So, here’s something you might not know about Pakistan. As one of the last major untapped frontier market investing opportunities, $350 million of global capital was raised by startups in 2021 alone. In a world where rising inflation costs, supply chain issues, high energy prices and COVID have shut down other countries in the world, Pakistan has still managed to thrive.
With a prospective value of $50bn by 2030, the Pakistan startup industry is going to be one of the most profitable areas that the country has. Therefore, it’s important to be able to identify what makes the start-up ecosystem so interesting, and how new investors can take advantage of it.
Recent History of Startup Investments
Since 2015, there have been more than 250 startups in Pakistan. Thanks to low-cost smartphone usage – 184 million individuals had a phone by the end of 2021 – coupled with affordable data packages, it was easy for Pakistan startups to enter the market via easy internet penetration.
The primary trade for Pakistan startups is the provision of internet-based services that are popular on a global basis. Food, drink, and even Fintech services are all being replicated by Pakistan start-up companies.
Why is Pakistan a Region of Investment Interest?
There are plenty of reasons why investing in Pakistan is currently of interest to investors. Understanding these reasons is critical for making the correct investment decisions.
Recent reforms have helped to create a specific legal framework for institutions set up by the State Bank of Pakistan. This is allowing a lot of new businesses to both be set up and have an increase in the number of investments made into them.
Arguably, the most significant development came with the creation of the digital banking policy. Not only does it allow digital banks to be electronic wallets, but also provide credit and other Fintech services.
New legislation has also been introduced that has helped the investment potential of Pakistan start-ups in a big way.
The Securities and Exchange Commission in Pakistan recently established legal definitions for startups. This recognition has yielded things like micropayment gateways and a proper support structure for freelancers.
Connectivity is a core part of what makes Pakistan an investment region of interest right now. More people are getting online, boosting the target audience for startups which is easy to see when one examines both the affordable range of smartphones, and the readily available data packages to browse the internet.
Pakistan has a large population which benefits startups, and considering the greater population is younger people and families, there’s plenty of space for both innovation and growth.
A large population which actively uses the internet means startups have a lot of prospective customers. The likelihood of a business gaining traction is high, meaning that investors are likely to see a good ROI should they choose to work with startups in the region.
Common Challenges For International Investors
While it is true that Pakistan has benefited substantially from an injection of investments into start-ups, there are things to consider. International investors may want to help businesses grow, but there are some common challenges that they will face.
Lack of Local Investors
One of the big problems is the distinct lack of local investors in the country. There are many more international investors than local angel investors. In 2015, there were only five international angel investors in Pakistan. By 2021, that number has risen to 37.
Local investor investments only hit $6.9 million, which was a mere 1.9% of all the funding raised at pre-seed stages. In comparison, international investors injected something closer to $147 million.
A big problem faced by Pakistan start-ups is the lack of skilled workers necessary to fill key positions within a company.
The issue remains that despite the growing popularity of the start-up, universities and education providers are not working to a curriculum that equips students with the skills necessary to start their own company or benefit an established business.
This means that there is a growing disparity for businesses trying to secure trained staff, which leads to higher salaries or extra benefits having to be offered to incentivise skilled workers to remain within the business.
So, it is clear to see that there are potential benefits to investing into the Pakistan start-up economy at this time. As a developing nation, there are lots of opportunities for apps and Fintech. Furthermore, new legislation is increasingly benefitting international investors.
However, this is balanced by a lack of local investors and a high amount of unskilled workers. Investing can be profitable, but it is recommended that any investor seek expert guidance before committing to a decision to invest in Pakistan.