Originally posted on the CIPE Development Blog
“Youth have inherent risk-taking ability but do not have the tools and techniques. Our labour force is expanding by 1.5 per cent per annum and there is a great need for job creators rather than job seekers.” Dr Ishrat Husain – IBA Dean and Director
One of the key factors in assessing a business friendly country is to notice the rate of entrepreneurship development. However, the Global Entrepreneurship Monitor (GEM) Pakistan Report 2010 places Pakistan well below many of its peers in this respect.
According to the GEM report, “The established business ownership rate in Pakistan is 4.7%, which is less than the average rate for factor-driven economies (12.6%).” The report also highlights the fact that since Pakistan’s Independence in 1947 from British India, successive governments focused on the development of large-scale industries both in the public and private sector, and policies to promote entrepreneurship and small businesses were neglected.
Pakistan has some of the best infrastructure, agriculture, and natural resources in South Asia. In addition, there are a number of initiatives from government and donor agencies to boost the entrepreneurial culture.
However, due to the persistent poor law and order situation, weak governance, corruption, bribery, the unavailability of seed capital, and lack of encouragement from society, the rate of formal business start-ups is the lowest in the region. These issues encourage the growth of the informal sector in Pakistan, which has expanded more rapidly than the formal economy.
The GEM report also highlights following seven challenges being faced by start-ups and small businesses in Pakistan:
- Small businesses face a complex legal, tax and administrative environment in Pakistan, therefore most firms avoid the economic obligations associated with registered status and instead operate informally.
- Dependence of the private sector on government incentives and subsidies.
- Businesses remained largely owner-operated and resistant to developing professional management.
- Scarcity of skilled labor and low wages.
- Lack of trust among the business community that impedes business growth.
- Lack of financing facilities for SMEs with particular reference to State Bank of Pakistan’s Prudential Regulations and documentation requirements, which most SMEs were unable to meet.
The projected growth of the youth (15-24 years) population from about 36.76 million in 2010 to 43.66 million by 2030 offers many challenges for the country’s development. Furthermore, there are an increasing number of girls getting education at the university level. Hence the need for gender-specific entrepreneurial policies is also highly important, especially as the GEM report notes a major gender gap in entrepreneurial attitudes between men and women in Pakistan.
Stakeholders such as government, educational institutions, the Central Bank, and the private sector need to work together to meet these challenges. Improving the legal environment to make it easier for young people to start entrepreneurial careers and improving access to seed capital at favorable interest rates are perhaps two key reform areas that require immediate attention.
Pakistan is passing through tough times and the economy is slow, resulting in fewer job opportunities. Perhaps the only way to take advantage of the youth bulge is to provide an environment that encourages youth to consider an entrepreneurial career instead of competing for scarce jobs.