Pakistan: The next big Asian market for tech startups?

29.01.2020

Pakistan's young and tech-savvy population, market of over 220 million people and increasing levels of local capital are creating opportunities for tech entrepreneurs, as Miriam Partington reports.

"Pakistan's tech ecosystem has been slowly gaining momentum in the last few years," says Hena Husain, founder of London-based communications startup The Content Architects. "It's home to a strong tech talent base and it's still competitively affordable, which makes it ideal for early-stage founders like myself."

Hena's company works with a development team based in Karachi, Pakistan's business center and best-known tech hub. It was here that transportation startup Careem — acquired by Uber for $3.1 billion (€2.8 billion) in March 2019 — wrote its first lines of code and where a cluster of software engineers has formed gradually over the years.

Hena says that the growth in Karachi's tech market is "accelerating" by the day, which reflects a broader trend across Pakistan.

The country was named one of the fastest-growing economies in Asia in McKinsey & Co's latest report on the Pakistani ecosystem. The same report revealed that 720 startups had been created since 2010 — 67% of which are still in operation — with 100 successfully raising funding.

Unprecedented growth

For many familiar with Pakistan's startup scene, it's hard to pinpoint exactly what triggered its growth.

According to Iskander Pataudi, a Pakistani-born tech professional working in Berlin, the tech scene emerged organically. Tech is booming around the world, and Pakistan is an untapped market. It was only a matter of time before investors started to take notice.

"A few Pakistani tech startups have raised huge funding rounds at a time where our economy is just keeping its head above water," he says. "This makes sense, considering we have a huge market of young, digitally-savvy consumers and increased 3G and 4G connectivity."

05:10 mins. Global 3000 | 06.09.2019 Pakistan: Emancipation in Karakoram

Iskander adds that May 2018 marked one of the "first and only exits Pakistan has seen so far" when e-commerce platform Daraz was acquired by China's Alibaba Group for an estimated $200 million. This was an early indicator that "something was about to happen."

Since then, Airlift, an app-based bus service founded just 11 months ago, raised a Series A funding round of $12 million in August 2019, led by US-based venture capital (VC) firm First Round Capital. This round marked the firm's first investment in Asia in more than a decade.

These successes come at a time where Pakistan’s economic picture is arguably dismal. According to a recent report published by the Islamabad Policy Institute, 2019 was a “crisis-driven” year for Pakistan. It cited high unemployment, slow GDP growth and rising inflation as just some of the issues that will continue to affect Pakistan into 2020.

'An unlocking of capital'

According to Rabeel Warraich, founder of Pakistan-based venture capital fund Sarmayacar, the string of startup success stories — combined with a more stable political landscape under President Imran Khan and decreasing levels of corruption nationwide — has increased "investors' confidence that Pakistan holds huge potential for exiting businesses."

"Tech startups that were once considered risky investments are more commonly looked upon by venture capitalists as 'high-yield opportunities,'" he adds.

This newfound confidence has led to an increase in the availability of local capital. While Pakistan's startup scene and VC market is still nascent, the number of funds — such as i2i Ventures and Fatima Gobi Ventures — and active angel investors have increased significantly since 2018.

And, while startups in Pakistan raised a meager $18.8 million in fundingin 2019 overall, more capital is expected to flow into startups from overseas in the ensuing years.

Egyptian ride-hailing company Swvl, for instance, recently shared plans to invest $25 million in Pakistan's tech scene over the next two years to fund preseed startups and create 10,000 jobs.

A new digital era

Facilitating Pakistan's so-called digital transformation is central to government plans to create an enabling environment for tech startups and stimulate economic growth.

The launch of the "Digital Pakistan" initiative in December 2019 headed by former Google executive Tania Aidrus revealed an ambitious agenda to increase access and connectivity, enhance digital education and introduce a new era of e-governance.

Other objectives include cultivating a business environment that supports entrepreneurship and innovation. The effects of the initiative awaits to be seen.

As it stands, digital participation in Pakistan is limited by weak infrastructure, low internet penetration rates and a lack of online payment services, according to key findings from DW Akademie's Speakup Barometer for Pakistan. There’s also concern about how tech entrepreneurs can navigate Pakistan's complex business environment.

According to Shahjahan Chaudhary, director of the National Incubation Center Karachi, "excessive taxation, constraints on capital flows and bureaucratic headaches" present significant challenges for growing tech startups. He added that government departments should be thinking of ways to support the local ecosystem to "truly benefit from its talented entrepreneurs."

In the latter half of 2019, Pakistan passed six reforms to this end. Measures taken to ease the regulatory environment for businesses included introducing a three-year tax relief and creating an online one-stop registration system. Companies can now be incorporated in 17 days, rather than 20, at a reduced cost of 1.1%.

On the surface, the reforms appear to be effective: Pakistan's position in the World Bank's Ease of Doing Business report jumped from 136th place in 2018 to 108th place in 2019.

A growth in opportunity

According to many Pakistani nationals living overseas, new avenues of opportunity are opening up in their homeland.

Sonya Barlow, a British-Pakistani entrepreneur living in the UK, hopes to launch a version of her social enterprise Like Minded Females in Pakistan this year. Based in London, the initiative provides skill workshops, mentoring and corporate training to a diverse network of women.

London-based Like Minded Females: Can Pakistan have a similar network?

"This is the time to give Pakistani people opportunities to use their talent," she says. "We need to utilize technology to share success stories and showcase role models in the tech industry, so that young people — particularly girls in Pakistan and other Southeast Asian countries — see that a career in tech isn't unattainable."

Sonya is part of the many successful diasporas that Rabeel says are beginning to return to Pakistan. These people have developed their skills and gained experience working in other, more mature, ecosystems and are now keen to seize the opportunities in Pakistan's fledgling ecosystem.

Iskander has no immediate plans to move back to Pakistan. Nevertheless, he is committed to staying connected to ongoing developments.

"I want to see tech startups do well as this will create jobs and fuel economic prosperity. For many Pakistanis living abroad, it's clear that moving back in the next five or six years makes a lot of sense for our long-term ambitions."

Miriam Partington