Polish Model:
US AID's Theodore Heisler said that co-investment was essential in bringing the size of each fund to a level where it can cover operating expenses. The funds will focus on investing in small and medium entrepreneurial companies which, the US Silicon Valley experience has demonstrated, are major drivers of innovation, economic growth and job creation.
History of VC and PE Funds:
In 2010, the Overseas Private Investment Corporation (OPIC) provided JSPE Private Equity Fund II $50 million with a target capitalization of $150 million.
Venture capital investing is not entirely new in Pakistan, according to Venture Beat. Silicon Valley insiders like Reid Hoffman, Mark Pincus and Joe Kraus, along with Draper Fisher Jurvetson (DFJ) and EPlanet Ventures have already started. In 2003, Hoffman, Pincus and Kraus invested in Monis Rahman, a Pakistani-American who left Intel for entrepreneurship. Rahman had successfully launched and sold a start-up in the Bay Area, eDaycare.com.
There are several investment firms in Pakistan, such as BMA Capital, Indus Basin Holdings and JS Private Equity, that offer examples of professionally managed funds. In addition, there are Social Entrepreneurial Funds like Acumen Fund, Dawood Foundation and Kashf Foundation which are very active in the SME sector in Pakistan.
Opportunity in Pakistan:
Pakistan has the world’s sixth largest population, seventh largest diaspora and the ninth largest labor force. With rapidly declining fertility and aging populations in the industrialized world, Pakistan's growing talent pool is likely to play a much bigger role to satisfy global demand for workers in the 21st century and contribute to the well-being of Pakistan as well as other parts of the world.
With half the population below 20 years and 60 per cent below 30 years, Pakistan is well-positioned to reap what is often described as "demographic dividend", with its workforce growing at a faster rate than total population. This trend is estimated to accelerate over several decades. Contrary to the oft-repeated talk of doom and gloom, average Pakistanis are now taking education more seriously than ever. Youth literacy is about 70% and growing, and young people are spending more time in schools and colleges to graduate at higher rates than their Indian counterparts in 15+ age group, according to a report on educational achievement by Harvard University researchers Robert Barro and Jong-Wha Lee. Vocational training is also getting increased focus since 2006 under National Vocational Training Commission (NAVTEC) with help from Germany, Japan, South Korea and the Netherlands.
A 2012 World Bank report titled "More and Better Jobs in South Asia" shows that 63% of Pakistan's workforce is self-employed, including 13% high-end self-employed. Salaried and daily wage earners make up only 37% of the workforce. Even if one chooses to consider just the 13% who are high-end self-employed as entrepreneurs, it's still a significant population willing to take risks who can do better with greater availability of venture and private equity money.
A recent Pew Survey of 21 countries reported that 81% of Pakistanis believe in hard work to achieve material success. Americans are the second most optimistic with 77% sharing this belief followed by Tunisians (73%), Brazilians (69%), Indians (67%) and Mexicans (65%).
Conclusion:
Promoting venture capital and private equity investments in Pakistan is a welcome initiative. It has the potential to unleash funding of new profitable ideas in small and medium size entrepreneurial businesses for significant returns to investors while also helping Pakistan achieve much needed economic stimulus with new jobs to lift more people out of poverty.
Related Links:
Haq's Musings
Pakistanis Lead the World in Faith in Hard Work
Entrepreneurial Pakistanis
Financial Services Sector in Pakistan
Venture Capital Investing in Pakistan
Minorities are Majority in Silicon Valley
String Food and Beverage Demand Draws Investments to Pak Agribusiness
Strong Earnings Propel Pak Shares to New Highs
Pakistan's Underground Economy
Tax Evasion Fosters Aid Dependence
Poll Finds Pakistanis Happier Than Neighbors
Pakistan's Rural Economy Booming
Pakistan Car Sales Up 61%
Resilient Pakistan Defies Doomsayers
9 comments:
Here's Arms Control Wonk Michael Krepon on visiting Pakistan:
There’s no shortage of bad news about Pakistan. Lots of trend lines are worrisome. That said, allow me to fuzz up your mental image of Pakistan with these thoughts, while they are still fresh from a trip in mid-September.
Pakistan has lots of bright, able, independent-minded, young talent.
Pakistan has a middle class. This cohort can grow and prosper if a nation of traders is free to trade freely and directly to the subcontinent, as well as to Central Asia.
Pakistan has vigorous political parties. It has an election coming up whose outcome cannot be confidently predicted. Religious parties are minority parties. How many Islamic states fit this description?
Pakistan’s armed forces are beset by many problems. These problems will only be compounded by seizing power. Pakistan’s politicians have running room to succeed – or to make the same old mistakes.
Everyone in the country understands that the economy has to improve. Without economic growth, national security is a mirage.
The Line of Control dividing Kashmir has been mostly quiet for almost a decade now.
On August 14th, Chief of Army Staff, Gen. Ashfaq Pervez Kayani, gave a speech at the Pakistan Military Academy on the occasion of Pakistan’s 65th Independence Day. What he said has gotten little play outside of Pakistan.
Here’s a sampler:
It becomes blatant extremism when one not only insists upon finality of personal opinion, but tries imposing it on others. More so, if one tries to enforce his opinion through use of gun, it becomes terrorism. That is why Islam does not allow anyone to claim to be a know all, and flirt with divinity.
If this is the correct definition of extremism and terrorism, then the war against it is our own war, and a just war, too. Any misgivings in this regards can divide us internally, leading to a civil war situation. It is therefore, vital that our minds must be clear of cobwebs on this crucial issue.
The war against extremism and terrorism is not only the Army’s war, but that of the whole nation. We as a nation must stand united against this threat. Army’s success is dependent on the will and support of the people… It is also crucial that appropriate laws are passed to deal with terrorism. Since 2001, many countries in the world have formulated special anti-terrorism laws. Unfortunately, our progress towards such legislation remained very slow…
We are fully aware that it is the most difficult task for any Army to fight its own people. This is always done as a last resort. Our ultimate aim is to bring peace to these areas so that the people can live a normal life. But for that to happen, it is critical that people abide by the constitution and law of the land. No state can afford a parallel system of governance and militias.
Please compare these remarks with those Gen. Kayani gave at the same venue shortly before the Osama bin Laden raid. It is standard practice to blame Pakistan’s ills on unwise choices by its military leaders. I’ve been there and done that, and will probably do so again. And yet, no other Pakistani politician has come close to framing the issues that Pakistan faces in this way.
Is this hokum, or is there a shift underway? Is the trade initiative a tactical maneuver or a possible strategic opening? We’ll see. There are too many complicating factors to enumerate, but here’s one: India, like Pakistan, has a national election coming up.
http://krepon.armscontrolwonk.com/archive/3558/visiting-pakistan
Here's a Daily Times story on US support commitment to Pakistan:
US assures Pak of early release of $600 million CSF arrears
* US officials call on Finance Minister Hafeez Shaikh * Reaffirm US commitment for provision of $200 million for Diamer-Basha Dam
Staff Report
ISLAMABAD: The United States on Thursday assured Pakistan of an early release of $600 million Coalition Support Fund (CSF) arrears, increasing OPIC support for projects in Pakistan from $100 million to $1 billion, launch $80 million Pakistan Investment Fund for SMEs in January 2013 and also reaffirmed US commitment for provision of $ 200 million for Diamer-Basha dam.
US Ambassador to Pakistan Richard G Olson and Robin Raphel, senior adviser to special representative for Afghanistan and Pakistan, called on Finance Minister Hafeez Shaikh in his office. Issues of mutual interest, particularly economic ties between the two countries, were discussed in the meeting. Both the sides expressed their satisfaction over the pace of development in Pak-US economic ties.
Olson and Raphel congratulated the finance minister over his recent successful visit to United States of America and declared that the visit would prove a milestone in strengthening economic bonds between the two countries.
Shaikh informed the US delegation that the overall economic conditions in the country are moving in the right direction. The visiting delegation was informed by the finance minister that despite energy scarcity and security situation, Pakistan’s economy has started showing positive trends. The minister informed the US side that due to the policies of the government, Pakistan is witnessing lowest inflation rate in the region and trade balance deficit is on declining trend. The US delegation was informed that Karachi Stock Exchange is the best performing stock exchange in the world during the last one year.
The US officials assured the finance minister that the Coalition Support Fund (CSF) amounting to $600 million would be released without any delay. The visiting delegation also informed the Finance Minister that the United States is going to launch 80 million dollar Pakistan Investment Fund for SMEs in January 2013.
During the meeting the US delegation informed the Finance Minister that active participation of Overseas Private Investment Corporation (OPIC) in development of Pakistan would be ensured. The active participation of OPIC will increase the support for projects in Pakistan from $ 100 million to $1 billion.
The visiting US delegation also reaffirmed US commitment for provision of $200 million for Diamer-Basha Dam.
Both the sides discussed Pak-US bilateral trade also. The US delegation said that USA is trying to facilitate Pakistan’s exports to the United States to a maximum degree. It was further informed by the visiting delegation that US investment in Pakistan is witnessing ever increasing trend.
Olson and Raphel committed that the US would extend its cooperation to optimum level for timely completion of development projects in Pakistan.
The visiting delegation informed that the US would assist Pakistan in every possible way to overcome energy crisis. The delegation further told that assistance to Pakistan for development of social sector and infrastructure will also be accelerated.
http://www.dailytimes.com.pk/default.asp?page=2012\12\14\story_14-12-2012_pg7_13
Here's NY Times on $688 million in US reimbursements to Pakistan:
The Pentagon quietly notified Congress this month that it would reimburse Pakistan nearly $700 million for the cost of stationing 140,000 troops on the border with Afghanistan, an effort to normalize support for the Pakistani military after nearly two years of crises and mutual retaliation.
The biggest proponent of putting foreign aid and military reimbursements to Pakistan on a steady footing is the man President Barack Obama is leaning toward naming as secretary of state: Senator John Kerry, Democrat of Massachusetts. Mr. Kerry, the chairman of the Senate Foreign Relations Committee, has frequently served as an envoy to Pakistan, including after the killing of Osama bin Laden, and was a co-author of a law that authorized five years and about $7.5 billion of nonmilitary assistance to Pakistan.
The United States also provides about $2 billion in annual security assistance, roughly half of which goes to reimburse Pakistan for conducting military operations to fight terrorism.
Until now, many of these reimbursements, called coalition support funds, have been held up, in part because of disputes with Pakistan over the Bin Laden raid, the operations of the C.I.A., and its decision to block supply lines into Afghanistan last year.
The $688 million payment — the first since this summer, covering food, ammunition and other expenses from June through November 2011 — has caused barely a ripple of protest since it was sent to Capitol Hill on Dec. 7.
The absence of a reaction, American and Pakistani officials say, underscores how relations between the two countries have been gradually thawing since Pakistan reopened the NATO supply routes in July after an apology from the Obama administration for an errant American airstrike that killed 24 Pakistani soldiers in November 2011.
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Despite the easing of tensions in recent months, there are still plenty of sore spots in the relationship.
Lt. Gen. Michael D. Barbero, who heads the Pentagon agency responsible for combating roadside bombs, known as improvised explosive devices, or I.E.D.’s, told a Senate hearing last week that Pakistan’s efforts to stem the flow of a common agricultural fertilizer, calcium ammonium nitrate, that Taliban insurgents use to make roadside bombs had fallen woefully short.
“Our Pakistani partners can and must do more,” General Barbero told a Senate Foreign Relations subcommittee hearing.
American officials have also all but given up on Pakistan’s carrying out a clearing operation in North Waziristan, a major militant safe haven.
“Pakistan’s continued acceptance of sanctuaries for Afghan-focused insurgents and failure to interdict I.E.D. materials and components continue to undermine the security of Afghanistan and pose an enduring threat to U.S., coalition and Afghan forces,” a Pentagon report, mandated by Congress, concluded last week.
http://www.nytimes.com/2012/12/18/world/asia/pentagon-to-reimburse-pakistan-688-million.html?pagewanted=2&_r=0
Here's Daily Times on the impact of nearly $700 million CSF funds from US to Pakistan:
Pakistan received the second tranche of $688 million Coalition Support Fund (CSF) from the US on Friday. This second CSF tranche is expected to provide relief to the ailing economy, supporting the country’s macroeconomic indicators positively in short-term.
Analysts said that Pakistan’ depleting foreign exchange reserves have been enhanced with inflows of much-awaited funds dedicated mainly for the expense of military operations in the war against terrorism. This was the second instalment received by the country after it got $1.12 billion in July.
The foreign reserves will be improved along with balance of payment and rupee position against dollar on temporary basis.
The current account balance failed to sustain its surplus position as it turned into a deficit of $365 million in November due to trade imbalance of trade and services that stood at $6.3 billion and $8.2 billion, respectively in the first five months of the current financial year. The rupee, which neared the Rs 100 mark against the dollar, will likely get some respite. The macroeconomic situation will be improved for a quarter with inflows of millions of dollars into the country’s reserves, analysts said.
In the short-term, the country will benefit from the millions of dollars inflows but its impact will not be sustainable for the long-term, they added.
The overall CSF pledged by US government is $2.5 billion in which remaining amount will be expected in future to be received by the country depending on diplomatic relationship with the US government. The persistent inflows are important for the country mainly for the payment of $7.9 billion it borrowed from the International Monetary Fund (IMF), otherwise, the economic situation will get severe and the country will again go to the IMF.
http://www.dailytimes.com.pk/default.asp?page=2012\12\29\story_29-12-2012_pg5_13
Here's PakObserver on US support for entrepreneurship in Pakistan:
Friday, January 11, 2013 - Islamabad—US Ambassador Richard Olson affirmed that the United States will continue to support the development of Pakistan’s entrepreneurs, including through the U.S. Ambassador’s Fund, during a visit to the National University of Sciences and Technology’s (NUST) Technology Incubation Center on Thursday.
“We all know that societies thrive when their people have ample opportunity, and this is why the United States supports young entrepreneurs in Pakistan,” said Ambassador Olson during a tour of NUST’s state-of-the-art Technology Incubation Center.
While at NUST, Ambassador Olson announced that the U.S. Ambassador’s Fund, which supports small-scale, high-impact programs for communities throughout Pakistan, will now also focus on support to Pakistan’s entrepreneurs. The U.S. Embassy also recently unveiled an entrepreneurship program called Khushhali Ka Safar (Journey to Prosperity), which provides support to innovative Pakistani entrepreneurs by connecting them with American investors and mentors, particularly from the Pakistani-American diaspora and academic institutions.
Ambassador Olson highlighted NUST’s future Center for Advanced Studies, which will focus on Pakistan’s energy needs, and is being established together by the Governments of Pakistan and the United States. Three Centers will eventually be established across the country. “These Centers, a five-year, $127 million program funded by the U.S. Agency for International Development, will promote the development of Pakistan’s water, energy, and agriculture sectors through applied research, training, university linkages, and contributions towards policy formation. We look forward to promoting entrepreneurship and innovation through the strong links each center will have with the private sector,” said the Ambassador.
In addition, the United States recently launched the multi-year Pakistan Private Investment Initiative. Drawing on public-private partnerships, this initiative will spur job growth and economic development by expanding access to capital for Pakistan’s small- to medium-sized companies.Another U.S. program, the Pakistan Firms Project, helps to increase the profitability and incomes of small and medium-sized businesses in vulnerable areas by identifying and removing constraints to private-sector job growth in key areas such as agriculture, livestock, minerals, and tourism.
http://pakobserver.net/detailnews.asp?id=191116
Here's a Daily Times report on State Bank Governor Yaseen Anwar's assessment of Pak economy:
KARACHI: Pakistan’s economy has the ability to navigate through choppy waters and the economic potential this country holds encourage all to become a part of the country’s future.
The Governor State Bank of Pakistan (SBP) Yaseen Anwar at Pakistan Navy War College Lahore said while our current economic situation was less than optimal and it was also very far from what might be described as an economic calamity.
Anwar said in 65 years, Pakistan has never gone through an episode of hyperinflation, Pakistan has never defaulted on its international and domestic debts, in fact our economy has grown consistently, but not spectacularly, over the past six decades.
This has been despite periods of international alienation and sanctions, three expensive wars, two hostile fronts, regular political upheaval, social unrest, sharp increases in the price of oil, and much, much more, he added.
State Bank has always ensured that the financial system of the country remains safe and stable. The robustness of our financial system is a direct consequence of the reforms process and the State Bank’s constant vigilance, he said.
There is a lot that can be improved in our financial system. He called for the development of efficient debt markets, even better regulatory and reporting practices and the broadening of the financial sector’s scope to include largely unbanked sectors of the economy, such as agriculture, small and medium enterprises and housing.
‘Despite this wish-list, the fact remains that our financial system is, by design, secure and does not pose any threat to the economy as a whole,’ he added.
The size of Pakistan’s undocumented economy is by some estimates, as large as the formal economy. The informal economy does not file taxes and while it does absorb a significant chunk of the labour force, it also evades corporate and labour laws, he said.
Although close informal relationships do make the economy more resilient, they do so at a cost to the overall economy, by eroding the ambit of the regulators.
He stressed the need for the greater integration of country’s domestic market with global markets but observed it does not mean that we should not have proper controls and mechanisms in place to safeguard our own interests. ‘Greater integration with financial markets will mean that capital will flow more quickly through our borders. It’s definitely something that will boost the national economy, but, as most East Asian countries learned in the 90s, it can be a double-edged sword.
Therefore having some capital controls in place, which reduce the volatility of capital flows, is a necessary regulation in this day and age, Anwar added.
More effective regulation is the need of the hour for our own economy, he said, adding it is an essential part of what is needed today to get the economy on a track for steady and sustainable growth.
He said the government’s footprint in some sectors of the economy was very large and quite negligible in other sectors.
Such divergence is unhealthy. Effective regulation is sorely lacking in other sectors. The tax machinery can be tightened considerably. One of the country’s most challenging problems today is the size of the fiscal deficit-and a large part of the solution lies in increasing our tax base by enacting regulation that encourages tax compliance, and punishes tax evasion, he added.
The government will need to borrow less money from the central bank. Borrowing from the central bank is popularly known as printing money, he said, adding if government borrowing from the central bank falls, inflation will follow suit.
Therefore, better tax collection is a necessary condition for faster economic growth. And for that we need to have more effective tax regulation, he added.
....
http://www.dailytimes.com.pk/default.asp?page=2013\03\06\story_6-3-2013_pg5_1
Here's a Daily Times report on academia promoting entrepreneurship among students:
LAHORE: Government College University Lahore’s Economics Department, in collaboration with Entrepreneurial Development and Advisory Services (EDAS), Pakistan, organised a one-day seminar, on the “Role of educational institutions in entrepreneurship ecosystems”.
The seminar was attended by academia, entrepreneurs, public sector representatives and students. Speakers included renowned academics, notable business personalities and organic entrepreneurs of Pakistan. SPEL Group CEO Almas Hyder, a founding member of EDAS, introduced the topic of the seminar and spoke succinctly about the need to bridge the gap between industry and academia to foster entrepreneurship and innovation in Pakistan. He stressed the role of government as a facilitator of knowledge-based interaction between the university and business so that research and ideas could flow seamlessly and become economic value by means of the market. He highlighted the role EDAS had played in collaboration with GC University’s Economics Department in the introduction of the Master’s programme in Entrepreneurship and SME Management. The purpose of the course of study, he shared with the audience, was to inculcate entrepreneurial spirit in students and underscore the role played by SMEs in fostering innovation in Pakistan. Fifteen percent course graduates went on to become entrepreneurs, he said, and the goal was to turn ten percent of Ravians into entrepreneurs every year.
Amer Hashmi, himself a successful entrepreneur with global experience in business creation and management and currently the Adviser to Rector National University of Sciences and Technology (NUST) and President, NUST Global Think Tank Network (GTTN), delivered the keynote address. His address presented a comprehensive kaleidoscope of various successful initiatives taken by NUST to promote entrepreneurship and innovation in Pakistan. NUST’s Corporate Advisory Council (CAC), he informed the audience, was the key body in the university for consolidating the triple helix interaction and collaboration between university, business and academia.
CAC had played a key part in bridging different NUST schools with relevant industries through a unique organisational structure that ensured two-way flow of feedback and information between NUST and industry centred on industry-commissioned R&D at NUST. CAC partners included top domestic and international business and corporate entities like Indus Motors, Millat Group, Huawei Technologies, Oracle, Microsoft, Allied Bank, Interactive Group, etc.
Hashmi explained GTTN was a key initiative of NUST aimed at establishing policy research and knowledge partnerships with renowned academic and non-academic think tanks in China, US, Russia, Asia-Pacific and Middle East. The first of the planned series of think tank collaborations with Tsinghua University, Beijing, had been successfully functioning since early 2012. The vision of GTTN was to create a pool of viable policy options in critical sectors of national socio-economic development which were also regionally and globally applicable with the potential to create peace, prosperity and harmony in the region.
NUST Centre for Innovation and Entrepreneurship (CIE) was actively helping commercialise technology produced from university research and had established an advanced business incubation centre that housed companies involved in cutting edge technology business market globally. NUST had recently completed the pre-feasibility for its National Science and Technology Park (NSTP), the first proper university-hosted science park in Pakistan ...
http://www.dailytimes.com.pk/default.asp?page=2013\03\13\story_13-3-2013_pg13_6
Nice article, however, it seems that even existing VC funds are inactive. I only know of one tech incubator in Pakistan, recently launched and unfortunately government managed. I met a Partner at 500 start-ups today, and it turns out Pakistan is one of the very few countries they don't have a representative in. Given the poor odds generally for any tech start-up, being based in Pakistan just makes it so much more exciting. As is with most other parts of life.
Here's a Dawn report on Startup Grind launch in Karachi:
Originally founded in California, Startup Grind is an international community with a global presence in more than 40 cities and 20 countries.
Its mission is dedicated to celebrate the success stories of founders and innovators of business startups and encourage entrepreneurship.
The monthly interviews and startup mixers provide a great opportunity to entrepreneurs-in-making to network with ambitious people and benefit from the ‘pearls of wisdom’.
The official launch in Pakistan took place on Friday, the 3rd of May at T2F (The Second Floor).
It was hosted by Mr. Fawaad Saleem, the Chapter Director for Startup Grind and chaired Mr. Farzal Ali Dojki as the guest of honour. Mr. Farzal is the CEO of Next Generation Innovations, a consulting company that specializes in customized IT solutions and often partners with startup businesses to support their launch and operations.
The event started off with tea and networking as professionals across different spectrums of the industry engaged in meaningful networking. Before the interview began, Mr. Farzal gathered the prime issues that plagued the audience’s minds regarding startups.
The concerns focused on lack of funding opportunities, successful team-building, and making the choice between entrepreneurship and employment in the early stages of one’s career.
He concluded his talk with three lessons.
Firstly, as a startup you need to work hard and with dedication.
Secondly, it is important to hire carefully and ‘fall in love’ with the people you are hiring.
Thirdly, in order to launch a startup, it is important to work in a startup first. The learning curve of working in a successful small team is extremely high. One gets the opportunity to engage directly with the customers, take decisions, and explore areas of growth.
http://dawn.com/2013/05/06/startup-grind-launches-in-pakistan/
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