As a journalist who transitioned from covering sports to business in Pakistan, I have seen the country bask in global recognition for its many achievements. Pakistan still holds the record for the highest number of titles in the British Open, once considered the de facto world championship in squash. It dominated hockey for decades and still holds the highest number of World Cup titles. Who could forget the unbridled cricketing joy when Pakistan rose above adversity to lift the 1992 World Cup?

These successes put Pakistan on the international map for all the right reasons. Unfortunately, poor geopolitical choices turned these success stories into forgettable history.

The case for startups

Since 2015, Invest2Innovate has been tracking funding in Pakistan’s startup ecosystem. One decade later, the total funding has barely crossed the $1bn mark.

Despite low funding and infrastructure challenges, startups show immense potential and could re-write Pakistan’s future if properly supported

Much of this funding remains parked abroad, however. It is not because of startups or investors but rather due to a volatile exchange rate and challenging regulations, particularly for profit repatriation. These systemic issues highlight why fostering a startup ecosystem is crucial for Pakistan.

Just as sports once brought the country global recognition, a thriving startup ecosystem holds the promise of achieving the same. Startups can attract international investors and boost the country’s brand image.

With the world’s fifth-largest population, Pakistan is ripe with opportunities. However, success stories need to inspire confidence among investors.

Lessons from India

It is impossible to ignore parallels with India, a neighbouring country that shares comparable market conditions but has surged far ahead in its startup journey.

According to the Confederation of Indian Industry, Indian startups are projected to create 50 million new jobs and add $1 trillion to the economy by 2030. In fact, 20-25pc of jobs created in India over the past decade have come from startups. This success is not just about numbers. It’s a testament to the transformative power of innovation-driven entrepreneurship.

Pakistan’s startup ecosystem is still nascent, but positive signs are unmistakable. Companies like Foodpanda and Careem have gained a foothold, while homegrown startups like Bykea and Kravemart are making strides in the gig economy.

Funding woes and signs of recovery

The startup ecosystem’s funding journey has been turbulent. The year 2024 began with the lowest funding levels in years, with only $1m recorded in the first half.

However, the latter half showed improvement, bringing the total funding to $42.5m by the end of 2024 — a 42.5pc drop compared to $74m recorded in 2023. Notably, 98pc of this funding came in the second half, which indicates cautious optimism going forward.

Challenges and opportunities

According to the Pakistan Startup Ecosystem Report 2024, infrastructural issues — not founder capabilities — remain primary barriers. Startups face significant hurdles, such as unreliable electricity and connectivity, which hinder their operations and growth.

Internet shutdowns in response to political turmoil are wreaking havoc on startups, frustrating both investors and founders.

Sectoral shifts and emerging trends

In 2024, fintech emerged as a dominant sector, securing $30.5m in funding and surpassing e-commerce for the first time. Looking ahead, cleantech and artificial intelligence (AI) are poised for significant growth.

Sarmayacar, a venture capital fund, has launched a Green Climate Fund with a cap of $40m, of which $15m has already been committed. E-mobility is gradually gaining traction, with electric bikes and buses heralding a slow but steady shift.

Moreover, international markets are increasingly prioritising sustainability. Western countries and the European Union are raising concerns about imports with high carbon footprints, compelling Pakistani exporters to adapt. Cleantech startups have a pivotal role to play in helping businesses meet these demands.

The potential of AI is equally transformative. Pakistan’s IT sector, despite macroeconomic challenges, is emerging as a driver of recovery and growth. By 2030, digital transformation could contribute up to Rs9.7tr in economic value, according to a report by Access Partnership. AI, in particular, could add $10bn-$20bn to Pakistan’s economy by 2030. Companies offering IT services are already seeing up to 30pc of their solutions incorporating AI, driven by international demand.

The road ahead

Startups are not a silver bullet for Pakistan’s economic challenges, but they are a critical part of the solution. They bring innovation, create jobs and attract investment. More importantly, they offer a narrative shift — a story of resilience, creativity and potential.

To unlock this potential, Pakistan needs to address its systemic challenges. This includes improving infrastructure, creating a more favourable regulatory environment, and fostering inclusivity, particularly for women entrepreneurs.

By doing so, the country can create an ecosystem where startups not only survive but thrive, contributing to a brighter economic future.

The writer is an Editorial and Insights Lead at Invest2Innovate and a co-author of the recently published Pakistan Ecosystem Report 2024

Published in Dawn, The Business and Finance Weekly, December 30th, 2024