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
11 comments:
Dr. Haq,
Good article, in its own way.
"To a man with a Hammer, everything looks like a Nail"
I always find this noisy Silicon Valley exuberance a little confusing. I can tolerate the big words; it is just the brash noise that throws me off-balance.
Where does this new US Government effort with "angels", "VCs" and "private equity" fit into the exhaustive-list shown below?
Is it in 4(b)? Is it in 6(c)? Or is it in 7(a)? Or perhaps in 7(b)(i)(B)?
Would you please explain?
Thank you.
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1) Gross Domestic Production (GDP)
2) Final Consumption
(a) Household Consumption
(b) Government Consumption
3) Gross Domestic Savings
4) Net Current Tranfers
(a) Remittances
(b) Foreign Aid
5) Gross Savings
6) Current (Trade) Account
(a) Net Bal in Trade of Goods
(b) Net Balance on Trade of G&S
(c) Net Balance on Current A/C
7) Capital (Financial) Account
(a) Change in Forex Reserves
(b) Net Balance on Capital A/C
(i) Net Foreign Investments
(A) FDI
(B) Portfolio Equity
(ii) Change in External Debt
(A) Public Long-Term
(B) Private Long-Term
(C) Private Short-term
8) Gross Capital Formation
9) Inventory Levels
10) Gross Fixed Capital Formation
11) Net Fixed Capital Formation
12) Incr Cap to O/P Ratio (ICOR)
13) Trend GDP Growth Rate
14) RETURN to (1) for Next Year
HWJ: "Would you please explain?"
There is no one silver bullet, but increased investment in entrepreneurs in SME sector is a good thing for economic growth and job creation in any economy.
Here are excerpts of an ET article on private equity and debt markets as propellers of economic growth:
Let’s start by asking why are most investors in financial assets only interested in stock and bond markets, to the extent that even the premier CFA institute examinations and most university programmes almost solely focus on these two.
Here is why. These are the only two saving vehicles (asset classes) that are large, liquid and have visible prices. World public equity market capitalisation at $50 trillion (Bloomberg) and bond market debt outstanding at $95 trillion (CityUK), provides decent saving depth for global GDP (annual income) of $65 trillion.
The tangible asset market, mostly real estate (but including under/over-ground commodities and personal property), is even larger at $150 trillion, but is illiquid, due to relatively large ticket deal sizes and non-standardisation and hence is called an ‘alternative asset class’.
Private equity or shares of unlisted companies are interesting. They are grouped as alternatives due to liquidity constraints and big deal sizes, but otherwise seem the same securities, ie equity.
Before I elaborate, let’s try to ascertain the total size of private equity market. According to Credit Suisse 2011 Global Wealth Report, total net wealth in the world is $231 trillion. From this, we minus the value of ‘real’ assets, stock markets and $5 trillion in cash and demand deposits. The size of bond market is not included in the calculation as one person’s bond asset is another’s liability and it cancels out. Hence, estimated value of private companies comes to $30 trillion, which is smaller than the public equity market but still huge.
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Conclusion: Private equity presents a huge universe of opportunities and can certainly add value to High Net Worth (HNW) portfolios containing only stocks and bonds, by both increasing return and lowering true volatility at the same time. It is certainly an alternative investment class, but not only because of low liquidity, but rather because it marries management science with pure investment.
http://tribune.com.pk/story/444765/private-equitya-big-propeller-for-economic-growth/
Here's a Gulf Daily story on Pakistan's new rules for sukuk:
SYDNEY: Pakistan's regulator has issued new draft rules for the issuance of sukuk, or Islamic bonds, as part of a range of initiatives to boost the Islamic banking sector in the country.
Under the rules, sukuk will have to be structured to comply with standards of the Bahrain-based Accounting and Auditing Organisation for Islamic Finance Institutions(AAOIFI), as well as those set by the local regulator.
The draft rules also include requirements for disclosure of information about the issuers and for the issuers to appoint Islamic scholars who vet the sukuk structures.
There is a consultation period on the draft until October 15.
The number of individual sukuk issues in Pakistan has shrunk in recent years, despite the rapid growth of issuance globally, which is projected by Commerzbank to exceed $100 billion this year.
Last year, the Pakistani sukuk market was led by three sovereign sukuk which raised a combined 163.6bn rupees ($1.72bn), according to securities commission data.
Three corporate sukuk raised a combined 5.4bn rupees. This compares with 21 sukuk in 2007, most of which were corporate, raising a combined 49.3bn rupees. In 2008 there were 18 sukuk which raised 31.9bn rupees.
AAOIFI standards indicate how Islamic financial products should be structured; following the standards could increase the interest of foreign investors in investing in Pakistani sukuk.
Pakistan aims to lift Islamic finance's share of its banking sector through a series of reforms. Last month the central bank said it was developing a five-year plan for Islamic banking.
The country is introducing new rules for takaful (Islamic insurance) designed to increase competition.
http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=339152
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 an Express Tribune list of Pakistani companies with over a billion in revenue:
The Billion Dollar Club
1. Pakistan State Oil Company
Revenues: $11.57 billion
Joined club: Before 1986
2. Pak-Arab Refinery
Revenues: $3.00 billion
Joined club: 2000
3. Sui Northern Gas Pipelines
Revenues: $2.52 billion
Joined club: 2004
4. Shell Pakistan
Revenues: $2.38 billion
Joined club: 2000
5. Oil & Gas Development Company
Revenues: $2.23 billion
Joined club: 2005
6. National Refinery
Revenues: $1.97 billion
Joined club: 2005
7. Hub Power Company
Revenues: $1.97 billion
Joined club: 2009
8. Karachi Electric Supply Company
Revenues: $1.84 billion
Joined club: 2008
9. Attock Refinery
Revenues: $1.74 billion
Joined club: 2008
10. Attock Petroleum
Revenues: $1.72 billion
Joined club: 2010
11. Lahore Electric Supply Company
Revenues: $1.49 billion
Joined club: 2006
12. Pakistan Refinery
Revenues: $1.44 billion
Joined club: 2011
13. Sui Southern Gas Company
Revenues: $1.38 billion
Joined club: 2005
14. Pakistan International Airlines
Revenues: $1.36 billion
Joined club: 2005
15. Engro Corporation
Revenues: $1.29 billion
Joined club: 2011
16. Pakistan Telecommunications Company
Revenues: $1.25 billion
Joined club: 2000
17. Kot Addu Power Company
Revenues: $1.14 billion
Joined club: 2012
18. Mobilink
Revenues: $1.11 billion
Joined club: 2006
19. Pakistan Petroleum
Revenues: $1.09 billion
Joined club: 2012
.
http://tribune.com.pk/story/483287/corporate-revenues-the-growth-of-the-billion-dollar-club-in-pakistan/
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 Daily Times on US-Pak cooperation in human capital development:
* Grant to help researchers turn their research into commercially viable projects with private sector partners
* Symposium on ‘Economic Growth through Technology Transfer’ kicks off
ISLAMABAD: US Ambassador Richard Olson has announced new funding for Pakistani researchers during the first Pakistan-US Science and Technology Cooperation Programme Symposium on “Economic Growth through Technology Transfer”, which started at the National University of Sciences and Technology (NUST) on Thursday.
The two-day symposium is being jointly organised by the Higher Education Commission (HEC), Ministry of Science and Technology (MOST), US Department of State, US Agency for International Development and US National Academy of Sciences. The main objective of this academic activity was to introduce concepts of technology transfer and foster new interactions between research projects and the private sector, enhancing translation of research across these domains.
The participants included principal investigators, private sector, government representatives and universities. Delivering the keynote address, Ambassador Olson said that international science and technology cooperation is essential in addressing global challenges. Examples of research cooperation that can improve lives include more efficient water treatment to conserve and reuse wastewater; systems that rapidly detect deadly, drug-resistant tuberculosis; and solar water-heating systems for remote, rural areas, he said.
Ambassador Olson explained several other ways that the United States promotes scientific cooperation with Pakistan. He also announced new funding for Pakistani researchers to turn their research into commercially viable projects with private sector partners. This year’s Pakistan-US Science and Technology Symposium mark the 10-year anniversary of the Pakistan-US Science and Technology Cooperation Agreement and highlights a new focus on economic growth through scientific cooperation.
The two-day symposium brings together American and Pakistani researchers, universities, research institutions, government officials, and entrepreneurs to help build partnerships between researchers and private sector. The sessions include hands-on workshops on establishing private sector partnerships, intellectual property, and how to “sell” a business idea to potential investors. Earlier in the inauguration session, HEC Member Dr Nasser Ali Khan informed that over the last decade, the United States and Pakistan have jointly contributed $38 million to fund 73 Pakistani-US scientist-led research projects among 40 different institutes and universities in both countries. He also shed light over the decade-long achievements of higher education sector.
The Pakistan-US Science and Technology Cooperation Programme will sponsor two competitive seed grant programmes in 2013: “Innovate! and Collaborate”. Under these programmes, researchers can apply for seed grants of up to $15,000 starting in summer 2013. Application details will be available in summer 2013. HEC chairperson Dr Javaid R Laghari, Ministry of Science and Technology Secretary Akhlaq Ahmad Tarar, National University of Science and Technology Islamabad Rector Engr Muhammad Asghar and University of Agriculture Faisalabad Vice Chancellor Prof Dr Iqrar Ahmad Khan were also present on the occasion.
http://www.dailytimes.com.pk/default.asp?page=2013\02\01\story_1-2-2013_pg11_1
Here's a PakistanToday report of a Silicon-Valley based Pakistani-American VC Faysal Suhail's Pak visit:
ISLAMABAD - Pakistan has great opportunity to tap the true potential of Venture Capital for job creation and acceleration of economic growth on sustainable grounds. “Pakistan is having potential as well as talent to promote venture capital to strengthen its economy,” Faysal Sohail, Managing Director of CMEA Capital in San Francisco USA told APP in an interview.
The American experts was accompanied by Matthew Boland, Deputy Press Officer-Deputy Spokesman of US Embassy in Islamabad and Ambassador Shahid Kamal and Advisor Science, Technology and Innovation Organization (STIO).
It is pertinent to mention here that Faysal Sohail is currently visiting Pakistan to explore venture capital potential in various fields of economy with special focus on energy sector.
He was of the view that although venture capital was a new idea for Pakistan but it has the potential to boost the country’s economy by utilizing the vast talent of its young generation.
He said that complying with Islamic ideology, Venture Capital is risk-based capital for entrepreneurship with prospects of good returns on investments.
Faysal Sohail said the venture capital sector was investment-friendly as risk was shared by both investor and owner of the project. It provides an opportunity of sharing capital and skills through a mutual venture, he added. Replying to a question, Faysal said in Pakistan the energy sectors, including solar and other alternative energies, web, software and commerce, including e-commerce, and third generation mobile technologies were the major sectors which could boost national economy and create job opportunities.
He said during the last 20 years, 100 per cent new jobs created in the United States were through venture capital, so this sector had great potential for Pakistan also.
“Venture capital is like life-blood for various companies”, he remarked.
Replying to another question, he said Pakistan and the United States have a lot of potential for collaboration in the field of venture capital and in this regard Pak-US Business Council and United States Agency for International Development (USAID) could play an important role.
The venture capital expert stressed the need for highlighting the new idea of venture capital in Pakistan so that people as well as the entrepreneurs take optimum benefit of the important sector.
“Since the economic growth is driven by small and medium size enterprises, the venture capital can play an important role to boost the economy on sustainable grounds,” he added.
http://www.pakistantoday.com.pk/2013/02/23/news/profit/pakistan-urged-to-tap-potential-of-venture-capital-for-sustainable-growth/
Here's a Gulf News report on new tech training center in FATA's Bajaur agency in Pakistan:
Islamabad: In keeping with the directives of President His Highness Shaikh Khalifa Bin Zayed Al Nahyan to provide assistance to the people of Pakistan and to support technical and vocational educational there, the UAE Project to Assist Pakistan (UPAP) has announced completion of the project to build a technical college at Bajaur in Pakistan at a total cost of $3.4 million (Dh12.4 million). The project was delivered to the local government in Bajaur following completion.
The official inauguration of the college was attended by Chief of Pakistan Army Staff General Ashfaq Pervez Kayani, UAE Ambassador to Pakistan Eisa Abdullah Al Basha Al Nuaimi, Abdullah Khalifa Al Gafli, Director of the UPAP, and senior Pakistani officials.
The college is built on a 34,000 square foot area. It will provide diploma-level technical education for up to 450 students in various disciplines of engineering such as electrical, mechanical, civil and mining.
http://gulfnews.com/news/gulf/uae/government/emirati-charity-project-in-pakistan-completed-1.1172873
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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