In recent times, various vested stakeholders have painted the early-stage startup ecosystem in Pakistan as one filled with unparalleled opportunities and vast riches. More than a mere pipe dream, this hype is propagated because it is now a plausible and obtainable future.

The path to success for the Pakistani ecosystem is often compared to the one traversed by comparable success stories of other emerging markets. Stakeholders will quote India, Indonesia and Nigeria, among others; while the logic is sound, there are certain fundamental differences to consider.

India, for example, is the fifth-largest country by GDP according to current rankings (10th in 2014) and had a whopping middle class of 121 million households that earned between $7,700 and $15,400 in 2016.

As a rough comparison, it is estimated that Pakistan has achieved a peak of 16 million middle class earning individuals categorised by a minimum annual income of $3,600 (not accounting for the fact that the Indian statistic included a cap and higher floor, India’s middle class was almost eight times larger than Pakistan).

Similarly, Indonesia currently ranks 16th in terms of global GDP rankings with a GDP per capita of approximately $4,100. Pakistan’s current GDP ranking is 42nd (not PPP adjusted) and its GDP per capita is $1,284.

The last comparables (please note the list is not exhaustive) that are much closer in terms of macroeconomic indicators are Nigeria and Egypt, both of which have received more venture capital attention and funding. A fundamental difference, however, is the regional approach which takes advantage of the expansion opportunities available.

For instance, two of Nigeria’s unicorns, Jumia and Flutterwave, have clearly opted for the regional expansion play — Jumia operates in at least 18 different African countries and Flutterwave in 11. The rationale and need for expansion outside of a startup’s home country, in this case Pakistan, will be the point of focus for the remainder of this piece.

Also read: Valuing — and overvaluing — startups

Stepping out

In my opinion, the aspiring Pakistani founder mulling over a local product or service should strongly consider the application of their product in the Gulf region and beyond — assuming that there is a legitimate business case, of course.

The commercial rationale for this move is to take an opportunistic and calculated approach to expand one’s target market considering the ever-increasing level of competition locally.

To be clear, the suggestion is not to promote a brain drain but rather to avail an opportunity that can propel one’s ambitions, multiply growth and, most importantly, improve exit avenues.

As Retailo’s co-founder, Wahaj Ahmed, says, “We made a deliberate decision for a regional play right from the onset, instead of starting from one market, deepening it and then moving to the next. The market opportunity for MENAP is over $150 billion and we have aligned with global investors to make sure we are the dominant player in this lucrative and growing market.”

The Gulf countries are in a competitive, and paradoxically collaborative, sprint to diversify away their economic concentration from the traditional energy industry towards a gamut of forward-looking technology-heavy sectors. This strategic economic decision has led to the creation and expansion of several government-sponsored entities tasked to gain economic exposure to technology companies, which grants access to the talent contained within.

A few institutions of note are Abu Dhabi Holding Company (ADQ), Abu Dhabi Investment Office and Mubadala in the UAE, and the Public Investment Fund and Saudi Venture Company in the Kingdom of Saudi Arabia.

Collectively, these institutions are looking to allocate over $1 billion across various programmes and financial incentive structures over the coming years. Further, these institutions do not just allocate directly to the companies but also enable return-seeking venture capital fund managers to hunt for quality deals in the region.

”As one of the leading VCs in the Gulf, we are thrilled to see the growing momentum of bridging the gap between MENA and Pakistan to complete the 'MENAP'. We have been studying and understanding the Pakistan market for the last many years and will continue to invest actively in Pakistan companies to help them expand within the country and abroad, be that the Middle East or Asian market, and also encourage our portfolio companies to enter Pakistan,” says Shane Shin, Founding Partner at Shorooq Partners.

The MENAP categorisation is not a new one.

Emerging from MENA, it has also periodically been extended to MENAPT (to include Turkey), a geographic expansion that can be attributed to the realisation of ecosystem stakeholders. Individual markets often lack the requisite 'umph' to meet their respective scale objectives, whether it be raising and/or allocating capital as a fund manager or reporting on success stories as a media/news outlet. The expansion of the target region/market is a necessity when you benchmark against other emerging markets on a global scale.

The cultural familiarity and long-standing relationship of Pakistani migrant workers to the Gulf region is a key element in allowing for the ease of expansion.

Expatriates living in the Gulf (UAE and KSA) account for approximately 50 per cent of the total remittances Pakistan receives, a significant contributor to the economy and the households that rely on this income. While this wealth transfer has a positive impact, it results in a ‘brain drain’, which is a long-standing problem for Pakistan and other underdeveloped countries.

The key difference between building a “regional startup” versus simply working abroad is that a regional startup's focus is on expansion, which amplifies company efforts and objectives, thereby enabling the acceleration of a knowledge economy at home. The regional infrastructure is complementary to a weak, albeit growing, public infrastructure in the home country. It also benefits the Gulf countries in allocating such incentives/resources — a proverbial win-win scenario for all.

Additionally, the relative ease of travel and proximity is unmatched. A flight from Karachi to Dubai is approximately equivalent to a flight from Karachi to Islamabad. The essence of the lame joke – “Dubai is the nicest, most developed city in Pakistan” – still rings true today and will continue to do so in the foreseeable future.

If you peel back the MENAP region, Pakistan, Egypt and Saudi Arabia are the three primary markets that present the scale of opportunity required to produce a large exit. This essentially means that companies focused on disrupting large industries which cater to the masses and have the potential to produce hundreds of millions or even billions of USD in revenue will often seek expansion outside of the home market.

An example is the golden child of the region’s ecosystem, Careem. This continues to serve as a core strategy with growth-stage companies like Swvl and, more recently, with earlier-stage companies like Trella and Noon Academy.

My firm belief is that this trend will not just continue but rapidly accelerate. The aggressive cross-border expansion approach does a couple of things for the Pakistan market.

Firstly, it places Pakistan as a key target to achieve scale; a prime example of this is the trucking/freight space in Pakistan. The co-founder of Truckitin, Sarmad Farooq, remarks:

“Millions of businesses rely on traditional methods to connect with truckers in an inefficient manner; to solve this, we are building a platform which is local and easy to use. We are on an exciting mission to unlock one billion USD per annum in resource potential.”

Secondly, this means that Pakistani founders have been looking over their shoulders as competition from the region accelerates. If a founder’s local market is at risk from regional players then why limit one’s ambitions within Pakistan? One should not lose sight of other geographies that present revenue opportunities and afford companies the attention of a more expansive, better-capitalised investor base.

Omar Khan is a finance professional with over 10 years of experience across the USA and UAE and a core focus and expertise in private equity and venture capital. He is also an active startup adviser and angel investor supporting Pakistani founders in their growth.