Explain whether you would invest in Pakistan as an early investor (at the time of Pakistan case, 2001)?

Why or why not? In what sector?

Jorge Martinez Durazo

After a tumultuous political beginning, that put Pakistan on the verge of bankruptcy by 1999, the

country has endure a period of wide-ranging economic reforms that have reinvigorated its economy.

Pakistan’s increasing per capita income, business friendly policies and wide spread internet usage have

fuel growth in several sectors that now show promising opportunities for investment. The growing

Pakistani middle class provides a formidable anchor for any company that considers growing organically

in this promising region. Yet, uncertainty about political stability and inadequate infrastructure posed an

obstacle that could hinder Pakistan’s economic development.

When considering the roll as an early investor in Pakistan, I look at it from the perspective of Asad Jamal

and reflect on the current industries that show promise for investment and the nature of the firm that

will encourage me to make an investment. I ponder that, given the nature of Pakistan’s demography and

economy, sectors such as High Tech, Energy, BOP Consumer Services/products (to name a few) provide

the best prospects for investment. With that in mind, I consider following factors prior to committing

into any venture.

The Energy sector provides ample opportunity due to the lack of reliable electricity supply. This industry

offers plenty room for growth in the upcoming years as more companies continue to set up operations

in Pakistan and have to incur into additional capital costs to guarantee reliable supply of electricity. Also,

as an early entrant in this market, the right company can continue to reap the benefits of seniority as

economies of scale build up and its presence in this growing sector cements. But, in order to provide

value in the Pakistani electricity market, as we learnt in the previous case, a venture of this nature will

need to engage a strategic partner to facilitate integration in local economy while managing the balance

of power in the relationship, find a capital investor to help fund the project and to jointly share the risk,

negotiate beneficial EPC contracts to secure economic viability while deterring dramatic raises and

finally, make up for a knowledge gap in an industry were no previous experience eases the learning

curve.

With a total population of 800 million habitants and a GDP per capita of 800 US dlls, Pakistan’s BOP

consumer product/services market presents a fertile landscape for investors, the data in this sector

leads to prospects for abundant private earnings and continuous expansion. In addition, a successful

venture in this sector provides a great platform to expand into neighboring markets, particularly in India

where a whopping market of 1.1 billion Indians awaits. However, introduction to this industry could

verify more intricate as the lack of expertise of the complex dynamics of consumption among the

different regions and ethnicities of Pakistan along with the lack of first hand expertise in the consumer

goods/services market in the developing world would put us in the helm of a passive capital investor.

The Pakistani investment landscape, 2001.

With time, understanding and knowledge of the sector will improve but short term uncertainty of the

initial stage far out weights the tradeoffs of possible future earnings.

In the case, Pakistan’s High Tech sector shows great bonanza in recent years, but to conquer market

share in this sector, new entrants will have to cope with a variety of challenges that could pose a

paramount task if not meet with dexterity. Furthermore, as the amount of companies competing in the

High Tech scene continue to expand, the narrow pool of competent staff becomes a bigger issue, which

drives salaries up and eats up part of the profit margin. But compiling on the risks the industry presents,

there are great benefits to be made for adequate ventures that can swiftly grasp market share and

capitalize in his position as its niche market grows. Also, the long build knowledge in the sector abroad

will allow to better judge some of the intrinsic factors that remain constant in any High Tech investment.

With that in mind, I would invest in the Pakistani High Tech sector as long as I can meet most of the

following conditions.

Ideally, the candidate will be in early stage High Tech startup servicing the local market as main

objective. Additionally, should exhibit some traction among niche market but facing issues to scale due

to lack of capital and adequate staffing. Yet, premises about customer’s needs and product/market fit

should have proven accurate to greater extent.

The mayor component in deciding for the right investment candidate will be based on the management

team. As an early stage investor, I’ll be more prone to put capital in the right people than to put capital

in the right idea. After all, a great idea poorly executed is generally squandered. An adequate

management team will be preferably led by either US-trained Pakistani or a returnee Pakistani

entrepreneur with a strong technical background in the IT sector and a track record at internet ventures.

To mitigate leap of faith and alleviate the current challenges that the company faces, the initial capital

allotment will have to account for pay bonuses for high and mid-level staff for the 1st year, this incentive

pay and our involvement in the Organization for Pakistani Entrepreneurs (OPEN) will allow the venture

to integrated some of the most competent and ambitious human capital in the Pakistani IT labor market.

After the 1st year employee equity/options will be put in place to further employees stake on the

company outlook and capitalize on gained momentum while vacuuming balance sheet. In mitigating

exposure to foreseeable challenges to arise at market and company level, and as with any High Tech

firm, provisions that safe guard market share, deter legal disputes and consider dramatic technological

changes are to be built to ensure safe navigation of the expansion.

In short, Pakistani IT sector at its current stage, presents a good opportunity for investors to allocate

capital with legal provisions that safe guard investments and economic incentives that exempts new

entrants from tax burden while entertaining access to a growing market with increasing economic

power.