Entrepreneurship in Pakistan

In The Name Of Allah, Most In The Name Of Allah, Most Beneficent, Most MercifulBeneficent, Most Merciful

In The Name Of Allah, Most In The Name Of Allah, Most Beneficent, Most MercifulBeneficent, Most Merciful

AcknowledgmentAcknowledgment

We are thankful to Almighty We are thankful to Almighty AllahAllah, Who , Who has granted us strength and provided us has granted us strength and provided us chance to achieve our goals in life.chance to achieve our goals in life.We would like to thankWe would like to thank

SIR SHAHID YAQUBSIR SHAHID YAQUBfor providing us opportunity to study and for providing us opportunity to study and discuss Entrepreneurship in Pakistan.discuss Entrepreneurship in Pakistan.

We are thankful to Almighty We are thankful to Almighty AllahAllah, Who , Who has granted us strength and provided us has granted us strength and provided us chance to achieve our goals in life.chance to achieve our goals in life.We would like to thankWe would like to thank

SIR SHAHID YAQUBSIR SHAHID YAQUBfor providing us opportunity to study and for providing us opportunity to study and discuss Entrepreneurship in Pakistan.discuss Entrepreneurship in Pakistan.

Group “A”Group “A”Group “A”Group “A” Muhammad Kaleem. (Leader)Muhammad Kaleem. (Leader) Tanveer Tahir.Tanveer Tahir. Aashiq Hussain.Aashiq Hussain. Abdul GhaffarAbdul Ghaffar Muhammad Shahid.Muhammad Shahid. Muhammad Wajid.Muhammad Wajid.

Introduction

Economic development

Economic Aids

Introduction

Economic development

Economic Aids

Reasons For The failure ofReasons For The failure of Economic development Economic development Economic Aids.Economic Aids.

Rule of lawRule of law Democratic InstitutionDemocratic Institution JudiciaryJudiciary Property RightsProperty Rights Free MediaFree Media

Reasons For The failure ofReasons For The failure of Economic development Economic development Economic Aids.Economic Aids.

Rule of lawRule of law Democratic InstitutionDemocratic Institution JudiciaryJudiciary Property RightsProperty Rights Free MediaFree Media

Rule of LawRule of LawRule of LawRule of Law

Democratic InstitutionDemocratic Institution

JudiciaryJudiciaryJudiciaryJudiciary

Property RightsProperty Rights

Free MediaFree Media

Easterly(2005)Easterly(2005)

“ “Growth happens only when Growth happens only when policy and management in every policy and management in every level of economy turns level of economy turns entrepreneurial”.entrepreneurial”.

Krueger(1974)Krueger(1974)

“ “The system of incentives that a The system of incentives that a country sets up in its governance country sets up in its governance mechanism promote healthy mechanism promote healthy entrepreneurship”.entrepreneurship”.

Dejardin(2004 and 2005)Dejardin(2004 and 2005) “ “Growth is the result of Growth is the result of knowledge accumulation and knowledge accumulation and entrepreneurship”.entrepreneurship”.

Romer, Grossman and Romer, Grossman and HelpmanHelpman “ “It is idea and growth that It is idea and growth that drive growth not just by drive growth not just by infrastructure development and infrastructure development and investment promotion”.investment promotion”.

This article focus on the subject of This article focus on the subject of entrepreneurship in Pakistan. entrepreneurship in Pakistan.

It aims to provide a general It aims to provide a general understanding of entrepreneurship.understanding of entrepreneurship.

Understanding Understanding Entrepreneurship Entrepreneurship

Understanding Understanding Entrepreneurship Entrepreneurship

Understanding innovation and bearing Understanding innovation and bearing risk. risk.

Innovation belong to Entrepreneurship Innovation belong to Entrepreneurship and economic growth.and economic growth.

Economic development means.Economic development means. Continuous service of new business.Continuous service of new business. New resources, market and new organizationNew resources, market and new organization

Innovation and Entrepreneurial Innovation and Entrepreneurial process wash out old with process of process wash out old with process of reallocation of resources of old to reallocation of resources of old to new.new.

Higher out put of new then old.Higher out put of new then old.

Innovation increase profit and Innovation increase profit and imitation and completion decrease imitation and completion decrease profit.profit.

Start small firmsStart small firmsStart at small scale, even if it Start at small scale, even if it

is inefficient one. is inefficient one.

If the idea is a success firms If the idea is a success firms become larger through the process become larger through the process of expansion and consolidation of expansion and consolidation other wise these die out.other wise these die out.

Implementation of ideasImplementation of ideas

Entrepreneurial Economy.Entrepreneurial Economy.Free flexible market.Free flexible market.Availability of financial Availability of financial system.system.

Educational systemEducational system

Entrepreneurship as Rent Entrepreneurship as Rent SeekingSeeking

Entrepreneurship as Rent Entrepreneurship as Rent SeekingSeeking

““Rent Seeking is a situation in which an Rent Seeking is a situation in which an individual or firm makes Money by individual or firm makes Money by manipulating economic environment manipulating economic environment rather than by profit making through rather than by profit making through trade and Production of Wealth.”trade and Production of Wealth.”

““Rent seeking can also be describe as Rent seeking can also be describe as corruption, where Politicians and corruption, where Politicians and Bureaucrats manipulate the existing Bureaucrats manipulate the existing institutional framework so that in institutional framework so that in future it serves their on private future it serves their on private interest.”interest.”

Entrepreneurship turn into Entrepreneurship turn into Rent SeekingRent Seeking

Examples of Influences:-Examples of Influences:-

Monopoly through a licenses.Monopoly through a licenses. Obtains recourses below the market Obtains recourses below the market

price.price. Protection from competition Protection from competition

(restriction of number of in the market)(restriction of number of in the market)

Drawbacks of Rent SeekingDrawbacks of Rent SeekingDrawbacks of Rent SeekingDrawbacks of Rent Seeking Distortion of the structure of Distortion of the structure of

Social cost incentives.Social cost incentives. Misallocation of resources.Misallocation of resources. Leading to heavy welfare losses Leading to heavy welfare losses

and social cost.and social cost. Rent Seeking hinders economic Rent Seeking hinders economic

growth and Social development.growth and Social development.

How to Avoid from Rent How to Avoid from Rent seekingseeking

How to Avoid from Rent How to Avoid from Rent seekingseeking

By implementing rules and By implementing rules and regulations.regulations.

By defining property rights.By defining property rights. By effective enforcement of contracts By effective enforcement of contracts

and a variety of other protections and a variety of other protections that made rent-seeking difficult.that made rent-seeking difficult.

Group “B”Group “B”Group “B”Group “B” Muhammad Ahmad. (Leader)Muhammad Ahmad. (Leader) Iqra Iram.Iqra Iram. Aimen Farooq.Aimen Farooq. Muhammad Asif.Muhammad Asif. Saqib Hussain.Saqib Hussain. Ahsan Faraz.Ahsan Faraz. Rahman Zulfiqar.Rahman Zulfiqar.

How did Entrepreneurship How did Entrepreneurship Develop In Pakistan?Develop In Pakistan?

Policy always biased towards the elite.Policy always biased towards the elite.

Small scale sector continually besieged Small scale sector continually besieged by state for its interest to protect large by state for its interest to protect large formal sector.formal sector.

So focus went on incentives of rent So focus went on incentives of rent seeking rather than entrepreneurship.seeking rather than entrepreneurship.

Major ConstraintsMajor ConstraintsMajor ConstraintsMajor Constraints StabilityStability

Inconsistent policiesInconsistent policies

Lack of role modelsLack of role models

Tight fiscal policy towards new entrantsTight fiscal policy towards new entrants

High Interest RatesHigh Interest Rates

Major ConstraintsMajor Constraints

Two different education system creating inferiority Two different education system creating inferiority complexcomplex

Harassments at the hand of Government employees Harassments at the hand of Government employees

No system in place for the revival of Sick IndustryNo system in place for the revival of Sick Industry

Discrimination between local and FDIDiscrimination between local and FDI

A) The Big Push for A) The Big Push for IndustryIndustry

A) The Big Push for A) The Big Push for IndustryIndustry

Enterprise for the government was Enterprise for the government was synonymous to large industry only synonymous to large industry only

Policy measures gave rise to rent Policy measures gave rise to rent seekers instead of entrepreneurs.seekers instead of entrepreneurs.

Government policy was never neutral Government policy was never neutral and favored big business houses.and favored big business houses.

Historical BackgroundHistorical BackgroundHistorical BackgroundHistorical Background 1947-58 Era of emerging exchange rate and 1947-58 Era of emerging exchange rate and

trade policies and import trade policies and import substitution substitution industrialization.industrialization.

1953-64 Virtually all imports into Pakistan 1953-64 Virtually all imports into Pakistan were were regulated by some regulated by some form of quantitative form of quantitative controls.controls.

1950-551950-55 Large scale sector experienced Large scale sector experienced phenomenal growth rates of phenomenal growth rates of

over 20%.over 20%. 1950’s1950’s Introduction and active functioning of Introduction and active functioning of

“Import Licensing System” “Import Licensing System”

Historical BackgroundHistorical Background 1958-68 1958-68 The “decade of development”, industry The “decade of development”, industry

experiencedexperienced relatively higher growth rate.relatively higher growth rate.

1958-70 1958-70 65 % of total loans disbursed by PICIC, 65 % of total loans disbursed by PICIC, went to 37 went to 37 monopoly houses, with the largest 13 monopoly houses, with the largest 13 of these of these accounting for about 70% of the accounting for about 70% of the loans.loans.

1972-771972-77 Bhutto’s regime characterized by Bhutto’s regime characterized by Nationalization. Nationalization. Caused some dent in elite Caused some dent in elite power. banks continued power. banks continued to lend on the basis to lend on the basis of political and governmental of political and governmental influence.influence.

1977-88 Zia years of encouragement of 1977-88 Zia years of encouragement of private sector, private sector, preference still given to preference still given to large scale sector.large scale sector.

Historical BackgroundHistorical Background

Resulted in losses on bad loans for banks. Resulted in losses on bad loans for banks. Governments had to inject equity of RS.20 Governments had to inject equity of RS.20 billion and RS.7 billion into United Bank billion and RS.7 billion into United Bank Limited (UBL) and Habib Bank limited Limited (UBL) and Habib Bank limited (HBL) respectively to make these viable (HBL) respectively to make these viable for privatizationfor privatization

B) Neglect of the ‘Small’ B) Neglect of the ‘Small’ scalescale

Small scale manufacturing sector developed in the Small scale manufacturing sector developed in the context of a difficult / biased industrialization process.context of a difficult / biased industrialization process.

Reality: Informal and Small scale sector dominate our Reality: Informal and Small scale sector dominate our lives.lives.

Today almost Today almost 40%40%of business takes place in the of business takes place in the informal sector.informal sector.

Small scale sector is the breeding ground for Small scale sector is the breeding ground for innovation but continues to attract little research innovation but continues to attract little research

Small Scale Sector Small Scale Sector NeglectedNeglected


1950-62 Consistent trend of only 2.35% 1950-62 Consistent trend of only 2.35% growth.growth.

1962-691962-69 Stagnant growth rate of 2.95%.Stagnant growth rate of 2.95%.

19771977Consistent trend of 8.4% growth.Consistent trend of 8.4% growth.

19901990Growth rate fell to stagnant of 5.3 %Growth rate fell to stagnant of 5.3 %

Informal sector & small scale sector Informal sector & small scale sector employment has always exceeded large scale employment has always exceeded large scale sector’s contribution.sector’s contribution.



Recent study by SMEDA showed that a person could be Recent study by SMEDA showed that a person could be employed in a small-scale industry at 1/80th investment of employed in a small-scale industry at 1/80th investment of what it takes him to be employed in a large-scale industry.what it takes him to be employed in a large-scale industry.

The location problems of the SME‘s are far less than those The location problems of the SME‘s are far less than those

of the large-scale industries.of the large-scale industries.

In the context of an institutional framework, one or the In the context of an institutional framework, one or the other government institutions established solely for the other government institutions established solely for the facilitation of the small scale industry and enterprise have facilitation of the small scale industry and enterprise have always been there.always been there.

Institutions for the promotion Institutions for the promotion of SMEsof SMEs


19721972Sarhad Small Industries Development Sarhad Small Industries Development Board (SSIDB)Board (SSIDB)

19721972Sindh Small Industries Corporation (SSIC).Sindh Small Industries Corporation (SSIC). 19721972Small Business Finance Corporation Small Business Finance Corporation

(SBFC).(SBFC). 19721972Punjab Small Industries Corporation Punjab Small Industries Corporation

(PISC)(PISC) 19851985Small Business Finance Corporation.Small Business Finance Corporation.



19851985Regional Development Finance Regional Development Finance Corporation (RDFC) Corporation (RDFC)

19981998Directorate of Industries in Directorate of Industries in Balouchistan.Balouchistan.

19981998Small and Medium Enterprise Small and Medium Enterprise Development Authority (SMEDA).Development Authority (SMEDA).

20022002RDFC and SBFC amalgamated to form RDFC and SBFC amalgamated to form SME Bank SME Bank

20042004National SME Development Council. National SME Development Council.

C) Agriculture & the Elite C) Agriculture & the Elite biasbias

Impressive agricultural 1960 and 1970 Impressive agricultural 1960 and 1970 ( green revolution).( green revolution).

The main elements of the green revolution The main elements of the green revolution were tube wells, tractors and High Yield were tube wells, tractors and High Yield varieties (HYV)- all the three elements have varieties (HYV)- all the three elements have been a source of rent seeking .been a source of rent seeking .

liberal credit policy and made numerous liberal credit policy and made numerous loans to farmers (cheap availability of credit).loans to farmers (cheap availability of credit).


Overvalued exchange rate made tractors Overvalued exchange rate made tractors available in Pakistan at below world market available in Pakistan at below world market prices.prices.

HYV of food grains were provided to farmers at HYV of food grains were provided to farmers at subsidized.subsidized.

HYV required plenty of water and therefore HYV required plenty of water and therefore mainly the farmers owning tube wells were able mainly the farmers owning tube wells were able to benefit from HYV to benefit from HYV

Thus seventy percent of the tube wells were put Thus seventy percent of the tube wells were put in by farmers owning 25 acres or more in by farmers owning 25 acres or more


Hence, the beneficial effect of green revolution, Hence, the beneficial effect of green revolution, that has been the case of incentives from the that has been the case of incentives from the government, remained restricted to rich government, remained restricted to rich farmers only .farmers only .

Akmal Hussain… “The new technology made it Akmal Hussain… “The new technology made it possible to accelerate agricultural growth possible to accelerate agricultural growth substantially through an elite-farmer strategy” substantially through an elite-farmer strategy” which concentrated on the new inputs on large which concentrated on the new inputs on large farms only. farms only.

D) Subsidies for ExportsD) Subsidies for ExportsD) Subsidies for ExportsD) Subsidies for Exports In 1960s , the dual exchange rate system In 1960s , the dual exchange rate system

was used to subsidize machinery was used to subsidize machinery imports and penalize consumer imports imports and penalize consumer imports while offering a large subsidy to while offering a large subsidy to exporters. exporters.

This policy again favored large scale This policy again favored large scale industrialist and exporters at the industrialist and exporters at the expense of small scale producersexpense of small scale producers

D) Subsidies for ExportsD) Subsidies for ExportsD) Subsidies for ExportsD) Subsidies for Exports

Businesses have grown on the back of Businesses have grown on the back of various protective measure that had a various protective measure that had a tilt towards rent-seeking rather than tilt towards rent-seeking rather than welfare improvement. welfare improvement.

Protections available to businessmen Protections available to businessmen reduced their risksreduced their risks

Group “C”Group “C” Muazzam Imtiaz (Leader)Muazzam Imtiaz (Leader) Maryem ShakoorMaryem Shakoor Zaheer AbbasZaheer Abbas Sadaf ShafiqueSadaf Shafique Nadia ShoukatNadia Shoukat Muhammad TariqMuhammad Tariq

Zoning and Land Zoning and Land allocation rules & allocation rules &

regulationsregulationsThe following commercial land The following commercial land

regulationsregulations

1. Defense Housing Authority Lahore ordinance 1. Defense Housing Authority Lahore ordinance (1992)(1992)

2. Commercial policy of punjab(1999)2. Commercial policy of punjab(1999)3. The Punjab local govt. rules(2004)3. The Punjab local govt. rules(2004)4. Capital development Authority ordinance(1960)4. Capital development Authority ordinance(1960)5. Cantonments ordinance(2002)5. Cantonments ordinance(2002)6.Cantonments Acts(1924) 6.Cantonments Acts(1924)

Salient Features of Salient Features of Commercialization PolicesCommercialization Polices

Salient Features of Salient Features of Commercialization PolicesCommercialization Polices

Single family homes vs. flats.Single family homes vs. flats. Commercializing Process. Commercializing Process. Commercialization Fee.Commercialization Fee. 20% regular land 20% regular land 50% Cantonments lands 50% Cantonments lands Building height involvement.Building height involvement. Permission of Neighbors.Permission of Neighbors. Utility rate converted.Utility rate converted.

The city centre land in most major cities is owned by The city centre land in most major cities is owned by the Govt. for offices, housing and leisure spaces for the the Govt. for offices, housing and leisure spaces for the elite members of govt.If we measure the difference of elite members of govt.If we measure the difference of potential of this land b/w its currents use and city potential of this land b/w its currents use and city developments, employment generation and developments, employment generation and entrepreneur activities. what is best?, Obviously city entrepreneur activities. what is best?, Obviously city developments, employment generation and developments, employment generation and entrepreneur activities generate more tax than other entrepreneur activities generate more tax than other activities.activities.

At summing up zoning laws and commercialization At summing up zoning laws and commercialization policies are best for entrepreneur activities regarding policies are best for entrepreneur activities regarding land rather than each and every landsland rather than each and every lands

Group “D”Group “D”Group “D”Group “D”• Zahid Masood (Leader)Zahid Masood (Leader)• Sohaib Tahir.Sohaib Tahir.• Muhammad Nawaz.Muhammad Nawaz.• Toheed Saeed Toor.Toheed Saeed Toor.• Shahzad Ali.Shahzad Ali.• Muhammad Irfan Irshad.Muhammad Irfan Irshad.• Arsalan Iftikhar.Arsalan Iftikhar.• Ehsan Ellahi Zaheeer.Ehsan Ellahi Zaheeer.

Group “E”Group “E”Group “E”Group “E” Mahnaz Ashraf ( Group Leader)Mahnaz Ashraf ( Group Leader) Fatima Irfan.Fatima Irfan. Habiba .Habiba . Nasira Bashir.Nasira Bashir. Nazish Huma.Nazish Huma. Rana Shoaib.Rana Shoaib.

REINVENTING THE ROLE OF REINVENTING THE ROLE OF GOVERNMENT & INSURING GOVERNMENT & INSURING

RULE OF LAWRULE OF LAW

Removing the Removing the instruments of instruments of Rent-seekingRent-seeking

Rent-Rent-seekingseeking

A situation in which an individual or firm makes A situation in which an individual or firm makes money by manipulating economic environment money by manipulating economic environment rather than by profit making through trade and rather than by profit making through trade and production of wealth.production of wealth.

Several areas of reform Several areas of reform suggestionsuggestion

Several areas of reform Several areas of reform suggestionsuggestion

Stop the policy of Stop the policy of Sector-pickingSector-picking & providing & providing Incentives to supportIncentives to support

Reforms ofReforms of Civil services Civil services && Government services Government services

Government involvementGovernment involvement

Role of Role of Cooperative housing societyCooperative housing society

Land acquisition lawLand acquisition law

BUILDING GROWTH CITIESBUILDING GROWTH CITIESBUILDING GROWTH CITIESBUILDING GROWTH CITIES

Nadeem Ul Haque says:Nadeem Ul Haque says:

“ “Cities grow when they are allowed to Cities grow when they are allowed to function as decentralized, coherent function as decentralized, coherent administrative units…….”administrative units…….”

Cities as engines of growth

Decentralization

City management

Commercialization

Identifying “Lemons”Identifying “Lemons”

Brand Development and Brand Brand Development and Brand ManagementManagement

Guarantees/Warrantees/ReturnsGuarantees/Warrantees/Returns

Releasing the energy Releasing the energy of the domestic of the domestic

sectorssectors

Emphasis on Domestic sector growth.Emphasis on Domestic sector growth. Openness at the cities level.Openness at the cities level. Certain Recommendations.Certain Recommendations. Establishment of specific units.Establishment of specific units. Commercial Activities.Commercial Activities. Domestic Commerce allowed for Domestic Commerce allowed for

Entrepreneurs in best areas of cities.Entrepreneurs in best areas of cities. Employment Opportunities.Employment Opportunities. Broad based reforms Agenda Should be Broad based reforms Agenda Should be

made.made. Develop new ideas.Develop new ideas. Required more autonomous research & Required more autonomous research &

debate.debate.

Question & AnswersQuestion & AnswersQuestion & AnswersQuestion & Answers

Entrepreneurship in Pakistan

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