ENTREPRENEURIAL activity among Pakistani graduates remains below one percent, despite a notable interest in pursuing such ventures which is lower than Asia and China, at 6.2% and 10%, respectively. The myth of access to finance as a prominent hurdle to entrepreneurial growth is dispelled by survey results, which rank it sixth among determinants impacting startup sustainability. In order to nurture the entrepreneurial culture, the Higher Education Commission (HEC) and the Ministry of Information Technology in Pakistan have taken steps to strengthen the entrepreneurial ecosystem through the establishment of Business Incubation Centres (BICs) in 38 universities and National Incubation Centres (NICs) in four major cities Karachi, Lahore, Islamabad and Peshawar.
Despite these efforts, no significant high-potential breakthrough has been achieved which would establish any city or university as a pre-eminent entrepreneurial hub. This writer conducted a study that was financially supported by Research for Social Transformation and Advancement (RASTA) at the Pakistan Institute of Development Economics (PIDE). The study aimed to assess the effectiveness of incubation centres through a comprehensive cost-benefit analysis of 26 BICs and three NICs and also to determine the accuracy of reported startup figures in comparison to the actual number of startups established.
Based on the data provided by BICs to HEC, an average number of startups that are incubated and graduated from BICs in public sector universities is 90 and 58, respectively. The average cost of establishing a BIC is PKRs 5.5 million, resulting in an average cost of PKRs 224,261 per startup. In contrast, the average number of startups incubated and graduated from BICs in private universities is 37 and 25, respectively, with an average operational cost of PKRs 7.164 million per annum, equivalent to PKRs 91,349 per startup. The operational cost of these BICs has amounted to approximately 179 million so far by HEC, yielding 795 incubatees to date. However, despite optimistic projections for the number of startups graduating from both public and private sector BICs, empirical evidence based on counter verification shows that these projections are overstated by 75-80 percent. Consequently, the actual number of startups graduating from BICs falls significantly short of the projected figures, highlighting a substantial disparity between expectations and reality.
However, it has been reported that the NICs located in Islamabad, Lahore and Peshawar have reportedly produced 660 startups respectively. These NICs have a combined annual operational cost of 80-100 million, resulting in a total cost of 350-400 million per year, which equates to an incubation cost of approximately one million per startup. This cost surpasses the total funding of 179 million provided to 26 BICs by HEC so far. However, it is crucial to note that claims of graduated startups are also exaggerated and counter verification imply that a considerable number of the startups claimed to have been graduated at NICs were pre-existing entities. Additionally, experts familiar with NICs have highlighted a concerning issue where successful business ideas and innovative products developed by startups are acquired by sponsoring agencies with the CEO role often being handed over to the original owner. This practice raises questions about the true nature of NICs as incubation centres. In a nutshell, both streams have comparable performance and are focused on showcasing number game.
It can be argued that the availability of physical space within both streams for various activities such as shared workspaces, co-working spaces, private offices, client meetings, investor presentations, team meetings and mentorship support for startups is not an issue. However, it is important to note that just providing these facilities does not necessarily guarantee the success of startups. There is another challenge for incubation centre i.e. allocation of funds towards operational matters which can deplete a substantial portion of funds provided by HEC and the Ministry, leaving little room for innovation and growth for incubatees. Furthermore, incubation managers hired by these centres often lack the necessary experience with startups and are typically public or private sector employees with no prior knowledge of the intricacies of the startup ecosystem. Additionally, most mentors available to startups may be ill-equipped and lack connections to the international startup community, leading to inadequate support at the initial stage.
During the phase of scaling up, startups require substantial funding to augment their operations which can be procured either through bank loans or by issuing initial public offerings (IPOs) in the stock market. At present, only three IPOs have been issued on the Growth Enterprise Market (GEM) Board of the Pakistan Stock Exchange (PSX). Furthermore, no startups have emerged from both streams that have been listed on the GEM Board. In contrast, the Alternative Investment Market (AIM) in the UK has witnessed thousands of IPOs issued by startups and incubates produced by universities.
It is also imperative for startups to conduct comprehensive market research to ascertain opportunities and challenges for business growth and product innovation. Although academia has witnessed a significant surge in research paper publications, from fewer than 1,000 before 2001 to over 20,000 in 2022, a staggering 99 percent of these articles remain confined to the philosophical domain. Regrettably, professors are more inclined towards enhancing their impact factor than impact on society at large. Moreover, their expertise is often found to be superficial and not specialized in any field which in result leads to least research support to startups. Similarly, despite the presence of artificial intelligence and IT departments in universities, still business ideas remain traditional in nature i.e. online biryani, tea stall and burger shop etc instead of e-commerce and tech-business e.g. food panda, zameen.com, daraz and bykea etc.
Undoubtedly, HEC and the Ministry have made significant investment in promoting entrepreneurial culture. However, it is evident that allocation of funds does not translate into startups growth and sustainability. To ensure the success of startups, it is crucial to establish a conducive incubation ecosystem at university level rather than setting up incubation centres in each city as well as in each university. Otherwise, this could result in a surplus of incubation centres relative to the number of startups in Pakistan. A successful case study is China, where the government has successfully created synergy by consolidating all resources under the umbrella of universities, resulting in a significant increase in startup growth.
—The writer is an Assistant Professor (PhD Financial Economics) at the National University of Modern Languages, Islamabad.
Email: [email protected]
