of urban wealth through education and by removing unnecessary roadblocks in the way of entrepreneurial risk-taking, I am confident that it will be the entrepreneurs who will eventually rewrite the country’s narrative and guide other nations to develop a more sophisticated understanding of how to grow economies that neighbor less stable regions of the world.

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Jonathan Ortmans is president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues. In this capacity, he leads the Policy Dialogue on Entrepreneurship, focused on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as a senior fellow at the Kauffman Foundation.

Category:  Growth & Poverty 

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