Beruflich Dokumente
Kultur Dokumente
a Policy analysis exercise submitted to Office of the Coordinator for Economic & Development Assistance U.S. Embassy, Islamabad, Pakistan U.S. Department of State
Acknowledgements
Above all, we would like to thank our principal client, Vinay Chawla, Deputy Coordinator for Economic and Development Assistance at the U.S. Embassy in Islamabad. As our main point of contact for this project, we owe him a huge debt of gratitudeand we have sincerely enjoyed working with him. (He also housed us for two days in Islamabad, so we are extremely grateful for that, as well.) We further thank Ambassador Cameron Munter and the U.S. Embassy in Islamabad for encouraging and supporting this research project.
We also want to thank Nadia Naviwala, who first introduced us to Vinay, and to many other essential contacts for this project. Thank you as well to Mark Karns, Vinays counterpart at USAID, who has been exceptionally helpful throughout this process. Thanks are due to our advisor, Professor Meghan OSullivan, as well as our Policy Area Concentration seminar leadersProfessors Monica Toft and Stephen Kosack. Their feedback throughout this process has been invaluable. We wish to thank Ali Siddiqui and Steve Smith, and everyone at JS Private Equity and JS Bank, for their unbelievably generous support during our trip to Pakistanand, in particular, an immense thank you to Imran Shaikh, whose hospitality truly knows no bounds. We also sincerely appreciate the assistance of Nadeem Hussain, Ali Jameel, Kalsoom Lakhani, Vally Khamisani, and the Truman National Security Project Fellows, who were instrumental in helping us set up so many excellent interviews. And, of course, thank you to everyone, in the States and Pakistan, who met with us during our research, and who shared their insights and perspectives on the Pakistan Private Investment Initiativewe learned so much from, and truly enjoyed, discussing this project with so many inspiring people over the last few months.
Cover Photo: Clifton Beach, Karachi, Pakistan Credit: Benny Lin, January 25, 2010 Inset Photo: K2 , Gilgit-Baltistan, Pakistan Credit: Extreme Design Studio (http://www.extremestudio.ro)
contents
Background ....................................... 5 Executive Summary ........................... 6 Overview .......................................... 10 Market Analysis ................................12 Economic Challenges...................... 12 Development Approaches ................ 16 Targeting Investment ........................ 20 Market Sectors ............................... 21 Market Segments ........................... 25 Operational Analysis ....................... 31 Model & Strategy ...............................31 Structure & Implementation...............31 Complements & Alternatives .............38 Risk & Impact Analysis......................46 Recommendations .......................... 50 Key Features .................................... 52 Conclusion ....................................... 56 Appendices ...................................... 58 Appendix A Growth Diagnostic .... 58 Appendix B Potential Partners ..... 61 Appendix C Interviews .................. 65 Appendix D Acronyms .................. 67 About the Authors ............................. 68
BAckground
in october 2009, President obama signed into law the enhanced Partnership for Pakistan act. the legislation, better known as the Kerry-Lugar-Berman (KLB) bill, introduced a comprehensive policy framework for U.s. assistance to Pakistan, tripling development aid to $7.5b over five years. As part of this package, the United states prioritized support for private sector development through trade and investment. Launching a U.s.-sponsored investment fund to support Pakistans private sector first garnered attention when secretary clinton, in partnership with the overseas Private investment corporation (oPic), pledged to provide $50mm for private equity investments in small- and medium-sized enterprises (smes) during the U.s.-Pakistan strategic dialogue in march 2010. that July, senators Lugar and Kerry introduced bill s. 3665, the Pakistani-american enterprise fund act. the bill, inspired by the 1989 support for east european democracy (seed) act and the 1992 freedom support act, which together established 10 enterprise funds throughout eastern and central europe after the soviet collapse, authorized an independent fund to provide loans and equity to private Pakistani enterprises, in order to create jobs and counter militant extremism. in december 2011, congress chose not to authorize the $60mm allocation for establishing the Pakistaniamerican enterprise fund. despite this setback, however, the U.s. department of state, still committed to strengthening support for Pakistans private sector, began surveying alternative models for promoting job growth and investment in smes. this paper examines these alternatives and makes recommendations for which to pursue, and how best to pursue them.
Pakistani border post in november. the U.s.-Pakistan relationship, however, and american engagement in the country more broadly, remain crucial to ensuring Pakistan surmounts the immediate challenges it faceswhich are substantial. Vital U.s. interests and the economic integration of south asia require a stable Pakistanbut looming social, economic, and political upheaval could compromise any hope for long-term stability.
investing in stability
the U.s. Government has various tools at its disposal aid, trade, technical assistance. But one that has been given relatively little emphasis in Pakistan has been investment. U.s. investment, however, has the potential to both stabilize the economy through effective economic development, and to widen and deepen american ties to powerbrokers in Pakistanespecially those outside the traditional political establishment. Pakistans private sector is essential to any strategy for long-term engagementbolstering it will increase economic stability, hamper terrorist recruitment, and draw in a wider array of political allies. The countrys economy is beset by stagflation and a lack of competitiveness. energy shortages and rising fuel and food costs are closing factories and pushing more Pakistanis below the poverty line. Private investment is the engine that drives economic growth; the middle class expansion that often accompanies such growth will play an important role in promoting economic stability, which undergirds political stability. a robust middle class provides a constituency for free markets, effective governance, democracy, and the rule of law. as well, job creation is an important tool for countering violent extremism. a burgeoning youth population an alarming 68% of all Pakistanis are under the age of 30is engulfing Pakistans urban areas, where a lack of jobs, education, clean water, and access to justice cultivate a breeding ground for radicalization. an investment fund can help grow businesses, which will create new jobs. Generating employment is essential for reducing poverty and lessening the tensions that terrorist networks exploit to radicalize marginalized populations. finally, direct engagement with business leaders will form new alliances in Pakistani society. the value of diplomacy outside the traditional halls of power has become increasingly clear, especially after last years arab spring uprisings. Building broader, stronger relationships throughout Pakistan is in the american interest, helping U.s. policymakers to better prepare for an unpredictable future. 5
the U.s. partnership with Pakistan is one of the most strategically significant bilateral relationships in the world, and it will continue to be so long after the tentative withdrawal of U.s. forces from afghanistan in 2014. Pakistan, located at a geopolitical crossroads, is locked in an enduring rivalry with neighboring india and holds close alliances with china, saudi arabia, and the broader Muslim world. Its geographic significance is compounded by its demographic composition and powerful military. Pakistan is a nuclear state, home to the worlds second-largest muslim population, and is projected to become the fourth-most populous country in the world by 2050. several events in 2011 tested the relationship between Pakistan and the United statesin particular, the Raymond davis incident in January, the killing of osama bin Laden in may, and the accidental helicopter attack on a
executive summAry
the U.s. department of states coordinator for economic and development assistance in Pakistan has proposed the creation of a Pakistan Private investment initiative (Pii), to be implemented by Usaid, as an alternative to a legislated enterprise fund. this study surveys a range of potential options for designing the Pii and proposes a model that, we believe, is best suited to increase access to finance for promising SMEs and to foster job creation and long-term economic growth in Pakistan. (We hereinafter refer to this collaboration between the department of state and Usaid simply as state, and to the Pakistan Private investment initiative as the Pii, the fund, or the initiative.) state has already expressed a possible interest in partnering with the small enterprise assistance funds (seaf), as one component of the Piiour recommendations account for and accommodate this proposal. The Problem despite Pakistans vibrant banking sector, credit rationing is a major constraint on sme growth and investment. interest rate spreads on commercial loans compare unfavorably to the high-interest, risk-free securities sold by the Government of Pakistan. as a consequence, voracious government borrowing is sustaining an investment climate in which banks have little incentive to extend credit to the private sector. the burden of Pakistans underserving banks on SMEs is magnified by a void of private equity participation in the market. Alone, the financial constraint on smes is problematic, but coupled with a rapidly expanding population it becomes urgent. on average, Pakistans economy grows 3% annually; just to absorb annual workforce additions, Pakistan will need to grow 67% per yeari.e., Pakistan will have to create at least 36 million jobs over the next 10 years to meet the needs of a huge, young, and fast-growing population. Lagging private sector investment undermines Pakistans ability to achieve the strong, sustained growth required to rise to this challenge. The Opportunity There is an opportunity today to respond to the unmet financing needs of Pakistans sme sector without crowding out private investment. this urgent need, coupled with an undeveloped private equity market, creates a space in which the United states could play a unique role as a catalyst for investment. By establishing a fundin some formstate could, at a minimum, generate modest job growth within its portfolio of investment companies and showcase U.s. commitment to private sector development in Pakistan. these alone are valuable objectives and worth the use of limited U.s. resources. Beyond this, there is also an opportunity to draw in greater participation to Pakistans investment market by demonstrating the possibility of healthy even extraordinaryreturns. While, ultimately, a single fund cannot mend the underlying policy failures that 6 discourage investment in Pakistan, it can still have various, multiplicative positive effects. The Response In order to best serve the financial needs of Pakistans private sector, and to contribute to sustainable economic growth more generally, state should establish a fund with a mandate to provide long-term investment capital for smes. small and medium enterprises are both the most finance-constrained and the most likely sources of job growth. accordingly, sme investment provides an exceptional opportunity to ameliorate Pakistans financing constraints and to energize private sector growth. moreover, given the resources allocated to this initiative and the capabilities of state and Usaid, sme investment is both a feasible and judicious intervention. We recommend designing the fund using the private equity model, to support new and growing smesi.e., form limited partnerships with professional fund managers to direct venture and growth capital to promising businesses. Private equitys long-term investment horizon, emphasis on value creation, and track record in spurring growth and innovation in emerging markets has the greatest potential to address the need for financing among smes and to foster broader developmental returns, without the risk of crowding-out. high-quality fund management will be essential to achieving a strong return on U.s. investments and to stimulating the multiplicative impacts that will sustain the fund and develop Pakistans nascent private investment industry over the long run. state should look for independent and professional investment firms as the best partners for success. state should also not limit itself to a single partner but, instead, place capital with several firms to target narrower market segments. additionally, state should include a complementary component to provide support for the development of Pakistans entrepreneurial ecosystem. Specifically, the program can work with Pakistani universities to establish and support startup incubators, and it can build linkages among universities and individual entrepreneurs, in Pakistan and overseas, to promote knowledge-sharing and mentorship. a fund with these three components ecosystem development, venture capital, and growth equitycan target the full stream of the business lifecycle, which is crucial to scalable, sustainable success. The Way Forward Below, we provide eight core recommendations, following from our findings. Collectively, they address the financial needs of Pakistans private sector, mitigating risk, enhancing developmental impact, facilitating profitable investments, and improving U.s. engagement with Pakistans private sector.
maJoR findinGs
1. There is an urgent need for financing among Pakistani businesses and entrepreneurs. 2. microeconomic risks posed by governance-related failures represent the most binding constraint on private investment and entrepreneurship in Pakistan. the underlying challenge is one of demand for, rather than supply of, capital. there is, however, more than one constraint on investment in Pakistanand in the short term, Pakistans energy shortage, interest rate spread, depreciating rupee, and image as a high-risk country all serve to limit access to finance. 3.
Recommendations
1. establish a vehicle to address Pakistans immediate financing needs, but acknowledge its limitationsultimately, governance failures constrain private investment and entrepreneurship. 2. invest U.s. Government resources using the private equity fund model. Work with private sector partners. the private equity model is proven in emerging economies and private sector partners bring critical experience to the partnershipboth are important for Pii success and attracting new investment.
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3. Remain sector-agnostic absent any more specific objectives, but seek diversification across sectors with A deficit of useful firm- and sector-level information high potential for growth and multiplicative impact makes market analysis difficultthis presents a spein Pakistans economy. Prioritize further information cific private sector development challenge in itself. collection, collation, and dissemination to address over-prescribing the scope of a funds investments the deficit of good market data in Pakistan and attract inhibits flexibility and risks closing out opportunities for new private investment. financial and development return. 4. disaggregate the sme space and focus on small and smes are the most capital-constrained businesses medium firms, separately. Define these as firms in and disproportionately overlap with high-growth secthe $50k$1mm and $1mm$10mm revenue ranges, tors of the economy. respectively. focus on smes with the strongest exit prospectstarget investments in companies led by There is a need to better define the bounds of the SME promising entrepreneurs that have vision, but lack the segment and, in particular, to distinguish the differfinancial and institutional support to scale. ences between small and medium.
5. structure the Pii to include venture capital and growth 7. smes in both the venture and growth stages are conequity components. Plan for ticket sizes of $50k strained by a lack of access to long-term, risk-oriented $400k and $2mm$7mm, respectively. employ the capital and institutional support, and represent comlimited partnership structure common in private equity pelling investment opportunities. and adopted by the cdc and other major dfis, in line 8. high-quality, professional fund managers, who have with international industry standards. a local presence and the capacity to add strategic support to investee companiesoperating in private equitys limited partnership modelare key determinants of fund performance in emerging markets.
6. Work through multiple implementing partners, as a means to create several smaller Pii funds with more targeted investment strategies. select and invest with professional fund management firms with relevant 9. the more participation there is in Pakistans investexperience, local knowledge, capacity to add comment industry, the better will be the exit options and mercial value to portfolio companies, and skin in the prospects for scaling investment after donor funding game. Consider emerging or first-time fund managendsthe benefits of partnering with various other ers that align with the broader Pii mandate, in addition donors and investors to establish investment funds far to experienced teams with proven track records. exceed those of branding the Pii as a wholly american 7. structure Pii fund partnerships using one or more feainitiative. sible implementing mechanisms that allow for maxi10. there is also a tremendous needand substantial mum flexibility, commercial sustainability, and leveropportunityfor supporting the development of Pakiage of U.s. Government resources. Prioritize the Gda stans burgeoning entrepreneurial ecosystem. model but use more traditional contracts and grants 11. There is a positive relationship between healthy finanas required. seek substantial Pakistani private sector cial and economic returns in emerging market private involvement in sourcing and levering investments. equitybut the PII will also face financial and political 8. incorporate an explicit component to develop Pakirisks. these can be mitigated by a well-managed, stans entrepreneurial ecosystem. allocate between market-oriented investment approach that institution$10mm and $20mm for startup capital and other incualizes adaptability, learning, and transparencyand bator initiatives. Work through local entrepreneurship shows the patience to let investments mature. networks and universities. implement from the level of the Pii as an overarching component or through a partner as a smaller sub-fund.
summAry diAgrAm
Market Analysis
Economic Economic Challenges Challenges Development Development Approaches Approaches
Assistance Types Assistance Types Financing Vehicles Financing Vehicles
Operational Analysis
with h with h should wwe work? shouldld we work? shou we work? should e work? uu
Targeting Strategies Targeting Strategies Model & Strategy Model & Strategy
Investment Type Investment Type Target Size Target Size Segments Segments
Sectors Sectors
Technical Technical assistance assistance (to(to banks) banks) Aid Aid (to(to State Bank, State Bank, SMEDA) SMEDA)
Commercial Commercial bank bank lending lending Domestic Domestic government government lending lending Foreign Foreign government government lending lending Nonprofit Nonprofit grants & & grants lending lending Financial Financial markets markets
Micro Micro
Microfinance Microfinance
Invest where Invest where theres pent-up theres pent-up demand demand Consolidate Consolidate fragmented fragmented markets markets
Small Small
Macroeconomic Macroeconomic government government failures failures Microeconomic Microeconomic government government failures failures Market Market information information failures failures Market Market coordination coordination failures failures Low savings & & Low savings bad international bad international finance finance Low Low competition competition
Trade Trade
Medium Medium
Investment Investment
Large Large
Buyout Buyout
Focus onon Focus locuses of of locuses job creation job creation Tap key Tap key demographic demographic groups groups Look forfor Look multiplier multiplier effects effects
Recommendations
& Key Features
RA
Research Goal With this policy analysis exercise, we seek to inform the ongoing dialogue on U.s. economic and development assistance to Pakistan. our core objective is to provide specific recommendations to the U.S. Department of state for the design and implementation of the proposed Pakistan Private investment initiative. Methodology The findings herein are the culmination of field research conducted in cambridge, mass., Washington, d.c., and Pakistan, between november 2011 and april 2012. Research included interviews with entrepreneurs, business leaders, investors, bankers, policymakers, elected officials, academics, and other experts, in Pakistan and the United states. We held meetings in Karachi, Lahore, and islamabad, in order to gather insights into and perspectives on the investment environment in Pakistan, and the optimal design for a U.s. fund. We also reviewed the existing literature on foreign assistance and private sector development, policy papers addressing the U.s.-Pakistan bilateral relationship, data and research on the Pakistani investment environment, and other relevant sources of information. direct references to published sources are cited in the endnotes. insights and observations gleaned from interviews are not cited explicitly in the document, but appendix c includes a complete list of individuals consulted throughout our research. Scope Our research examines the specific proposal for a Private investment initiative and its role in strengthening the U.s. approach to economic development in Pakistan, but it does not address other aspects of that endeavor or this broader policy question itself. although we evaluated a range of viable options for the design of the fund, we chose not to elaborate on the operational details of how these recommendations would be implemented. there are thus legal and technical questions regarding the operation of the fund that are beyond the scope of this study. analysis of Pakistans economic context and market opportunities informs our recommendations for an optimal fund model. We intentionally refrained, however, from recommending specific investment decisions or strategies. such decisions ought to be the responsibility of independent and professionally experienced fund managers with local knowledge and technical expertise. finally, although we consulted a diverse group of stakeholders in Pakistan to produce this study, our interviews were not exhaustive and our time in-country was limited. Further field research on Pakistans investment environ-
PA RE NC Y!
ment would make a valuable contribution to addressing the existing deficit of useful market data. Fund Objectives the U.s. Government has proposed the creation of the PII to increase the availability of finance for promising small- and medium-sized enterprises in Pakistan. We define the initiatives objectives as follows: 1. Promote job growth support the expansion of businesses, encourage entrepreneurship, and show positive demonstration effects that attract further private investment. 2. Foster goodwill establish a visible, long-term american commitment to supporting the development of Pakistans private sector. Guiding Principles We identify six overarching principles that underlie the design and implementation of an effective fund. first, the fund should optimize across three dimensionsaddressing pressing economic needs, capitalizing on market opportunities, and ensuring feasibility. from this foundation, the fund should enshrine the values of independence and transparency, and of adaptability and learning. finally, the funds driving motivation should be to have multiplicative impact. Analytical Framework our analytical framework aims to identify the optimal balance of the three foundational principlesaddressing need, capitalizing on opportunity, and ensuring feasibilityin two stages. first, we evaluate the overlaps between need and opportunity. We assess the economic constraints on growth and investment at the country level, by examining the broader economic environment. then we identify the areas where financing need and growth opportunity most overlap at the firm level, by examining the market across two key dimensions: sectors and segments. second, we consider feasibility and impact. We conduct an operational analysis of the range of possible fund models, implementation structures, and alternative approaches to assess their viability and efficacy. We then perform a risk and impact analysis to identify the main financial and political factors that have the potential to undermine the effectiveness of fund performance, and how best to overcome them. We conclude with eight core recommendations, plus seven more specific design considerations. We also include two (of several potential) models for the funds structural design.
Guiding Principles
overview
IN IT ST UT E LIZ NA IO
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Analytical Framework
MARKET ANALYSIS!
COUNTRY LEVEL
ECONOMIC ! CHALLENGES!
FIRM LEVEL
TARGET! SECTORS!
OPERATIONAL ANALYSIS!
MODEL &! STRATEGY! DESIGN &! IMPLEMENTATION!
RECOMMENDATIONS!
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mArket AnAlysis
any development program in Pakistan must take into account the larger economic context in which it will operate. Be it for an enterprise fund or any alternative model, the needs of Pakistani businesses, the challenges they face, and their prospects for growth are distinct from those in eastern europe in the early 1990s and, indeed, from many other emerging markets today. Understanding these nuances is essential for crafting the best possible policy intervention.
Fig. 1 Pakistan's 'Youth Bulge'!
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in the supply of labor. in recent years, this imbalance has been stoking inflation.4 currently, Pakistan is experiencing stagflationi.e., high inflation coupled with low growth. although unemployment itself is not an immediate concern, it will become one, if economic growth does not keep pace as the workforce balloons. to achieve such growth, Pakistan needs more investment in its private sector.
economic challenges
Pakistan faces a unique set of economic challenges some caused by natural and demographic circumstances, others by poor policy choices. While substantial, these challenges are manageable given the right approach, from within the Pakistani government, and from outside partners like the United states. Ultimately, the prospects for resolving Pakistans broader political and security difficulties will hinge on how effectively the country navigates this turbulent economic period. Youth Bulge With more than 190 million people today, Pakistan will
* Portions of this section were written originally by dustin cathcart, andrew fitzpatrick, and meredith Gloger for Ped-130, Why are so many countries Poor, Volatile, and Unequal? with Prof. Ricardo hausmann, Harvard Kennedy School. (PED-130 Final Assignment: Growth diagnosticPakistan, december 2011).
soon be the fourth-largest country in the worldits population has tripled in less than 50 years and is projected to increase by an additional 85 million by 2030.1 Pakistan is also experiencing an unprecedented youth bulge. about 68% of Pakistanis are under the age of 30, and the size of the workforce is increasing at an average of 3% per year.2 to meet the needs of this surging population, Pakistans economy has to grow at an estimated 67% annually, for the foreseeable future, and it must add some 36 million new jobs in the next 10 years.3 this demographic dividendas the youth bulge ages and moves into the workforce, the proportion of productive workers will in-
Immediate Constraints on Capital in the short term, Pakistan faces a unique set of interwoven constraints on financing for investmentparticularly for smaller, growing businesses.
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this mounting debt reduces energy production, as upstream producersthe only ones with liquid cash reservesare forced to pay off their receivables rather than invest in expansion. additionally, since 2006, PePco has borrowed from commercial banks against government guarantees, as have independent power producers (iPPs) who supply PePco, since 2007.
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heavy government borrowing disincentivizesand thus crowds outlending to the private sector in three ways: 1) the government offers high interest rates, raising the effective discount rate for banks, and raising the hurdle rate for investing in the private sector instead;
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at the end of 2011, the government formally absorbed the accumulated debt from PePcoRs 391b (about $4.3b), equivalent to 1.8% of GdPinto the public debt.6 in this way, the energy sector feeds the larger debt problem in Pakistan, which in turn is a key factor in suppressing private-sector financing. Further, circular debt dampens energy investment; this exacerbates the electricity shortages that so constrain businesses; these then limit their capacity for growth; and this makes 14
2) Government debt is risk-free, and so banks seek a risk premium from private borrowers, further raising their lending rate; 3) transaction costs are lower for government borrowing. taken together, these three factors serve to push interest rates seen by private borrowers too high to often be viable, and to reduce banks inclination to seek opportunities for lending to the private sector in the first place.
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A fundproviding a new source of capitalcan fill the financing gap without fighting the interests or incentives of other actors.
Rationale for an Investment Approach Working through preexisting institutions in Pakistan whether public or privatehas proved difficult: The Pakistani government is ill-placed to finance business growth (especially when so many of Pakistans economic woes are tied to government over-involvement and rent-seeking in the first place). At the same time, capacity-building of or technical assistance to commercial banks is misplaced, as it is simply not in their interest to provide capital to smes at present, given the governments reliance on banks to finance the public debt, risk-free and at high interest rates. Likewise, loan guarantees for these banks might require working through the state Banka government bodyand it is also unclear, given their exorbitantly high investment in government securities, whether this would do enough to incentivize more lending without further prodding (e.g., substantial changes to the tax code to reward privatesector lending and penalize debt financing). A fundproviding a new source of capitalcan fill the financing gap without fighting the interests or incentives of other actors. if successful, it can catalyze further investment (local and international) to address this need more sustainably. trade preferences for Pakistani exporters could also play a crucial role in spurring privatesector growth, but such accommodations would have a less immediate effect, are not as politically feasible in the current U.s. climate, and, anyway, are beyond the scope of this intervention by statethough they could serve as an important complement to an investment vehicle.*
* the center for Global development, for one, has written extensively on the need for trade concessions as a means to development in Pakistan. the european Unions recent decision to reduce tariffs on 75 Pakistani products, for instance, could produce $100300mm in new annual revenue. For more on this, see: http://blogs.cgdev.org/ globaldevelopment/2012/02/trading-up-pakistan-the-eu-and-tradeas-development.php; http://www.cgdev.org/content/publications/ detail/1425847/; and http://www.cgdev.org/content/publications/de-
Recommendation 1 establish a vehicle to address Pakistans immediate financing needs, but acknowledge its limitationsultimately, governance failures constrain private investment and entrepreneurship. design the Pii to invest in relatively unconstrained market areas and to act as a catalyst for reforms to improve the business environment.
development approaches
some of Pakistans economic problemslike those related to the governments macroeconomic policies or micro-level market interventionsare beyond the scope of any direct U.s. initiative. among those that are within reach, Pakistans financing gap for small- and mediumsized businesses is perhaps both the most pressing and the one on which state can have the most impact. finding a way to channel capital to young, growing businesses will most directly generate new jobs, and, if achieved through wider market mechanisms, the demonstration effects of successful investments can multiply well beyond the ambit of any single U.s. program. 16
Precedents the U.s. Government has engaged previously in a number of collaborations with the private sector to promote investment as a means to development. as well, a number of other development finance institutions (DFIs) exist, financed by sovereign governments and multilateral institutions. We highlight below two in particular the World Banks international finance corporation and
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equivalent to 2% of the funds total assets. Beyond this, any profits are split 20/80 between the GP and LPs i.e., managers are entitled to 20% of all profits (socalled carried interest).35 in the United states and other developed markets, we typically think of PE firms as turnaround agentsinvestors who buy out firms, restructure them (often with severe cost-cutting), and then sell them for a profit. But in emerging markets like Pakistans, the model often looks quite different. Private equity in this context usually entails minority stakes (rather than buyouts); focuses on smaller, younger companies (rather than larger, distressed ones); and its goal is to provide firms capital and strategic guidance to help them grow, rather than to restructure them into profitable businesses.
From 1969 to 2003, OPIC supported $145b of private investment, generating more than $11b in revenues for local governments and 680,000 jobs in developing countries.
insurance, and earned a net income of $259.9mm returning money to the treasury for the 33rd straight year.19 there is substantial evidence that oPics activities have a positive impact. from 1969 to 2003, oPic supported $145b of private investment, generating more than $11b in revenues for local governments and 680,000 jobs in developing countries.20 anecdotally, fund managers report that oPics presence has encouraged their entry into emerging markets, and has made it easier to then raise follow-on funds to sustain and grow private investment.21 oPic, by statute, cannot take equity positions, and instead focuses on the provision of debt and insurance. oPic is authorized, however, to pilot a program for making equity investments.22 Task Force for Business and Stability Operations (TFBSO) the department of defense (dod) established tfBso in 2006 to channel counterinsurgency funds directly to iraqi businesses. tfBso leveraged $484mm of public funding into $500mm in private commercial real-estate development proposals and more than $8b in private investment commitments to state-owned enterprises. it also channeled $6b of dod contracts to more than 4,400 local businesses.23 tfBso focuses on building institutions, providing technical assistance, and facilitating relationships between foreign investors and local businesses, to foster a more vibrant business environment and stronger global linkages. it works to form partnerships among iraqi and multinational firms, such as GE, Boeing, Microsoft, and Google.24 pation through skills training, literacy courses, the establishment of a center for womens economic development, and other initiatives.26 International Finance Corporation (IFC) the ifc, part of the World Bank Group, is the worlds largest dfi. founded in 1956, it is jointly owned by 182 member countries and works in more than 100 developing countries. it accounts for roughly one-third of all financing provided by DFIs to the private sector in the developing world.27 in 2011, the ifc invested $12.2b in 518 projects in 102 countries from its own account, and mobilized an additional $6.2b in co-financing. IFC also provided $206.7mm in technical assistance. about half of investments and two-thirds of advisory services went to poor countries (i.e., aid recipients, as designated by the international development association).28 The IFC has three core divisions: Investment Services, advisory services, and asset management. through these, the ifc provides direct investment (loans, equity, trade finance, structured finance, and syndications); technical assistance to individual companies, industry groups, and governments to improve the business environment; and acts as a fund manager for other investors, including sovereign funds, pension funds, and other dfis.29
Log Scale!
Private equity can carry negative connotationslayoffs, downsizing, etc. But in emerging markets, private equitys role is rarely about squeezing efficiency out of underperforming firms, and is much more often aimed at bringing scarce capital to promising businesses with the potential for growth. evidence on the performance of private equity in Pakistan, in particular, is extremely thin because there has been very little activity to datewhich is why there is such a need. even in emerging markets generally, though, the evidence is little betterthere is especially a lack of exit data for assessing success or failure. a 2010 report by the World economic forum, however, which combined datasets from private equity investments in both developed and developing countries, found that industries in which Pe funds are active grow
Fig. 9 Density of EV/EBITDA Multiples in MENASA! (Excludes Top & Bottom Quartiles)!
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CDC Group the cdc was founded in 1948 and is wholly owned by the U.K.s department for international development (dfid). it is the worlds oldest dfi. cdcs core mission is to strengthen the private sector in and attract new investment to developing countries75% of its investments are made in countries with annual per capita Gni
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19
Recommendation 2 invest U.s. Government resources using the private equity fund model and work with private sector partners. the private equity model is proven in emerging economies and private sector partners bring critical experience to the partnershipboth are important for Pii success and for attracting new investment.
It is important to note that there is a dearth of good firmor sector-level data on emerging marketsespecially for Pakistan. this makes effective market analysis difficult. The lack of information adds another reason not to over-constrain the strategy ex antemarket opportunities may be overlooked or overhyped, because the information is imperfect. this also points to the substantial need for collecting better informationwhich, itself, should be a prime objective of the fund.
targeting investment
What is the best way to address Pakistans economic needs while capitalizing on its market opportunities? and what investments will best fuel the engines of growthparticularly job growth? in order to achieve optimal impact, the fund must be targeted, to best exploit this overlap between need and opportunity. Disaggregating the Economy to assess targeting strategies, we try to disaggregate Pakistans market. there are two basic ways to distinguish businesses: by sectors (i.e., industry), or by segments (i.e., firm size). Below, we offer detailed analysis along both dimensions. Ultimately, we recommend focusing the fund on certain segments (namely, small- and medium-sized businessesdefined and discussed further, below), while being sector-agnostic. there are four main reasons for this approach: 1) the characteristics of the sme segments of the market align most closely with the objectives of the fundthese are both the most finance-constrained businesses, and the ones most likely to be sources of job growth. 2) While there are many valid reasons to focus on any one sector or set of sectors, these often conflict and suggest different areas of focusinstead of betting on one, it is better to take a more open approach.
Market Sectors
Performance and revenue growth in emerging markets tend to vary widely from sector to sector, even within countries. a survey of the performance of ifc-invested funds from 1978 to 2009, for instance, shows that returns fluctuated across sectors, and that sector selection can make a significant difference for fund performance.41 that said, there are myriad and often contradictory reasons for choosing one sector or another ex ante. Lack of good market data and competing objectives can make selecting sectors of focus difficult. Pakistans Structural Transformation the structure of Pakistans economy has evolved significantly over the past four decades. In broad strokes,
Fig. 11 Sector Contributions to Real GDP Growth!
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21
Government Constraints Most of the top-100 firms listed on the Karachi Stock ExScroll to zoom in/out change are in sectors Click and drag to pan Fig. 13 Pakistan's 'Atlas of Economic Complexity,' 2009 characterized by substantial government protection or involvementsuch as textiles, fertilizer, cement, sugar, and oil and gas. No firm in the index is from an entrepreneurial sector, like software, it, or retail. there is also a significant mismatch between sector contributions to economic growth and public tradabilityi.e., firms in the highest-performing sectors tend not to be publicly traded. ProFig. 14 Avg. vs. 10yr Risk-adjusted Growth per Sector tected sectors, despite 20012011! the rents their firms 9.94! receive, have not perFinance & Insurance! 0.6! 7.75! formed exceptionally Social & Community Services! 5.3! 7.31! Small Scale Manufacturing! well. for instance, only 9.0! 6.75! Large Scale Manufacturing! three out of more than 0.8! 6.05! Construction! 200 textile companies 0.4! 5.59! Public Admin. & Defense! 1.4! have made it to the 5.22! Mining & Quarrying! 1.1! Kse 100.47 this mis4.54! Livestock! 1.1! match, combined with 4.49! Wholesale & Retail Trade! 1.1! Pakistans low market 4.47! Fishing! 0.5! capitalization to GdP, 4.25! Electricity & Gas Distribution! 0.1! indicates substantial 3.32! Ownership of Dwellings! 6.2! untapped investment 3.26! Transport, Storage & Comm.! 2.8! opportunity in Paki2.27! Major Crops! 0.3! stans private sector. 0.98! Minor Crops! 0.2!
-4.92! Forestry! -0.4! Avg. Growth! Risk-adjusted Growth!
Risk-adjusted Performance46 Returns only paint half the picturethe canvas investors look at is also colored by risk. it is the risk-return tradeoffs that are most salient from an investment perspective. taking volatility into account, then, we see notable changes in the growth performance of certain sectors. small-scale manufacturing and social and community services, among other sectors, have sustained relatively stable, positive growth rates over the last 10 years. other sectors that recorded strong average annual growth from 2002 to 2011including finance and insurance, large-scale manufacturing, and constructionshowed significant volatility over the same period and, consequently, a less favorable riskadjusted performance. These findings suggest that small-scale manufacturing and some services have 22
Sector Targeting there are a number of viable, persuasive sector-targeting strategies. each is attractive for different reasonsand, given very particular objectives, some might prove advisable. But from a wider perspective, seeking only to maximize financial return and development impact, it is harder to predict if any one sectoral strategy is preferable. Capitalize on Pakistans core strengths Pakistans core strengthsparticularly its rich demographic profilewill drive growth over the long run. identifying sectors that stand to gain the most from both a young and growing workforce and a burgeoning consumer basenamely, those with labor- and knowledge-intensive industries that provide opportunity for Pakistans youth and tap the talent of a growing middle class, and those generating products sought by this same demographic.
23
Market Segments
in Pakistan, the broad category of smeincluding microenterprisesaccounts for roughly 99% of all business in the country. according to Pakistans small and medium enterprises development authority (smeda), smes employ 80% of the non-agricultural labor force, and their share of annual GdP is approximately 40%. smes also account for the vastand unmeasured amount of informal business activity. smes play a vital role in the industrial development of most countries. they have historically been crucial in the transformation of economies from low- to middleincome.52 Unlike large firms, who have business relationships with commercial and investment banks and access to international sources of capital, small and medium enterprises often face significant financing constraintswhich is an impediment to growth. if Pakistan is to achieve sustained growthand, especially, if it is to find productive employment for its burgeoning labor forceit will be on the back of smes. Pakistan needs to both provide resources to promising businesses so they can achieve scale, and create the conditions for entrepreneurs to found new businesses. according to some interviewees, Pakistan will need to double the roughly 45,000 firms in this middle segment. Constraints on SMEs the severely underserved sme banking market in Pakistan is characterized by firms whose financial requirements are too large for microfinance but too small to be
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SME Focus, Sector Agnosticism Research has shown that over-prescribing a funds sector focus produces lower returns in emerging markets.51 Funds need to be adaptable and able to find highgrowth, high-impact opportunities across the economy. there is a clear need to focus on smes (explored further, below), to best address financing needs, capitalize on market opportunities, and contribute to private sector development, rather than reinforce entrenched interests and rent-seeking behaviors. there is little reason to constrain the fund beyond this thoughit should remain sector-agnostic. specifying certain sectors for investment might close out important opportunities for both financial return and development impact.
business owners from where they received their financing. A large majority of all firms financing came from internal sourcesbut the proportion from banks drops off sharply between large and medium-sized firms. About 20.5% of all financing for large firms came from banks, whereas only about 8.0% and 8.1% of medium and small firms Manufacturing & Export SMEs with Access to Formal Credit financing did, Age of Firm (yrs) respectively.53 Likewise, in response to a question about severity of Source: SME Development in Pakistan: Analyzing the Constraints the to Growth, Asian Development Bank, 2005 constraints they faced, large portions of both small and medium enterprises listed access to finance as an obstacle to some degree36% of medium-sized firms, and 56% of small firms.
Headcount 010 1149 5099 100+ Total 05 0% 0% 100% 100% 50% 610 1120 0% 0% 35% 0% 67% 75% 75% 75% 67% 64% 21+ Total 0% 0% 0% 29% 15% 50% 83% 80% 50% 59%
Recommendation 3 Remain sector-agnostic absent any more specific objectives, but seek diversification across sectors with high potential for growth and multiplicative impact in Pakistans economy. Prioritize further information collection, collation, and dissemination to address the deficit of good market data in Pakistan and attract new private investment.
800%!
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Wholesale & Retail Trade, Restaurants, & Hotels! Social & Community Services! Manufacturing! 53.1%! Transport, Storage, & Communication! Agriculture, Forestry, & Fishing! Financing, Insurance, & Business Services!
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effectively served by commercial banks. there is, of course, a financing gap across firms of all sizes in Pakistanbut it is especially deep for this middle segment of the economy. in its 2010 enterprise survey,* the World Bank asked
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* it is important to note that the World Banks enterprise surveys do not use random selection and are not representative. While firms of all sizes (micro, small, medium, and large) are represented in
In terms of the single-largest constraint firms face, across all segments, lack of energy and inconsistency in its supply poses the greatest concern. following this, firms also saw political instability as a major hindrance. Access to finance, however, is the single-largest constraint for about 2.9% of small firms and 3.3% of medium-sized firms.
comparable numbers, the sample is thus heavily biased toward the larger end of the spectrum in terms of proportional representation.
24
25
Medium (2099)!
Small (119)!
absolute and market share terms) over time. Revenue is also a metric commonly used by investment professionals to assess a firms value or performance. (Often, in valuations, potential investors use it as part of a multiple, such as EV/EBITDAenterprise value over earnings before interest, tax, depreciation, and amortization.) This metric can prove difficult in a global context, as firms revenues may vary widely from one country to the next, even within one industrybut within a singlecountry context, like Pakistans, this is less problematic. By any metric, it is clear that Pakistans economy is weighted heavily toward smaller enterprises. Less than 1% of firms has revenues greater than $100k or more than 20 employees. Delineating the Bounds of SME54 While smes are often distinguished from larger companies, many group microenterprises with small- and medium-sized businesses. But, in practiceespecially in Pakistanfirms in the middle of this spectrum face a unique set of opportunities and challenges, distinct from those seen by firms at both the large and small extremes of the market.
es that earn, on average, less than $50k in annual revenue, and draws in a vast swath of informal businesses that are typically in the realm of microfinance. Given that the stated purpose of the Pii is to invest in smes but with an eye specifically toward scalability and attraction of new investmenta narrower, functional disambiguation is useful. Large Enterprises Large enterprises, on the other hand, from which smes are more often distinguished, also operate in a starkly different environment. In particular, they are much more likely to have significant personal contacts at high levels of government and in the financial sectorthey are thus better-placed to gain government rents or negotiate favorable financing packages. consequently, they are more likely to be complicit inand benefit fromgovernment corruption. Large firms also tend to have professionalized management (rather than being managed by owners), to be less centralized, and to have stronger delegation authority and departmentalization. they rely less on unskilled or
Micro (05)!
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Assets (PKR) Revenue (PKR) 100mm (manufacturing) 300mm 50mm (trade/services) 25mm 250mm Small: 20mm N/A Medium: 100mm N/A N/A
each measure returns different results, and each has benefits and drawbacks in practice and for use in policymaking. Headcount headcount is often the easiest metric to measure but can prove problematic, as it does not account for varying labor requirements across sectors. for example, a small IT services firm with 30 employees may have an annual turnover equal to or greater than a textile mill with 100 employees. one thus fails to account for differences between more labor-intensive and more capital-intensive sectors. there are further problems when accounting for workers who are not formally employed (e.g., in firms relying heavily on subcontractors or outsourcing, or who use informal hiring practices, which are common in Pakistan). Assets Using total assets is problematic for many of the same reasons that using headcount is. Whereas headcount ignores differing labor requirements across sectors, asset value cannot account for different capital requirements. moreover, the values of assets held in buildings or land, for instance, which can differ considerably even within a sector, may distort determinations of firm size. Revenue annual turnover or revenue better approximates business sizeit is easily quantifiable, assesses a firms contribution to the economy, and captures growth (in
Not only are large firms less finance-constrained, but supporting them potentially enables and encourages the governments intrusion into the market that crowds out more widespread participation and stymies business growth in the first place.
Microenterprises Most SME definitions have no lower bound. Microenterprises, howevertypically consisting of five or fewer employeesare vastly different from small firms in terms of sector participation, management sophistication, formalization, and revenue size. microenterprises tend to be informali.e., unregistered and tax-evasive. they less frequently provide employee benefits, such as paid sick leave or skills training. They can also rarely finance accounts receivable or make long-term investments (e.g., capital projects with payback periods longer than a few months). and they are unlikely to join or form networks, engage formally with local communities, or make charitable donations.55 the informality of microenterprises makes them uninvestible. Js Private equity, for instance, estimates that close to 99% of such small firms do not maintain adequate business practices (e.g., they keep two sets of books) for being viable investments from its perspective. classifying enterprises with either the state Bank or smedas sme revenue metric results in an sme market segment that incorporates roughly 97% of the economy. But this includes a vast number of such microenterprisuntrained workers, and are generally less dependent on personal relationships between managers and employees, or between management and customers. Larger companies stronger institutional structures and more professionalized staff then allow them to focus more on long-term profitability and increasing market share, rather than being preoccupied with immediate needs or short-term survival. they are likewise more likely to have and follow formal business plans, and to employ new or sophisticated technologies. evidence suggests, however, that such companies are also less flexible and unable to adapt quickly to changes in the economy or regulatory environment. and they are less likely to be deeply rooted and active in their communities.56 in Pakistan, an especially important aspect of the division between small and medium, on the one hand, and large, on the other, is the tendency of large firms to benefit from close government connections, rentseeking behavior, or outright corruption. from an investment perspective, there may be attractive opportunities on the larger end of the spectrum, and often at less riskbut a primary reason one can earn relatively high returns at relatively low risk with such investments 27
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Distinguishing Small from Medium Medium-sized enterprise: a business earning beWhile small and medium firms are more similar than diftween $1mm and $10mm in annual pre-tax revenue. ferent when compared to their micro and large counterparts, there are also some important distinctions beThese classifications account for the composition of tween these two groups. although most organizations Pakistans businesses by revenue using 2005 census in Pakistan refer to small and medium separately, data, as well as qualitative feedback received during this distinction is rarely clear, and seldom manifests in our field research. policies targeting Fig. 23 SME Market Segments, Disaggregated! smes. more importantly, we believe these Annual Revenue Range smeda and the classifications strike state Banks smean optimal balance support programs between specificity Less than $10k Microenterprises suggest that any and sensitivity. that constitute nearly 84.07%! distinction beis, a lower bound Between $1020k 85% of the entire tween small and of $50k excludes Investment! market.! Between $2050k medium is rarely the vast majority of Strategy! used as a disposiinformal microenLower Bound: $50k! Between $50100k tive criterion for terprises without rejecting high-poeligibility. in fact, Between $100k1mm 9.12%! Target ! tential businesses almost all sme Market ! with low revenue programs in PakiSegment! Between $12mm 3.88%! stan effectively streams; a middle 1.91%! division of $1mm lump small- and Between $23mm 0.90%! separates the bulk medium-sized en0.04%! Between $34mm of young firms terprises together 0.01%! as a monolithic in need of seed, 0.009%! Greater than $4mm 0.007%! startup, or venture business class. capital, from someYet, while smallwhat larger firms in and medium-sized need of growth eqbusinesses tend uity; and an upper to be functionally bound of $10mm similar, almost alincludes the high Upper Bound: $10mm! ways eligible for end of the range the same benefits, of medium-sized and academic studies seldom distinguish between the businesses, but effectively excludes large corporations. two, they do have different financing needsboth in terms of investment size and purpose. smaller busiRecommendation 4 nesses tend to be younger and less experiencedthey disaggregate the sme space and focus often seek startup capital and know-how for breaking on small and medium firms, separately. into markets. medium-sized businesses, on the other Define these as firms in the $50k$1mm hand, tend to be more established and mature. they and $1mm$10mm revenue ranges, reoften seek larger investments for achieving scale. Revenue is an imperfect metric for segregating businesses of these two types. except through case-bycase evaluation, however, it is difficult to draw any clearer linebut revenue boundaries between micro, small, medium, and large will inevitably be arbitrary. Yet absent more thorough market information, this is the 28
spectively. focus on smes with the strongest exit prospectstarget investments in companies led by promising entrepreneurs that have vision, but lack the financial and institutional support to scale.
small!
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operAtionAl AnAlysis
model & strategy
taxonomies of private equity tend to focus on the stage of investmentearly, middle, or late. early-stage investments include angel investing, seed funding, and other support for startups, and then traditional venture capital at a slightly later stage. middle-stage investments can include growth and expansion capital, and bridge financing for companies headed toward public offerings (iPos). Late-stage investments include acquisitions and leveraged buyouts, sometimes of distressed companies or those otherwise in turnaround situations.1 one can likewise classify investments by their size (i.e., ticket size)and thus the scale of the target companyranging from microfinance, to SME financing, to funding for large enterprises or capital projects. comparing across both dimensions, then, we can specify an investment strategy that encompasses both target size and funding stage.
separating these components of the larger strategy, therefore, will help ensure each prong is pursued productively. Based on discussions with investors active in the Pakistani market, in revenue terms, the target size for the venture capital fund should be roughly $50k to $1mm, while the target size for the growth capital fund should be roughly $1mm to $10mm. Likewise, we expect ticket sizes of investments to range from $50k$400k for the venture fund and $2mm$7mm for the growth fund.
Recommendation 5 structure the Pii to include venture capital and growth equity components. Plan for ticket sizes of $50k$400k and $2mm $7mm, respectively. employ the limited partnership structure common in private equity and adopted by the cdc and other major dfis, in line with international industry standards.
Venture Capital!
Growth Equity!
SME Financing!
Our analysis, above, finds that sector-specific investment strategies would be ill-advised at this stage: there is too little good information about the market, and too many compelling reasons to focus on one sector or another. Instead, though, we find that there is both particular need and substantial opportunity to focus the fund on SMEsi.e., small and medium-sized firms, distinguished from both microenterprises and larger, more established corporations. it then follows that the stage of investments will be venture capitalfor smaller, younger companiesand growth equityfor the more established, scaling firms. it is important, though, that these two strategies be pursued in parallel, but separatelye.g., through the creation of distinct funds under the Pii. the nature of investment, the needs of businesses, and the expertise required of fund managers is unique and quite different between the venture and growth stages. cleanly 30
as we note, above, the private equity market commonly operates through limited partnerships. oPic-supported funds, for instance, are established by investment professionals and are typically structured as limited partnerships or limited liability companies.2 fund managers raise equity capital from outside investors and make, manage, and exit investments in portfolio companies with attractive return prospects. LPs commit equity capital and may provide counsel to the Board of directors, but are not directly involved in the management or governance of the fund. Management & Governance the standard private equity limited partnership model includes essential features for making the Pii a viable and productive investor: a skilled and credentialed professional management team that uses local knowledge and technical 31
consortium structures can help pool resources from partner investors (e.g., other dfis, like the ifc or cdc) for joint investment in a fund. Leverage flexibility to leverage U.s. capital investment through engagement and strategic partnership with other donors and investors is essential. the fund managers role in contributing its own equity and raising additional investment from other LPs provides the most established and easiest way to multiply the funds capitalization state can effectively outsource fundraising to the GP. But, alongside the fund manager, state can also play a critical role in mobilizing third-party capital: U.s. Government backing can help leverage U.s. investor networks to raise and, if feasible, pool additional capital. the combined credibility of state oversight and a strong fund management team can help attract private investors who might not otherwise have been willing to take on such exposure. minimizing ex ante constraints on the funds strategy or the GPs authority and decision-making will maximize the likelihood of earning strong returns. state can still ensure development impact through a well-defined performance measurement system, robust monitoring and evaluation, and transparency. then, if there is a second stage of investment, lessons learned can be applied to select follow-on partners and restructure contracts. making a strong business case for investment in Pakistan will be the best means to sustained and scalable impact. Allowing the time and flexibility for initial investments to see success will demonstrate the viability of Pakistans market, and offers the best prospect for substantially increasing job creation.
For the Advisory Board, State should seek out a diverse group of Pakistani private sector leaders with strong networks and expertise, but also a commitment to supporting aspiring entrepreneurs and fostering longer-term policy reform.
Advisory Board additionally, an overarching Pii advisory Board, established by state to provide general oversight and guidance to fund managers and board members, would be an important component, given the nature of this public-private collaboration. advisory committees are one of several standard channels used to facilitate communication and manage conflicts of interest between GPs and LPs in the private equity industry. Unlike LP advisory committees, which are common to many private equity funds, however, the Pii advisory Board would be most effectiveand be perceived as most credibleif it comprised Pii investors, including U.s. Government representatives, as well as external industry experts. through active participation on an advisory Board, state can play a critical role in ensuring that taxpayer dollars are invested in a way that minimizes risk and maximizes economic returns, while safeguarding the independence of fund managers and the commercial viability of fund operations. ideally, the advisory Board would provide a mechanism through which state, coinvestors, and investment experts work collaboratively and engage regularly with fund managers and board members to: secure alignment of interests among investors, fund managers, and investees. monitor Pii investment processes to ensure investments are made and managed responsibly. Provide fund managers with knowledge and resources to support value creation at the portfolio company level. collect and evaluate information on Pii investments and performance. feasible. state should seek out a diverse group of Pakistani private sector leaders with strong networks and expertise, but also a commitment to supporting aspiring entrepreneurs and fostering longer-term policy reform. although certainly not an exhaustive list, we offer a few examples of the types of Pakistani individuals who we believe would be well-suited for Pii advisory Board membership: Visionary and highly reputable private sector leaders who have navigated among business, government, academia, and philanthropy, and represent strong advocates for reform. Examples include: ishrat hussain, dean of the institute of Business administration (iBa) and former Governor of Pakistans state Bank; syed Babar ali, entrepreneur, former finance minister, and founder of the Lahore University of management sciences (LUms); and moeen Qureshi, chair of the Washington, d.c.based private equity firm EMP Global and former Prime minister of Pakistan. successful, well-connected entrepreneurs who have launched and expanded innovative businesses in fast-growing sectors of Pakistans economy in particular, entrepreneurs who have secured the backing of global venture capital investors. examples include: Monis Rahman, Chairman and CEO of naseeb networks, President of the indus entrepreneurs (tie) Lahore chapter, and acumen fund Partner; and ali Jameel, ceo of tPL holdings. Young and dynamic private sector innovators with bold ideas for building Pakistans entrepreneurial ecosystem and strong local and international networks. Examples include: Umar Saif, Professor at LUms, founder of the saif center of innova-
Potential sources of leverage include: OPIC The fund could benefit from OPIC involvement in multiple ways. oPic can provide both additional debt financing and loan guarantees to encourage equity investors. oPic can also capitalize on existing relationships in Pakistan to bring in investors. Other DFIs The knowledge, resources, and shared objectives of other, more established dfislike the ifc and cdcincluding extensive experience in Pakistan, would help ensure the funds design is tailored to the Pakistani context. dfis can also serve as additional LPs for funds or, potentially, as members of a larger Pii consortium that pools dfi resources into a single, larger fund of funds. Responsible Capital New sources of so-called responsible capitalsuch as foundations, impact investors, sovereign wealth funds, and pension 33
both venture and growth stages. this option closely resembles the basic private equity structure, described above. advantages offers a streamlined management structure and the most direct investment route, facilitating state oversight of investments is potentially the quickest to set up Provides the selected GP the largest potential return drawbacks Does not benefit from specialized management in either the venture or growth spaces Has no diversification across fund managers, so adds idiosyncratic risk Reduces the demonstration effect from multiple new investors entering the Pakistani market Option 2: One Partner, Fund of Funds Approach: USAID selects and then invests with one GP. the GP then establishes and manages the Pii as a fund of funds (fof)a strategy of pooling investor capital and investing in other equity funds, rather than directly in portfolio companies. the fund of funds then establishes or invests in external funds, which in turn invest in portfolio companies. a fund of funds (e.g., the U.K.s cdc) operates like a master private equity fund that spawns and manages a portfolio of sub-funds, each with its own fund manager. fof managers may invest in sub-funds established by the same investment firm or in external funds, but generally they aim to diversify a portfolio across a variety of investment managers, investment strategies, and markets. advantages Takes a flexible and decentralized approach Reduces risk through diversification allows specialized sub-fund managers to target different market segments Potentially creates more leverage possibilities Lowers the barrier to entry for GPs in terms of equity
While each approach seems practicable in Pakistan, option 3selecting multiple GPs to manage several smaller, specialized fundshas the greatest potential for engagement and impact, without introducing a Byzantine organizational structure. Potential Partners Research on emerging market private equity reveals a clear linkage between competent fund management and fund performance. the experience of the ifc, for instance, demonstrates that the key factor contributing to the success or failure of its funds has been the quality of the GPnot the risk that comes with a first-time fund or frontier country focus.6 State should select the most qualified investment teams to manage Pii capital, while avoiding excessively high selection requirements that crowd out viable or interested candidates. clearly, an experienced fund management firm with a proven track record of positive investment returns and successful exits would be the best candidate for a GP. the nascent nature of Pakistans private equity industry, however, could pose challenges to identifying candidates with long track records of success. moreover, inherent in the Pii mandate are the dual goals of generating financial return and achieving development impact and visibility. Beyond firms with track records, therefore, it is worth considering emerging fund managers and nontraditional players with missions that align with this broader Pii mandatebringing higher risk, but potentially greater rewards. The IFC provides insight on specific criteria that may prove useful for selecting fund managers in an emerging market context. suggested indicators for gauging the potential success of a management team include: whether the GP is locally based; the number of local national staff; fund manager skill-set or capacity to add value to investee companies (e.g., prior experience in running companies, as entrepreneurs or consultants); and prior experience in private equity. ifc funds that have met these criteria are overwhelmingly associated with better performanceboth in terms of financial returns and overall development impact.7 strong local knowledge and presence is especially im35
drawbacks Has questionable feasibilityfinding an implementing partner that can operate as an fof may be challenging can raise overall administrative costsfees are typically higher because they add part of the fees charged by the underlying funds adds a layer of complexity, and so may make monitoring and oversight more difficult Option 3: Multiple Partners, Multiple Funds Approach: USAID does not limit itself to a single firm and, instead, makes smaller investments in two or more GPs. each GP establishes and manages a fund. each fund targets a narrower market segment. this option is not technically a fund of funds, as Usaid would not operate like a typical active fund manager. But it replicates the advantages of the fof approach without adding complexity. advantages all of the advantages of option 2 adds potential for visibility and demonstration effects from investing with two or more firms incentivizes high performance through competition among funds managers, especially if a second round of funding will be limited to top-performing GPs fosters a learning environment in the Pii and the broader Pakistani private equity market by providing exposure to different managers and investment strategies and demonstrating cases of profitable investing drawbacks may be constrained by the number of viable GPs Raises questions about how to structure the Pii itself and at what level to seek leverage (at the larger Pii level, or alongside each GP)
Implementation Mechanisms Number of Partners in contrast to an enterprise fund, the Pii does not need to be a monolithic institution with a single fund manager. there is scope forand potential value insupporting multiple investment platforms, with distinct implementing partners (i.e., GPs), under a broader Pii umbrella. a key question, then, is whether it is preferable to establish a single investment vehicleone large fund for investing in a wider range of smesor to divide the pool of resources to invest in multiple, smaller, more targeted funds? this choice presents three broad options. each employs the general limited partnership model, and each allows the fund to be levered through outside investmentbut they differ in the degree to which authority is dispersed and in how many partners are involved. Option 1: One Partner, One Fund Approach: USAID selects and then invests with one GP. the GP then establishes, raises, and manages the entire Pii. the fund manager invests in Pakistani smes at
* A good resource for finding potential partners of this type is the Global Impact Investing Network: http://www.thegiin.org/cgi-bin/iowa/ council/member/index.html
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international applicants. additional donors or private investors could invest directly into the funds to lever the U.s. investment, but securing this co-investment may be challenging. Usaid has contracted directly with private equity firms in the past, but further inquiry into the legal requirements may be required to know if the execution of a limited partnership model is feasible. Option 3: Support public international organization state selects a public international organization (Pio) with experience investing in emerging market private equity funds and a local presence in Pakistan, such as the ifc, and grants U.s. Government resources to manage one or more investment funds. in options 1 and 2, state partners with a professional fund management team that, in turn, creates a fund entity and governance structure to invest in Pakistan; under this scenario, state supports a Pios existing mandate to carry out private equity investing in Pakistan. the Pio, in turn, uses the grant to back one or more private equity funds (e.g., one growth equity fund and one venture capital fund) to invest in Pakistani smes. this approach may have certain advantagespartnering with a reputable Pio would add expertise, credibility, and accountability for financial resources. It would also facilitate significant leverage of U.S. fundsPIOs are well-positioned to catalyze additional donor and private investment, as well as longer-term policy reforms on the ground in Pakistan, in a way that a bilateral institution acting alone cannot. the Pii would be branded as a truly international initiative. on the other hand, a Pio grant offers a more passive and potentially less pioneering and impactful approach to stimulating investment in Pakistan. While the builtin expertise, multi-donor coordination, and more subtle american branding associated with a Pio grant are valuable, the U.s. would lose some of the essential benefits that come with partnering directly with the private sector. there would be less of an opportunity for the U.s. to innovate and highlight american engagement, and the benefit of determining how to distribute proceeds from fund liquidation would no longer be viable. moreover, most of the key advantages of granting funding to a PIO can be achieved through either of the first two optionsparticularly a Gda that leverages the expertise and capital of institutions such as the ifc in a strategic public-private alliance. a Pio grant would thus be best pursued as a third alternative, in the case some combination of options 1 and 2 prove unfeasible. Strategic Guidance Private equity investing entails more than mere capital transferoften, knowledge transfer is as important a component. smes in Pakistan need capital to grow, but
As one example, USAID signed a five-year contract with The Bancroft Group, L.P. in 1995: http://www.bancroftgroup.com/en/history/ index_history.shtml
Recommendation 6 Work through multiple implementing partners, as a means to create several smaller Pii funds with more targeted investment strategies. select and invest with professional fund management firms with relevant experience, local knowledge, capacity to add commercial value to portfolio companies, and skin in the game. consider emerging or first-time fund managers that align with the broader Pii mandate, in addition to experienced teams with a proven track record.
Selection of Partners there are three main mechanisms available to state for partnering with private investment firms to manage one or more Pii investment funds. although there may be other possible approaches, these offer the most feasible solutions: Option 1: Global Development Alliance State identifies prospective partners and negotiates a Global development alliance (Gda), partnering with anywhere from one firm to a consortium of resource partners. after negotiations, state directly obligates funding to one or more fund management firms by means of a Usaid collaboration agreement, which offers a more flexible tool compared with traditional awards.
the Gda model allows Usaid to disburse funding through a variety
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Government!
Leadership !
Early Customers!
Policy!
Networks!
Markets!
Finance! Entrepreneurship!
Financial Capital !
Educational Institutions !
Recommendation 7 structure Pii fund partnerships using one or more feasible implementing mechanisms that allow for maximum flexibility, commercial sustainability, and leverage of U.s. Government resourcesprioritize the Gda model but use more traditional contracts and grants as required. seek substantial Pakistani private sector involvement in sourcing and levering investments.
Human ! Capital !
Labor!
Culture! Supports!
Success Stories!
Societal Norms!
NonGovernment Institutions !
Government Policy Leadership Finance Financial Capital Success Stories Culture Societal Norms NGOs Supports Infrastructure Support Professionals Labor Human Capital Educational Institutions Networks Markets Early Customers
Elements Initiatives (investment, support) Financial support (R&D, jump-start funds) Regulator framework incentives (tax incentives) Research institutes Venture-friendly legislation (bankruptcy, contract enforcement, etc.) Unequivocal Support Entrepreneurship strategy Social Legitimacy Urgency and advocacy Venture capital funds Private equity Zero-stage venture capital Angel investors Public capital markets Debt Visible successes International reputation Wealth generation for founders Tolerance of risks, mistakes, failure Innovation, creation, experimentation Social status of entrepreneur Ambition, drive, hunger Entrepreneurship promotion Entrepreneur-friendly associations Conferences Business plan competitions Telecommunications Transportation and logistics Energy Zones, business incubators, clusters Legal, accounting, investment bankers, technical experts Skilled and unskilled Serial entrepreneurs Professional and academic degrees Specic entrepreneurship training University linkages, collaboration Business incubators Entrepreneurs, diaspora, universities, multinationals, investment professionals Expertise in commercializing First reviews Early adopters for proof-of-concept Distribution channels
Source: Daniel Isenberg, Introducing the Entrepreneurship Ecosystem: Four Dening Characteristics, Forbes Online Magazine (May 2011), < http://www.forbes.com/sites/danisenbe rg/2011/05/25/introducing-the-entrepreneurship-ecosystem-four-dening-characteristics/>
programsscaling them to maximize the impact of the initiatives corresponding investments. there is substantial value to be gained by complementing growth capital with startup capital and entrepreneurial ecosystem support, since each stage of the business cycle is dependent on another. entrepreneurs need encouragement, technical assistance, and funding to start companies, and young and small companies need growth capital and technical assistance to scalebut entrepreneurs also need to know that growth capital is available, if their companies reach that stage, while venture and growth funds rely on entrepreneurs having successfully navigating the startup phase. these initiatives are thus symbiotic and their prospects of success improve if state pursues them in tandem. By using the Pii to address the full stream of the business cyclestartup to growth capital and supportstate will better address deficiencies in the Pakistani market and achieve greater impact. the overwhelming demand for entrepreneurship training and services that we observed during our fieldwork in Pakistan is reinforced by a national development strategythe Framework for Economic Growththat calls explicitly for entrepreneurship support and inter-university alliances to foster research and the commercialization of technology.10 in a february 2012 study, Robert Looney of the Navel Postgraduate School affirmed the importance of the entrepreneurial strategy outlined in the Framework. the study, through extensive quantitative analysis of countries growth patterns, finds that those that followed an entrepreneur-led growth strategy sustained their growth and that, in the short term, support for entrepreneurship efforts could be expanded even without national governance reform.11
there are compelling reasons, given its objectives, for state to focus on generating investment through the establishment of some type of fund or funds. But it is also important to consider both alternatives to this approach, as well as complementary elements that could enhance its impact. the initiatives, below, do not constitute an exhaustive list of either parallel or substitute policy optionsbut we identify these as some of the most promising and feasible, and those with the greatest potential for impact. Entrepreneurial Ecosystem Support the call for directly supporting entrepreneurship in Pakistan is resounding. During our fieldwork, promoting entrepreneurship was one of the most-cited and mostimpassioned recommendations we heard for strengthening U.s. private sector assistance to Pakistan. Proponents of this type of support also made some of the most compelling arguments for its inclusion. state has already made an effort to support Pakistans young entrepreneurs. in march 2012, for instance, the U.s. embassy and the islamabad chamber of commerce and Industry organized the inaugural Pakistan Young Entrepreneurs Forum.* at the launch, secretary clinton and ambassador munter each commended the Pakistani entrepreneurial spirit and pledged support for Pakistans entrepreneurs.9 the Pii can build on such
* in 2009, Usaid also began Pakistan entrepreneurs, an economic development project that aims to raise the incomes of more than 75,000 predominantly female micro-entrepreneurs.
Perhaps the best argument for supporting entrepreneurs, however, lies in the expected return on investment. the probability that any major commercial success will emerge from a U.s.-backed incubator is of course smallbut this small chance that the Pii could help develop a Pakistani instagram, Linkedin, or even facebook is well worth the relatively minor investment in resources. The returnsnot just financially, but in both development impact and public goodwillwould be immense. Defining the Entrepreneurial Ecosystem an entrepreneurial ecosystem, in its broadest sense, is an enabling environment for startups, at the local, regional, and national levels. this ecosystem can be divided into six domainsconducive culture, enabling policies and leadership, availability of appropriate finance, high quality human capital, venture-friendly markets for products, and a range of institutional and infrastructural supportsthat interact in complex ways. alone, each dimension is conducive to entrepreneurship, but insufficient to sustain it.12 in Pakistan there exists a small but promising network of organizations and initiatives in place to support entrepreneurship.* But there is a need to further develop and
* When we refer to the entrepreneurial ecosystem and Pakistans network of entrepreneurial organizations, we are referring to organizations and programs that promote the growth of professional entrepreneurial companies, such as software development firms. Previous U.s.-sponsored interventions, such as Usaids Pakistan entrepreneurs program, have aimed to lift low-income, vulnerable populations out of poverty by fostering micro-enterprise development. While such programs are vital to Pakistans long-term stability, we focus our entrepreneurial assessment and recommendations on activities that possess the most potential to strengthen Pakistans private sector and attract investment. micro-enterprise development is an appropriate intervention for poverty reduction, but not for attracting professional
integrate Pakistans existing entrepreneurial infrastructure, in order to create a startup environment that is both sustainable and broadly accessible. among the many recommendations we received from entrepreneurs and others working to promote entrepreneurship, five stand out as areas where state could provide assistance. 1) Startup capital the lack of startup capital is one of the most binding constraints to starting or scaling a business in Pakistan. injecting capital is of course the main objective of the PII in the first placebut a state-sponsored initiative that establishes a distinct Vc fund, or even provides initial seed funding, in conjunction with a later-stage growth fund, could provide much-needed financing to Pakistans entrepreneurs. 2) University programs there is a shortage of highquality entrepreneurial education programs within Pakistans university system. in 2006, Usaid launched an initiative with the institute of Business administration to establish a center for entrepreneurial development, but later diverted financing to support flood relief operations.13 While such programs would bolster entrepreneurship in Pakistan, in the short-run there are other initiatives, which are less resource-intensive, that may be more feasible but of equal impact. among the many entrepreneurs we met, there was a common call to establish business incubators in Pakistans universities. ininvestment and fostering entrepreneurial companies that may grow to be large firms. Business incubators are programs designed to support the successful development ofentrepreneurial companies through an array of business support resources and services. More specifically, business incubators can enable technology transfer and innovation, assist disadvantaged communities or individuals with projects, promote
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BUSINESS INCUBATOR !
ENTREPRENUER! ENTERPRISE! EMPLOYMENT !
GROWTH!
Focus Area !
Focus Area: Business incubators can be designed to promote specific industries or take a more generalist approach. Generally, incubators are aligned with the capabilities and resources of the host university, although a more generalfocused incubator is appropriate for most institutions. Level of Technology and Support: available resources and sector focus, if any, will drive the technology requirements and the type of business support services of the incubator. Location: Location will dictate whether or not the incubator can leverage existing business clusters, influence which constituencies will have access, and shape the program managers capacity to coordinate services and supervise the program. Cluster: first, existing business clusters in Pakistan, if any, should be identified and assessed on their ability to support and add value to the incubator. next, a decision should be made to either tie the incubator into an existing cluster or to utilize the incubator program to jumpstart a new cluster. if jumpstarting a new cluster, a cluster strategygeographical, sector-based, horizontal, or verticalshould be selected.14
it is also important that the Pii takes a broad view in terms of university programming, and seeks relationships beyond just the most elite institutions (like LUms and iBa), and beyond the biggest cities (Karachi and Lahore). an ideal program would target a range of geographically diverse universities in both large and second-tier cities. 3) Mentorship there is a shortage of good mentors for Pakistans entrepreneurs. almost every entrepreneur we met cited the importance of mentorship. strengthening existing entrepreneurial networks, leveraging U.s. private-sector expertise, and connecting entrepreneurs with business leaders in Pakistan are all important, tangible interventions state could undertake to address this need. 4) Linkages current entrepreneurial initiatives in Pakistan are disjointed and exclusive. improving linkages should be a component of any entrepreneurial support program in Pakistan. state should emphasize establishing linkages among universities, domestically and abroad, and connecting entrepreneurs with mentors and business opportunities in the United states. the incubator model would also serve as a conduit to channel startup capital and to facilitate mentorship and business linkages.
local job creation, and help universities and R&d centers commercialize research and know-how. * Presently, there are a few incubators housed in Pakistanthe national University of science and technology (nUst) launched the technology incubator center (tic) in 2004 and the saif center for innovation, a technology incubator, was established in 2008but the quality and productive output of these programs are unknown at the time of this report. our recommendation focuses on expanding and improving Pakistans incubator network by strengthening existing incubators and establishing new incubators in Pakistans universities, where appropriate. While regulatory reform is important, it is not an objective directly tied to the activities of a business incubator. there is, however, an opportunity to integrate mentorship programs, university educational
5) Regulatory reform entrepreneurship in Pakistan is impaired by government policy, legislation, and regulation. While State may lack the influence to directly engender policy change in Pakistan, it is in a position to collaborate with powerful constituencies, such as the U.s.-Pakistan Business council, in the United states, and the american Business council, in Pakistan, to advocate for a more progrowth regulatory environment. Going Forward the guidelines, below, constitute a set of concrete steps the Pii could take to help strengthen Pakistans entrepreneurial ecosystem. this list is informed by our field research, but it is not comprehensive, so we suggest further research to flesh out and refine these prescriptions: Evaluate existing entrepreneurial programs and networks in Pakistan there is a budding network of entrepreneurial groups, university business incubators, mentorship programs, business plan competitions, and business support organizations in Pakistan. As a first step, we recommend evaluating the focus, efficiency, management, and resources of these elements to identify potential partners for a university-based business incubator program. the list we provide, at the end of appendix B, although not exhaustive, highlights the prominent actors and initiatives in Pakistans entrepreneurial sector. it can be used as a starting point for this assessment. Develop clear objectives and a framework for the incubator program there are many incubator types and structures. Generally, universities develop incubators to commercialize the science, technology, and intellecopportunities and linkages to financing sources, as well as, other universities and the private sector within the university-based business incubator model.
evaluation results and the objectives and framework of the program. moreover, universities selected for the program should demonstrate a long-term commitment to strengtheningor starting and strengtheningtheir business incubators, as well as the will and capacity to allocate physical space, professional support, and financing, if possible. The programs overarching objective should be to improve and integrate the incubators. as a guideline, successful business incubators typically include: clear, well-communicated goals; an incubator manager responsible for tenant selection, day-to-day operations, the setup and coordination of business development services and outreach, and for meeting the overall objectives of the incubator; Business services, such as management training, business plan development, access to financers, and industry-specific technical assistance; shared resources like developer software and computers, access to subscription market research, or programming assistance, plus secretarial support, high-speed internet, credit reports, etc.; Physical space for working and collaborating; financing through corporate partnerships, grants, permanent university funding, and, eventually, a working capital fund; and a tenant application process and evaluation criteria to ensure the incubator support the people and business ideas that fit its mission.15
Select, improve, and integrate University and affiliate partner selection should align closely with the initial
* Private investors generally start incubators as a way to make profit by identifying, training, and investing in multiple companies and governments may start incubators to jump-start the economy, develop priority sectors, or create jobs. While the motivations for starting an incubator may differ among participating groups, the core objectivesbusiness creation, technology transfer/innovation, job creation, and commercialization of university know-howare generally shared. The Framework for Economic Growth identifies several preexisting pseudo-clustersthe it cluster in Karachi, automotive manufacturing in Port Qasim, textile and leather in faisalabad, sports and surgical equipment in sialkot, furniture in Gujranwala, light engineering in Gujrat, heavy industries in Wah, and light weapons manufacturing in Landikotalbut stresses the need to develop stronger clusters more proactively. See: http://www.pc.gov.pk/hot%20links/growth_document_english_version.pdf. highlights of the development cluster strategies listed above include: 1) geographical: clustering is focused in one geographical area to aggregate a critical mass of resources and skills that results in a sustained competitive advantage for a particular industry (e.g., Silicon Valley, Hollywood); 2) sector-based: a group of businesses from within the same sector operate together to share knowledge and common resources; 3) horizontal: businesses share general resources, such as best practices; and 4) vertical: entire supply-chains work together to make the systemfrom production to salemore competitive.
Monitor, support, and develop establishing and strengthening a university-based incubator program is, of course, a complex, time-consuming process that will require long-term vision and an implementation plan. deliberate stepsfrom the startto judiciously select partners, engage key stakeholders throughout the design phase, and to build on promising entrepreneurial programs already in place will best ensure success. the expectation that incubators will expeditiously
integration refers to building and institutionalizing best practice and knowledge-sharing processes, expanding mentorship opportunities, and cultivating an entrepreneurial community within and among participating universities. More specifically, recommendations for integration will depend on other factors, such as the focus and location of each incubator.
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develop and launch successful businesses is shortsighted. Rather, the short-term value of an incubator program is its enabling and catalytic effect.* in other words, the initial value of an incubator is the conditions and resources that it provides to make entrepreneurial pursuits possible. While there is noticeable interest and support for the incubator program, predicting how people will respond to the program is difficult. To mitigate risk, the program should start small, be monitored closely, and adjust and scale as circumstances dictate. Social Impact Bonds (SIBs) a social impact bond is a type of outcome-based contract in which public sector representatives commit to pay for significant improvement in social outcomes for a defined population.16 in other words, it is a type of security that investors can purchase, but which pays out based on development resultsi.e., private-sector investors pay in, but siBs only pay back returns when programs are successful. in this way, they move risk from the public sector to the market, and they incentiv* the enabling and catalytic effect refers to the disruptive change and subsequent realignment of resources, interests, and priorities that occurs when a new opportunitythe business incubatoris established and discovered by students, entrepreneurs, and private companies in Pakistan. in other words, the very act of creating a space for people to develop and start companies will likely facilitate the exchange of ideas, new relationships, and the pursuit of new entrepreneurial ventures. add a selection process and incentives business development services, financing, etc.and the enabling and catalytic effect will likely respond in equal measure.
ize the identification, evaluation, and replication of highperforming initiatives. siBs are not bonds in the conventional sensewhile they operate over a fixed period of time, they do not offer a fixed rate of return as conventional bonds do. Repayment to investors is instead contingent upon designated social outcomes being achieved. in this regard, siBs are more similar to an option contracts than conventional bonds. siBs are a relatively new type of instrument, and there are few precedents; they are currently being piloted in the United states and United Kingdomfor instance, to fund programs to reduce recidivism among released prisoners. new initiatives, such as instiglio, seek to extend the model to developing countries. siB programs have been successful in targeted social reform programs and could provide a unique opportunity to leverage private sector strengths to promote reform initiatives in Pakistan. siBs are a particularly appealing way of attracting diaspora fundingi.e., patriotic capitalas expatriates can invest directly in programs at home with the promise of impact, but also hope to earn a financial return.
Partial Credit Guarantees (PCGs) Partial credit guarantees, often called credit guarantee schemes (cGss) in Pakistan, are programs that ensure partial repayment of a delinquent loan to motivate lenders to lend to borrowers, which normally do not have access to credit from the formal sector. Within the last four years, the state Bank of Pakistan (sBP) has launched two CGSs: the Microfinance Credit Guarantee scheme in 2008, and the credit Guarantee scheme for small and Rural enterprises in 2010. each program was funded with a 10mm grant from the U.K.s dfid and provides a 40% loan guarantee for partnering commercial banks.17 although the programs are ongoing, they have already increased commercial lending to Pakistans smes, and could offer state an alternative approach for financing SMEs. if circumstances dictate, state should explore the possibility of implementing a partial credit guarantee program as an alternative to the Pii. Usaids development credit authority is specialized in structuring and implementing partial credit guarantee programs and would be an ideal partner for establishing an sme loan program in Pakistan.* Feed-in Tariff (FIT) for Renewable Energy a feed-in tariff is a premium rate paid for electricity that is fed back into the electricity grid from a designated
* More on this model is available at: http://www.usaid.gov/our_work/ economic_growth_and_trade/development_credit/
renewable electricity generation source. a fit program is a mechanism designed to accelerate investments in renewable energy technologies. these programs incentivize renewable energy investment by offering long-term contracts to private renewable energy producers based on their cost of production. fit values differ among renewable energy subsectors to account for the varying costs of production. many fit programs include tariff reduction schedules, and, sometimes, staged application rounds. each mechanism is intended to incentivize efficiency improvements: Under tariff reduction schedules, tariffs decline on predetermined dates over the lifespan of the contract in order to incentivize companies to cut costs and improve efficiency. a staged application mechanism increases tariffs over several rounds, but issues the funds on a firstcome-first-served basis, thus incentivizing companies to opt in earlier at lower rates.
energy shortages and rising fuel costs, coupled with the crippling effects of government monopolization, present tremendous challenges for Pakistans energy sector. several fit program proposals have been un for example, solar power is relatively cheap to produce compared to tidal power, therefore, fits for solar power are typically less than tidal power fits.
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successfully championed in Pakistan over the last few years. fortunately, this year, Pakistan introduced a fit to expand wind power in sindh province.18 a national fit program, or simply strengthening, monitoring, and expanding the sindh province wind fit program, could prove helpful in attracting much-needed private sector investment.* moreover, neighboring chinas preeminence in the renewable energy industry heightens the appeal of using a fit to develop affordable energy alternatives in Pakistan. Trade Assistance trade assistance includes any initiative or program that facilitates access to markets. extending Pakistans trade freedom by reducing trade barriers would facilitate an expansion of exports and imports and, as a result, increase domestic efficiency and generate new business opportunities for export-based businesses. this recommendation is not new and has been put forth a number of times, including in a study submitted to congress from the center for Global development (CGD): As part of an overall plan to spur private investment and job creation in Pakistan, we urge congress and the administration to work together to extend dutyfree, quota-free access to U.s. markets for all Pakistani exports from all of Pakistan for at least the next five years.19 We echo cGds call to continue removing bar* More on this model is available at: http://www.nrel.gov/docs/fy09osti/45549.pdf
riers to trade in Pakistan, but recognize the limitations of such broad recommendations. although comprehensive trade reform is a complicated, politically difficult issue, efforts should be madewhere possibleto complement private sector development initiatives with targeted trade assistance. additionally, Pakistans decision to grant india mostfavored nation status (mfn) in 2011 is a major step in reducing transaction costs between the two countries20 and presents an opportunity for the United states to advocate for a stronger Pakistan-india bilateral trade partnership.
Recommendation 8 incorporate an explicit component to develop Pakistans entrepreneurial ecosystem. allocate between $10mm and $20mm for startup capital and other incubator initiatives. Work through local entrepreneurship networks and universities. implement from the level of the Pii as an overarching component or through a partner as a smaller sub-fund.
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0.90!
But just because there might be a high probability of success, with a small portfolio of investments this far from guarantees actual success. this may seem an obvious pointbut it is important to consider. one way to think about this risk is with Bayesian analysis.* each new investment in the Pakistani market provides outside observersinvestors in waitinga chance to update their priors (i.e., their previous assessments of the probability of investing successfully in the Pakistani market). While we cannot know potential investors priors on Pakistan, we can make an educated guess. To use an extremely simplified model, consider returns from the Kse 100 and s&P 500 over the last 50 years. in about 75% of years, the Kse earned positive returns, whereas in about 65% of years the s&P saw gains. indeed, Kse stocks on average typically earns higher returns than do american stocksbut they are also much more volatile, and thus riskier. to account for higher risk, investors seem to seek returns roughly twice what they would see in the United states. anecdotally, foreign investors seek minimum iRRs of 3035%. this is 2025% above returns earned on average in the U.s. market. so, to proxy this high hurdle rate, assume they estimate a one-third probability that investments in Pakistan actually do have a 75% success rate, and a two-thirds probability they are more like U.S. returns (i.e., 65%)thus, 2:1 odds against. In other words, they assume there is only about a one-inthree chance that Pakistani businesses really earn high enough returns to justify their increased risk, and a twoin-three chance their returns are more modest and thus not worth this risk. (in actuality, there is also downside risk to equity investmentsi.e., that investors will lose money. But to simplify, we assume they are merely judging the probabilities of success versus failure.)
2!
0.80!
velopment impacts. if the fund does not perform well, this will be much more visible than poor performance in a traditional development project. it will thus be more subject to criticism in the case of failure, or even performance below expectations
P(.75) #1! P(.75) #2! P(.75) #3! P(.65) #1! P(.65) #2! P(.65) #3! P(.85) #1! P(.85) #2! P(.85) #3!
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Making investments in specific businesses risks the appearance of favoritism. if investment decisions are not transparent or well-justified, critics could indict state for picking winners and losers in the Pakistani market. though no discussion during our research suggested this was a major concern, it is important to note that, by working directly with Pakistans private sector, state is explicitly not working with the government. as such, there is risk that this initiative could be seen as diverting assistance away from the Pakistani government, and thus be perceived as a slight against the traditional recipients of american aid.
0.20!
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50 trials than they were before. their experience is also highly sensitive to changes in the actual success probabilityif this moves to 85%, for instance, an investors assessment of whether the real probability is at least 75% becomes much more likely to be confident. This analysis is simplified and inexact. But it does illuminate a core problem for the Pii and the Pakistani market as a whole: There is little good evidence on investment performance in Pakistan because there has been so little activity to date. moreover, the fund is limited in what it can accomplishit can only make so many investments, for so much value. this will in the end contribute to the increasingly informative pool of evidence on the Pakistani market. that said, even if the prospects of success are quite good, the fund may not do much to reveal this, through no fault of the capabilities of its managers or the strategy of the initiative. there are two important conclusions to the draw from this: First, it is worth acknowledging that this fund may well not see huge financial success, due merely to chance. But second, the more the fund is able to diversify its portfolio, and to maximize the number of positions it takes (without reducing the quality of those investments), the greater the demonstration effect is likely to be, and the less randomness will play a pivotal role. Political Risks Pakistan, of course, also presents a difficult political climate. as with any U.s. program in Pakistan, even the slightest mishap is in danger of ballooning into a crisis. Recent eventsthe Raymond davis incident, the Bin Laden raid, the border post confrontationhave strained the political relationship between Pakistan and the United states. the news media and the broader Pakistani public are primed to assume the worst about any U.s. intervention. While there is substantial appetite for a U.s. initiative that invests directly in Pakistans private sector, and significant enthusiasm for trying something new and innovative when it comes to economic development, this approach also poses certain political risks: financial returns are easier to measure than de-
more than this, though, the Piis success also depends on investors forming close relationships with investees. trust in Pakistans business world is already very weakconspiracy theories associated with U.s. involvement could doom the Piis prospects for forming these essential partnerships. exactly how state brands the Pii, then, may in fact affect directly its prospects for success. Mitigating Risks & Maximizing Impact the uncertainties inherent even with high probabilities of success, as well as the challenges of the current political context, reinforce the importance of taking every step to maximize the Piis likelihood of success. Ultimately, the Piis performance as a business, development, or diplomatic venture hinges, above all, on its functioning well as an investment vehicle. Research shows that there is a positive relationship between fund performance and development impact in emerging market private equitystate will best catalyze follow-on effects and foster improved engagement with actors in the Pakistani economy by adopting a wellmanaged, commercially viable investment approach that supports business growth and delivers strong returns.* this starts with hiring the best fund managers availableby looking widely and especially locally for topquality private sector partners, and by paying them market rates. additionally, it includes giving managers the broad flexibility to exercise their judgment and
* the experience of the ifc, for instance, shows that investment returns and impact are highly correlated: http://www1.ifc. org/wps/wcm/connect/1c84b00049bdb98d95e6d7a8c6a8312a/ Private%2Bequity%2BPioneer.pdf?mod=aJPeRes. see ifc Private equity and investment funds news & Presentations for additional articles.
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Fig. 35 Annual Volatility vs. Returns for KSE100 & S&P500! 19612011!
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We use Bayesian updating to model the continually updated probability of an investor, over 50 investments, given actual success rates of 65%, 75%, and 85%, using a random variable. If iterated infinitely, the investors updated probability would converge to the true probability. With a much more limited number of investments, like Pii funds are likely to see, however, there can be substantial variability. We use three trials (think: funds), with 50 iterations each (think: investments). even when the probability of success is in fact 75%, given a limited set of investments and the randomness of the market, investors may be no more confident after
* Bayes Theorem states: One can use this inference to update a prior probability, given new informationones new probability estimate (a) is conditioned on the experience (B).
P(B | A)P(A) P(A | B) = . P(B)
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along four key parameters, including: financial performance, economic performance, environmental and social performance, and broader private sector development effects. Transparency & Branding transparency is critical to insulate the U.s. against political risks, as well as to communicate the impact of Pii investments and attract new and sustainable sources of commercial investment in Pakistan. Requirements that fund managers regularly disclose information on Pii investments and performance, and the development of systems to disseminate this information to external audiences and make it publicly accessible, are both key elements. Visibility should be a core component of the program, but the manner in which this is sought is important. more so than other initiatives, it is imperative that the branding and publicity associated with the Pii be subtle. heavy-handed branding or publicity that ties the Pii too closely to american foreign policy, rather than broader business and development relationships, could undermine the intended diplomatic objectives. the Pii will face systematic risk that cannot be controlled forit is important to recognize this underlying uncertainty and calibrate expectations around it. a well-functioning investment vehicle that institutionalizes adaptability, learning, and transparency, however, can help to mitigate financial and political risks and increase any investments prospects for success. high-quality fund management, effective oversight, information collection and evaluation, and transparency, in particular, are essential features for driving fund performance. Ultimately, unless a fund can exit its investments, it cannot earn a return. state can best improve the possibility of profitable exits and broader economic impact by allowing investments the time to see success and by drawing in new investorseither as equity partners, or merely as conscious observers of the Pakistani market, with an eye toward future investment.
soURces
1 Impact-Based Incentive Structures: Aligning Fund Manager compensation with social and environmental Performance, Global impact investing network (december 2011). 2 How Virtue Creates Value for Business and Society: Investigating the Value of esG activities, Boston college center for corporate citizenship and mcKinsey & company (2009). 3 CDC Toolkit on ESG for fund managers: Adding value through effective environmental, social and governance (esG) management, cdc Group (2010). 4 Fact Sheet: Economic Rates of Return on the Web, Millennium challenge corporation (april 2008). Fig. 34 Gfdatabase, Global financial data (march 2012). https:// www.globalfinancialdata.com Fig. 35 Ibid. see cdc evaluation methodology for a complete description of the framework and indicators.
49
recommendAtions
In order to best serve the financial needs of Pakistans private sector, as well as capitalize on opportunities for investment and improved American engagement, we provide a set of eight core recommendations to structure the PII. These recommendations take into account and accommodate the already proposed partnership with SEAF, as one component of the larger investment initiative.
Recommendation 4
Disaggregate the SME space and focus on small- and medium-sized firms, separately. Define these as firms in the $50k$1mm and $1mm$10mm revenue ranges, respectively. focus on smes with the strongest exit prospectstarget investments in companies led by promising entrepreneurs who have vision but lack the financial and institutional support to scale.
Recommendation 5
Recommendation 1
Establish a vehicle to address Pakistans immediate financing needs, but acknowledge its limitationsultimately, governance failures constrain private investment and entrepreneurship. design the Pii to invest in relatively unconstrained market areas and to act as a catalyst for reforms to improve the business environment.
structure the Pii to include venture capital and growth equity components. Plan for ticket sizes of $50k$400k and $2mm$7mm, respectively. employ the limited partnership structure common in private equity and adopted by the cdc and other major dfis, in line with international industry standards.
Recommendation 6
Recommendation 2
invest U.s. Government resources using the private equity fund model. Work with private sector partners. the private equity model is proven in emerging economies, and private sector partners bring critical experience to the partnershipboth are important for Pii success and attracting new investment.
Work through multiple implementing partners, as a means to create several smaller Pii funds with more targeted investment strategies. Select and invest with professional fund management firms with relevant experience, local knowledge, capacity to add commercial value to portfolio companies, and skin in the game. consider emerging or first-time fund managers that align with the broader PII mandate, in addition to experienced teams with a proven track record.
Recommendation 3
Recommendation 7
Remain sector-agnostic absent any more specific objectives, but seek diversification across sectors with high potential for growth and multiplicative impact in Pakistans economy. Prioritize further information collection, collation, and dissemination to address the deficit of good market data in Pakistan and attract new private investment.
structure Pii fund partnerships using one or more feasible implementing mechanisms that allow for maximum flexibility, commercial sustainability, and leverage of U.S. Government resourcesprioritize the GDA model but use more traditional contracts and grants as required. seek substantial Pakistani private sector involvement in sourcing and levering investments.
Recommendation 8
incorporate an explicit component to develop Pakistans entrepreneurial ecosystem. allocate between $10mm and $20mm for startup capital and other incubator initiatives. Work through local entrepreneurship networks and universities. implement from the level of the Pii as an overarching component or through a partner as a smaller sub-fund.
50
51
Key considerations
Performance incentives determine a feasible compensation model, management fee structure, and general partner commitment leveladopt the standard 2&20 carried interest model and require fund managers to make significant equity contributions to Pii funds to best align GP-LP interests. Policy for handling investment proceeds determine, for instance, whether financial returns will be reinvested in Pakistans economy or go back to the U.s. Government.
Create a framework for evaluating results incorporate rigorous performance monitoring and evaluation into the funds design. Define a set of core performance indicators to identify and measure the financial and development effects of the fund. consider using measures of economic rate of return, as used by the ifc, millennium challenge corporation, and acumen fund, to gain a broader perspective on the impact of investments.
Address the full stream structure the Pii to implement all three proposed componentsentrepreneurial ecosystem support, venture capital, and growth equitysimultaneously, as part of an overarching and flexible strategy to promote entrepreneurship and business growth. ensure the three elements are interlinked, rather than compartmentalized in vertical silos, to best address deficiencies in the Pakistani market and achieve optimal impact. develop a strategy to roll out and integrate the three components, including definition of the number of fund managers and appropriate implementing mechanisms. two possible Pii structuresof several optionsare shown, at right. consider leveraging the partnership with seaf for entrepreneurship support and startup investments, given the organizations track record investing in early-stage businesses and managing business accelerator programs through its center for entrepreneurship and executive development (ceed). Partner with two or more additional private investment firms to establish the growth equity and venture capital components.
Define and measure U.S. added value Leverage americas greatest resourcesits business and academic communitiesto multiply the Piis impact. in addition to serving as a source of capital, acting as a catalyst for third-party investment, and supporting fund performance through an advisory Board, state should use the Pii as a platform from which to engage a broader audience and assist more directly the development of a vibrant entrepreneurial culture. Define an explicit role for the PII in deploying American knowledge, networks, and market access connections in support of Pakistani entrepreneursfor example, by creating linkages between U.s. and Pakistani businesses, assisting local firms in registering and filing patents, establishing university-touniversity connections, and using programs such as fulbright to foster stronger connections with mentors and investors in the Pakistani diaspora. consider including metrics of direct value added by the United states in the Pii m&e framework to evaluate the amount of entrepreneurial activity, innovation, and new private investment triggered as a result of this assistance.
Define key PII features and terms Determine specific fund features and partnership terms, in accordance with private equity best practices and principles, at the start. establish a clear vision for Pii funds and build market-oriented principles into fund design to attract and retain top talent, and align interests and expectations among all Pii stakeholders. among the key issues that require definition: Criteria for success Define what constitutes a successe.g., breaking even or some combination of returns and development impact. additionally, decide on trigger points that warrant a suspension or termination of the U.s. resource commitment.
Structure an oversight mechanism develop an oversight mechanism to ensure fund managers operate in alignment with U.s. requirements and esG standards, as well as to collect information and provide guidance. Use partnership agreements to clearly define the U.S. roleincluding questions regarding the authorities of state to veto transactions, suspend funding, and change fund terms in the face of violations or poor results. otherwise, safeguard the discretion 53
52
Formulate transparency and branding guidelines ensure that information on Pii funds is as visible as possible, to demonstrate the broader value of private equity to Pakistans economy and attract new commercial investment. Require fund managers to disclose detailed informationfinancial, operational, portfolio, risk management, etc.regarding fund investments, while observing commercial confidentiality requirements. determine reporting requirements for fund managers and create mechanisms for collecting and disseminating information on Pii fund investmentsincluding a consolidated, state-of-the-art database that is publicly accessible. Prioritize transparency but avoid the temptation to oversell americas contribution and the value of the Pii prematurelythe initiative inherently entails a long-term investment horizon and recent experience highlights the dangers of raising false expectations among the Pakistani public. develop a subtle branding strategy and allow funds the time to work and demonstrate returns before publicizing.
Leverage the PII to support policy reform the Planning commissions Framework for Economic Growth is a forward-thinking documentbut it faces an uphill battle. Use the Pii as a platform to engage with public- and private-sector actors in the ongoing dialogue about how to improve Pakistans business environment and relax the underlying constraints on growth. incorporate in the Piis design a function to collect and disseminate information on Pakistans investment opportunities and problematic aspects of the business environment that stifle entrepreneurship or limit existing firms productivity. Leverage this information and the Piis network of partners to inform the Pakistani government about obstacles and propose policy solutions to incentivize new investment and business activity. 55
54
56
Pakistan
THE
57
ing current account indicate little pressure to mobilize foreign savings. Pakistans foreign debt is high compared to neighbors in south asia and has been climbing since 2006but the current debt is still a remarkable improvement from the 1990s and early 2000s.** While the current account deteriorated from 2003 to2008, the balance has been improving over the last two years and registered a deficit of only 0.85% in 2010. moreover, if Pakistans economy were constrained by low aggregate savings, then an increase in foreign savings would result in increased investment and growth. But in Pakistans case, rising foreign assistance and remittance rates have not translated into productive investments or sustained growth. increases in foreign aid and remittances in 2008 and 2009 corresponded with a decline in the investment rate. despite these recordhigh remittances and increasing total reserves, Pakistan is actually experiencing astonishing capital flight. Access to finance is consistently mentioned as a top concern for doing business in PakistanPakistan is one of the worlds least banked nations. as noted above, the financial sector has been prospering on a high spread between lending and deposit rates,*** indicating a profitable Pakistani banking industry. Commercial banks are highly liquid and capable of increasing financial intermediation. the problem is that banks have been reluctant to enter the sme, agricultural credit, and housing finance markets in the face of perceived high risks and opportunity costs. Government securities make up the dominant share of banks portfolios. the risk-averse banking system has no incentive to diversify its portfolios and innovate, while it continues to gain monopoly rents from high spreads elsewhere. So, while evidence supports the argument that financial intermediation is weak in Pakistan, there is no indication this is the binding constraint. Inefficiencies in the financial sector point to deeper governance-related problems that hamper competition and innovation. Low Social Returns vs. Low Appropriability Returns to physical and human capital are low in Pakistan, but these also do not seem to be constraining inExternal debt fell from 46% of GNI in 2002 to 31% in 2009 (WB/WDI). The current account deficit was 9.55% of GDP in 2008 (WB/WDI). Foreign inflows have produced sharp increases in growth at certain points, but because these were not put into productive capital formation, growth has never been sustained. Access to finance is ranked the sixth-most problematic factor for doing business in Pakistan (World economic forum, Global competitiveness index). Only 415% of Pakistans total population has access to basic financial services (auerswald et al.). *** the interest rate spread was 7.58% in march 2011 (ministry of finance, Pakistan economic survey). Corporate profitability is concentrated in a few large companies in the energy, telecom, and banking sectors, even though smes make up more than 99% of the market, by some definitions (MOF/PES).
**
Governance Indicators (WB/WGI) show Pakistan performing poorly across all six governance dimensions. In the WEF/GCI, Pakistan has one of the worst rankings worldwide for its macroeconomic environment (138/142). Uncertainty due to Pakistans macroeconomic risks has likely increased investor concerns about the possibility of policy shifts that could lead to unpredictable movements in private returns. Pakistans poor country credit rating may also have weakened investment as a result of expected losses associated with a debt crisis. similarly, the governments negative budget balance can increase fears of future inflation and taxation to service the debt, further discouraging investment. Pakistan, however, has enjoyed sustained real exchange rate stability since 2008.5 moreover, past improvements in the macroeconomic environment have not resulted subsequently in increased investment. the fiscal deficit has been improving since 2008, but the investment rate has been declining. While the deficit and inflation are undoubtedly serious problems, there is no evidence to suggest that concerns over macroeconomic stability represent the main constraint on investment and growth. A number of sector- and firm-specific risks resulting from a weak institutional environment also weaken the appropriability of returns, howeverand the governments role in the economy poses a number of microeconomic risks that particularly discourage investment.
These are: 1) voice & accountability, 2) political stability & lack of violence/terrorism, 3) government effectiveness, 4) regulatory quality, 5) rule of law, and 6) control of corruption. Pakistan has a credit rating of 26.4 out of 100, and a ranking of 123/142 (WEF/GCI).
58
59
Karachi, Pakistan
www.akdsecurities.net
Karachi, Pakistan
www.arifhabib.com.pk
Karachi, Pakistan
www.bmacapital.com
Cyan Limited
Karachi, Pakistan
www.cyanlimited.com
Mauritius
www.indusbasin.com
JS Private Equity
Karachi, Pakistan
www.js.com/investmentopportunity.asp
Karachi, Pakistan
www.pkic.com www.tmtventures.net
Commercial Bank
soURces
TMT Ventures Limited is a venture capital rm specializing in startup investments. The rm prefers to invest in telecom, media, and technology sectors. It typically invests in companies Karachi, Pakistan based in Pakistan. TMT Ventures Limited is based in Karachi, Pakistan. United Bank Limited is one of the oldest and largest commercial banks in Pakistan. UBL has assets of over Rs. 747 billion and a solid track record of over fty years - in addition, the bank operates 1200 branches all over Pakistan including 7 Islamic banking branches, and 1 branch in Karachi export processing zone and 17 branches outside Pakistan. UBL is the only commercial bank in Pakistan actively providing private equity nancing to start-up companies. In a short period of 2 years, UBL has completed seven private equity/start-up transactions. Current portfolio comprises companies in the information technology, alternate energy and entertainment sector. Karachi, Pakistan As part of private equity, we focus on start-up companies which are in the development stage or in the earliest stage of commercialization with an investment horizon of 5 to 7 years. Financing for second stage expansion of recently established rms is also included. Such companies may have set up operations but need large infusions of capital to accelerate their growth or secure a stable market share. Private companies with turnaround potential may also be included in UBL's private equity portfolio
FOREIGN FIRMS
www.ubl.com.pk
Company Name
Investment Type
Abraaj Capital
60
Business Description Abraaj Capital is a private equity and venture capital rm specializing in early venture, seed, growth capital, industry consolidation, mezzanine/subdebt, PIPES, buyouts, and buy and build in mature companies. It seeks to invest in small and medium sized enterprises in emerging markets. The rm typically invests in oil, gas and consumable fuels, metals and mining, agricultural machinery and equipment, agricultural services, auto parts and equipment, leisure facilities, pharmaceuticals, services outsourcing, water utilities, real estate, health care, manufacturing, food products, telecommunications, education, information technologies, Private Investment logistics, agribusiness, energy, and food industries. It invests in companies based in the Middle Firm East, North Africa, and South Asia with a focus on Egypt, Lebanon, Jordan, Algeria, Pakistan, Turkey, the Palestinian territories and the six Gulf Arab nations that make up the Gulf Cooperation Council. The rm prefers to invest between $100 million and $300 million in its portfolio companies. It acquires controlling or signicant interest and seeks board representation in its portfolio companies. The rm typically exits its investments within a period of three years to ve years through structured exits to strategic and trade buyers or onto public markets in the region. It seeks minority position in public enterprises. Abraaj Capital was founded in 2002 and is headquartered in Dubai, United Arab Emirates with eight additional ofces across Asia. Financial Service Abu Dhabi Commercial Bank, Investment Arm is an investment arm of Abu Dhabi Commercial Investment Arm Bank. Abu Dhabi Group, Venture Capital Arm is a venture capital arm of Abu Dhabi Group specializing Corporate Investment in investments in Pakistan, Bangladesh, Iran, Uganda, Republic of Congo, and the Middle East. Arm The rm is based in Abu Dhabi, United Arab Emirates. Abu Dhabi Investment Company, Investment Arm is the private equity and venture capital rm specializing in direct and fund of fund investments in specializes in buyouts, growth capital, mid to late stage, and expansion capital. The rm seeks to invest in acquisitions. It also invests proprietary and client capital in private equity funds. It does not invest in real estate. The rm typically invests in healthcare; education; media; technology; telecom; consumer goods; infrastructure projects like greeneld assets, transport networks, power, water, and health and Financial Service education facilities; logistics; and distribution sectors. It seeks to invest in the MENA region Investment Arm Egypt, Saudi Arabia, Pakistan, North Africa, the United Arab Emirates, and Turkey. The rm to make equity investments between $25 million and $200 million in companies with enterprise values between $50 million and $500 million. The rm prefers to acquire majority control or signicant minority control in its portfolio companies along with board representation. Abu Dhabi Investment Company, Investment Arm was founded in 1994 and is based at Abu Dhabi, United Arab Emirates. Actis Capital, LLP is a private equity and venture capital rm specializing in expansion capital, PIPEs, replacement capital, acquisitions, industry consolidation, management buyouts, going private transactions, property development nance, and mezzanine nance investments in emerging and growing companies. The rm primarily seeks to invest in business services, consumer services, healthcare, nancial services, industrials, infrastructure, logistics, and real estate. The rm typically invests in Emerging Markets including Africa, Egypt, China, Latin America, Asia, South Asia, and South East Asia. In infrastructure sector, it invests in all stages, Private Investment from development or expansion capital to acquiring mature operational assets and focuses Firm investment on power, roads, ports, and airports in Africa, Latin America, South Asia, and South East Asia. In South Asia, Actis specializes in expansion capital, management buyouts, privatizations, and PIPEs. It focuses on pharmaceuticals and biotech, consumer products, outsourcing (tech based), nancial institutions, knowledge-based services, manufacturing, and oil and gas. The rm typically invests in the range of $8 million and $35 million in this region. The rm seeks controlling or minority stake in the portfolio companies. It seeks to invest for a period of three to six years. Actis Capital, LLP was founded in July 2004 and is headquartered in London, with additional ofces in Africa, Latin America, South Asia, and South East Asia.
Company Type
Main Ofce
Contact
Dubai, UAE
www.abraaj.com
www.adcb.com www.adcb.com
www.investad.ae/en/OurBusiness es/PrivateEquity.aspx
London, UK
www.act.is
61
Investment Arm
Acumen Fund
Venture Capital Asian Infrastructure Fund Investing; Private Advisers Ltd. Equity Investing Venture Capital Investing; Private Equity Investing
Augustus Ltd.
EMP Global
ePlanet Capital
Venture Capital Investing; Private Equity Investing Venture Capital Investing; Private Equity Investing
62
education facilities; logistics; and distribution sectors. It seeks to invest in the MENA region Egypt, Saudi Arabia, Pakistan, North Africa, the United Arab Emirates, and Turkey. The rm to make equity investments between $25 million and $200 million in companies with enterprise values between $50 million and $500 million. The rm prefers to acquire majority control or signicant minority control in its portfolio companies along with board representation. Abu Dhabi Investment Company, Investment Arm was founded in 1994 and is based at Abu Dhabi, United Arab Emirates. Actis Capital, LLP is a private equity and venture capital rm specializing in expansion capital, PIPEs, replacement capital, acquisitions, industry consolidation, management buyouts, going private transactions, property development nance, and mezzanine nance investments in emerging and growing companies. The rm primarily seeks to invest in business services, consumer services, healthcare, nancial services, industrials, infrastructure, logistics, and real estate. The rm typically invests in Emerging Markets including Africa, Egypt, China, Latin America, Asia, South Asia, and South East Asia. In infrastructure sector, it invests in all stages, Private Investment from development or expansion capital to acquiring mature operational assets and focuses Firm investment on power, roads, ports, and airports in Africa, Latin America, South Asia, and South East Asia. In South Asia, Actis specializes in expansion capital, management buyouts, privatizations, and PIPEs. It focuses on pharmaceuticals and biotech, consumer products, outsourcing (tech based), nancial institutions, knowledge-based services, manufacturing, and oil and gas. The rm typically invests in the range of $8 million and $35 million in this region. The rm seeks controlling or minority stake in the portfolio companies. It seeks to invest for a period of three to six years. Actis Capital, LLP was founded in July 2004 and is headquartered in London, with additional ofces in Africa, Latin America, South Asia, and South East Asia. Acumen Fund is a venture capital rm specializing in growth, direct equity investments, debt, guarantees, quasi-equity, and lab investments. The rm seeks to invest in critical and affordable goods and services. It primarily invests in water, healthcare, energy, agro, cleantech, and housing. It prefers to invest in India; East Africa with a focus on Kenya, South Africa, and West Africa with a focus on Ghana and Nigeria; and Pakistan. The rm typically invests between $0.3 million and $2 million in equity or debt with exit period ranging from ve to seven years. The rm seeks to invest between $2 million and $4 million in Kenyan healthcare businesses and Private Investment manufacturers of health consumables in 2011. It seeks to invest in business models that can be Firm effective in reaching the billions of poor without access to clean water, reliable health services, or formal housing options. The rm primarily invests in non-prot organizations, small and medium for-prot companies in need of capital, and larger companies that are starting specic business units to serve the poor. The rm typically holds minority stakes in equity investments and prefers a board seat in its portfolio companies. Acumen Fund was founded on April 1, 2001 and is based in New York, New York with additional ofces in Maharashtra, India; Nairobi, Kenya; and Karachi, Pakistan. Aga Khan Fund for Economic Development is a venture capital arm of The Aga Khan Development Network specializing in equity investments in seed capital to launch projects. It Corporate Investment seeks to invest in tourism, aviation services, and nancial services sectors. The rm primarily Arm invests in South and Central Asia and sub-Saharan Africa and in Africa for investments in aviation services. Aga Khan Fund for Economic Development is based in Geneva, Switzerland. AIDEC Management Co. Ltd. is a venture capital rm, which provides start-up/early stage nancing and growth capital to small and medium sized companies operating in the consumer related, computer related, electronic related, communication, energy, transportation and Private Investment construction industries. The rm's investments are focused in the South East Asia, Indian SubFirm Continent, and Far East Asia. The rm's minimum investment is 20% of capital (negotiable). AIDEC also provides nancing for private sector infrastructure projects (i.e., electricity, gas, airports, ports, roads, water and sewage) through debt nancing, loans and equity-linked investments. Asian Finance and Investment Corporation Ltd. (AFIC) was formed in August 1989 in Singapore as a merchant bank. The company offers direct loans and equity participation, underwriting, syndication and guaranteeing corporate obligation to the private sector enterprise in the Asia Private Investment Pacic region. the company provides from $1 to $10 million equity or equity and loans, in Firm exchange for a minor stake in the portfolio company and a seat on the Board of Directors. AFIC specializes in mezzanine or bridge nancing, turnaround and restructuring and later stage transactions. It operates in the Asia Pacic region and in a wide spectrum of industries. Asian Finance and Investment Corporation has ofces in Manila, Philippines. Asian Infrastructure Fund Advisers Ltd. is a principal investment rm specializing in start up, development, and turnaround / restructuring stage businesses. It seeks to invest in Asia. It Private Investment targets investing between $10 and $75 million. It seeks board representation in its investee Firm company. The rm seeks to acquire minority stakes in its portfolio companies. Asian Infrastructure Fund Advisers Ltd. Was founded in 1994 and is based in Central, Hong Kong. Augustus is the private investment and holding company of Baron Lorne Thyssen-Bornemisza. Based in Monaco, Augustus has a global investment portfolio, which includes public and private Private Investment equities, commercial real estate and art. He is also a substantial shareholder of the NYSE-listed Firm IHS Inc, an information services company with a market cap in excess of $5billion . The ThyssenBornemisza family is one of Europes oldest and most distinguished industrial families. Capital Advisors Partners Asia Pte Ltd. is the private equity arm of CIMB Group Sdn Bhd. The Financial Service rm seeks to invest in infrastructure sector. It typically invests in in South-East Asia and Central Investment Arm Asia. Capital Advisors Partners Asia Pte Ltd was founded in 2006 and is based in Singapore with additional ofces in Kuala Lumpur, Malaysia; Jakarta, Indonesia; and Bangkok, Thailand. Catalyst Micronance Investment Company is a venture capital rm specializing in start-up and growth capital investments. The rm seeks to invest through its fund. It primarily seeks to invest in emerging micro nance institutions with a focus on banks, non-bank nancial institutions, cooperatives, and NGOs which are willing and able to transform into a commercial for-prot Private Investment institution. The rm invests in companies based in Asia and Africa. It also considers investments Firm through equity, equity-linked securities, debt, and convertible debt instruments. The rm prefers to invest in newly issued equity of greeneld institutions, recently established institutions and/or in existing institutions. It typically holds its investments for a period of ve to seven years. Catalyst Micronance Investment Company was founded in 2005 and is based in Utrecht, Netherlands with an additional ofce in Dhaka, Bangledesh and Andhra Pradesh, India. Catalyst Private Equity is a private equity rm specializing in investments in small and mediumsized enterprises. The rm seeks to invest in water and energy sectors, and in industrial product and technology companies and environmentally-friendly technologies including water treatment Private Investment and alternative energy technologies. It prefers to invest in Jordan, Lebanon, Egypt, West Bank, Firm and certain OPIC-eligible countries in the MENA region. The rm also invests in Pakistan and Afghanistan. Catalyst Private Equity was founded in 2005 and is based in Amman, Jordan. DIB Capital, Investment Arm specializes in expansion capital, turnarounds, early and late stage seed nancing, management buy-outs and buy-ins, family-owned enterprises, privatizations, and greeneld. It invests in Shariah-compliant transactions. The rm prefers to invest in the nancial Financial Service services, energy, telecom, transportation & logistics, healthcare, retail, hospitality, and real estate Investment Arm sectors. It prefers to invest in companies based in Middle East and North Africa region, Turkey, and South Asia including GCC, Egypt, Jordan, Lebanon, Tunisia, and Morocco. The rm may also invest in companies located in China, India, and Pakistan. DIB Capital, Investment Arm is based in Dubai, United Arab Emirates. DFJ backs extraordinary entrepreneurs everywhere who set out to change the world. DFJ achieves its mission through its DFJ Global Network of Partner Funds with operations in the US, China, India, Korea, Vietnam, Russia, Europe, Israel, Brazil, and Japan. Over the past 25 years, DFJ and its partners have backed over 600 companies, and have pioneered the way in emerging technology markets including the Internet, mobile communications, clean energy and health care. DFJ has been proud to back industry changing successes including Baidu, Skype, Overture, Hotmail, Parametric Technologies, Focus Media, AdMob, Mobile365, EnerNOC, Tesla, SolarCity, Brightsource Energy, Athenahealth, Epocrates, SpaceX and Synthetic Genomics. EMP Daiwa Capital Asia Limited is a private equity rm and venture capital rm specializing in middle market, growth capital, and buyouts. It prefers to invest in telecoms, transportation, power, and natural resources. The rm primarily invests in companies based in Greater China, Private Investment India, South Korea, Southeast Asia, and Japan. For Japan, it also acquires and provides growth Firm capital to Asian subsidiaries of Japanese companies and partners with Japanese companies in their regional expansion in Asia. The rm was founded in 2007 and is based in Central, Hong Kong. EMP Daiwa Capital Asia Limited operates as a joint venture of EMP Global and Daiwa Securities Group Inc. EMP Global is a private equity rm specializing in investments in later stage, expansion stage, mature companies with restructuring opportunities, and leveraged buyouts. It does not make investments in start-ups. The rm seek to make equity and quasi-equity investments in infrastructure; xed and wireless telecommunications; cable television; power generation and transmission; transportation; oil and gas; other industrial sectors like petrochemicals, cement, and glass; agribusiness sectors; and restaurant sector. It primarily invests in emerging market economies and some developed markets, which include Japan and Hong Kong and the new member countries of the European Union. The rm seeks to invest from $10 million to $100 Private Investment million. The rm prefers to invest in control position as a sole investor or in partnership with other Firm nancial investors and can consider minority positions in companies controlled by either a reputable local sponsor or an international strategic investor. The rm seeks to structure its investments as hybrid debt and equity securities. It considers investing in "greeneld" projects either in association with a strategic corporate partner experienced in developing and operating projects or in certain regulated industries in which development risk is reduced through licenses, offtake agreements, etc. EMP Global was founded in 1992 and is based in Washington, D.C. with additional ofces in Africa, Brunei, Bahrain, Tunisia, and Hong Kong. It operates as a subsidiary of BMB Group. Established in 1999, ePlanet Capital (then known as ePlanet Ventures) pioneered the development of a truly global venture and growth capital business model. It was the rst venture Private Investment capital rm to utilize a global model with ofces in Asia, Europe and the United States. ePlanet Firm consists of a team of more than 30 professionals across the globe in our ofces located in Beijing, Bangalore, Seoul, London and Silicon Valley. It is also represented in Hong Kong and Euro Asia Capital & Equity Pte Ltd. is an independent venture capital rm that focuses on technology, internet, telecommunications, manufacturing, utilities and environmental products in Private Investment Asia Pacic. The company invests in start-ups, early stages, later stages, turnaround, Firm restructuring, privatization, bridge loan, and public market purchase. It will provide only equity or equity and loans, from $250,000 to $20 million, and active management and nancial advice in
es/PrivateEquity.aspx
ePlanet Capital
Venture Capital Investing; Private Equity Investing Venture Capital Investing; Private Equity Investing
London, UK
www.act.is
Geneva, Switzerland
Venture Capital Global Environment Fund Investing; Private Equity Investing www.akdn.org/agency/akfed.html
Singapore, Singapore NA
Hong Kong
NA
Monaco
NA JAFCO Investment (Asia Pacic) Ltd. Venture Capital Investing; Private Equity Investing
Mauritius
www.catalyst-micronance.com
Amman, Jordan
www.catalystpe.com
Dubai, UAE
www.dibcapital.com/PrivateEquity .aspx
Leopard Capital LP
www.dfj.com
Venture Capital Investing; Mezzanine Investing Venture Capital Middle East & Asia Capital Investing; Private Partners Pte., Ltd Equity Investing; Mezzanine Investing
reputable local sponsor or an international strategic investor. The rm seeks to structure its investments as hybrid debt and equity securities. It considers investing in "greeneld" projects either in association with a strategic corporate partner experienced in developing and operating projects or in certain regulated industries in which development risk is reduced through licenses, offtake agreements, etc. EMP Global was founded in 1992 and is based in Washington, D.C. with additional ofces in Africa, Brunei, Bahrain, Tunisia, and Hong Kong. It operates as a subsidiary of BMB Group. Established in 1999, ePlanet Capital (then known as ePlanet Ventures) pioneered the development of a truly global venture and growth capital business model. It was the rst venture Private Investment capital rm to utilize a global model with ofces in Asia, Europe and the United States. ePlanet Firm consists of a team of more than 30 professionals across the globe in our ofces located in Beijing, Bangalore, Seoul, London and Silicon Valley. It is also represented in Hong Kong and Euro Asia Capital & Equity Pte Ltd. is an independent venture capital rm that focuses on technology, internet, telecommunications, manufacturing, utilities and environmental products in Asia Pacic. The company invests in start-ups, early stages, later stages, turnaround, Private Investment restructuring, privatization, bridge loan, and public market purchase. It will provide only equity or Firm equity and loans, from $250,000 to $20 million, and active management and nancial advice in exchange for a major stake in the company and a seat on the Board of Directors. Global Capital Management Ltd. is a private equity and venture capital arm of Global Investment House K.S.C.C., specializing in investments in mid venture, late venture, growth capital, middle market, mature, PIPEs, and buyouts. It offers both conventional and Shariah-compliant products. The rm prefers to invest in oil and gas, consumer durables and apparel, education services, hotels, restaurants and leisure, energy, manufacturing, real estate, healthcare and healthcare Financial Service equipment, pharmaceuticals, laboratories, hospital construction services, transportation and Investment Arm logistics, retail, infrastructure, telecommunications, utilities, education, and nancial services sectors. It seeks investments in the MENA region with focus on Bahrain; Egypt; Jordan; Kuwait; Morocco; Lebanon; Oman; Qatar; Saudi Arabia; Turkey; and United Arab Emirates and in Asia Pacic region with a focus on Hongkong, India, Pakistan, and China. Global Capital Management Ltd. was established in 1998 and is based in Safat, Kuwait with additional ofces in Cairo, Egypt; Dubai, UAE; Istanbul, Turkey; Saudi Arabia; and Safat, Kuwait. Global Environment Fund is a private equity and venture capital rm specializing in investments in growth equity. It seeks to invest in independent power, gas distribution, consumer products, clean technology and energy, sustainable forestry, timberland, and emerging markets in businesses that provide cost-effective solutions to environmental and energy challenges. Within growth equity it seeks to invest in products or services in the renewable energy, energy efciency and environmental infrastructure industries that are helping to meet growing commercial demand in key sectors of the core economy such as energy generation, transportation and manufacturing to be more clean and efcient. In emerging markets it seeks to invest in clean energy, integrated Private Investment waste management, water and wastewater treatment, clean industrial technology, and healthcare Firm services. The rm primarily focuses on China, India, Brazil, Turkey, Mexico, South Africa, Southeast Asia, and Eastern Europe for emerging markets. The rm seeks to invest between $15 million and $30 million in companies with sales value between $10 million and $30 million. It seeks a board seat on its portfolio companies. The rm typically holds its investment for ve years or more and seeks to exit its investments through listing on a major stock exchange or sale to a strategic buyer. Global Environment Fund was founded in 1990 and is based in Chevy Chase, Maryland with additional ofces in Johannesburg, South Africa; Sao Paulo, Brazil; and Mumbai, India. Global MENA Financial Assets Limited specializes in middle market investments in turnaround and PIPE transactions. It seeks to invest in the nancial services sector. The fund prefers to Public Fund invest in Middle East, North Africa, India, China, Pakistan, and Hong Kong. IFU is a venture capital rm specializing in nancing private-sector projects in the developing countries. The rm can only invest in countries whose 2008 GNI capita income is below $3,084, with an exemption granted to South Africa, Botswana, and Namibia. Also the host countries of investments must be on the OECDs DAC list of development aid recipients. It nances both small and large projects, including pilot projects, green-eld projects, expansion of existing projects, and privatization of state-owned enterprises. The rm seeks to nance projects in collaboration with the Danish trade and industry. It seeks to participate as a partner in the joint Private Investment ventures through committing equity capital and granting loans. The rm seeks to co-invest with Firm Danish businesses in projects based in developing countries, but only if such projects have a lasting positive effect on development. It prefers to take a board membership. The rm also offers special assistance to Small and Medium-sized Enterprises which employs less than 300 employees, with an annual revenue of up to DKK 300 million ($53.16 million), and has a positive result in two out of three latest nancial years. It also provides advisory services to business investments in developing countries. The rm prefers to exit its investments within ve to seven years. IFU was founded in 1967 and is based in Copenhagen, Denmark with additional ofces in Beijing, China; New Delhi, India; Nairobi, Kenya; Accra, Ghana; and Johannesburg, South Africa. JAFCO Investment (Asia Pacic) Ltd is a venture capital rm specializing in investments in technology and technology related companies. The rm typically invests in companies based in Asia Pacic region with a focus on Northern China, Southern and Eastern China including Yangtze and Pearl River Delta regions, Taiwan, Korea, South Asia and Australia, India, and Hong Private Investment Kong. It prefers to have board representation in its portfolio companies. The rm seeks to exit its Firm investments through an IPO or a trade sale. JAFCO Investment (Asia Pacic) Ltd was founded in 1990 and is based in Singapore with additional ofces in Taipei, Taiwan; Seoul, South Korea; Shanghai, China; London, United Kingdom; Central, Hong Kong; and Beijing, China. JAFCO Investment (Asia Pacic) Ltd. operates as a subsidiary of JAFCO Co., Ltd. Kellett & Singleton Investments Ltd. is a principal investment rm specializing in investments in seed stage and early stage companies. The rm generally provides expansion capital and growth capital to the portfolio companies. It seeks to invest in shipping services including ship operations Private Investment and chartering, aviation, logistics, advertising and marketing, oriculture, tea, information Firm technology, consulting, asset management, commodities, hospitality FF&E, and marine sectors. The rm prefers to invest in companies based in the Middle East and South Asia. It also forms strategic partnerships and joint ventures in the Middle East markets. Kellett & Singleton Investments Ltd. was founded in January 2000 and is based in Dubai, UAE. Kuwait Finance & Investment Company, Investment Arm is the private equity arm of Kuwait Finance & Investment Company. The rm invests through its fund KFIC Private Equity Fund. It Financial Service seeks to make investments in telecommunications, banks, investments, insurance, real estate, Investment Arm and media sectors. It also invests in GCC countries including; Lebanon, Pakistan, Yemen, and Jordan. Kuwait Finance & Investment Company, Investment Arm was established in 2000 and is based in Safat, Kuwait. Leopard Capital LP is a private equity and a venture capital rm specializing in investments in early stage venture, emerging growth, growth capital, buy-out, and mid-market companies. The rm invests in nancial services, retailing, infrastructure, construction materials, agribusiness, tourism, health care, natural resources, and property development sectors. It seeks to make investments in South East Asia with a focus on Cambodia, Laos, Vietnam, Philippines, Burma, Private Investment India, Bangladesh, Sri Lanka, Maldives, Nepal, Bhutan, Pakistan, Kazakhstan, Kyrgyzstan, Firm Uzbekistan, Azerbaijan, Tajikistan, Mongolia, and North Korea. It prefers to invest in an average of $3 million per transaction. The rm may make a controlling or minority investments. The rm prefers to exit through listing on Cambodia's upcoming stock exchange or on other Asian exchanges, and/or private sales to strategic investors, co-investors, and other funds. Leopard Capital LP was founded in 2007 and is based in Phnom Penh, Cambodia with additional ofces in Central, Hong Kong; Grand Cayman, Cayman Islands; and Colombo, Sri Lanka. A 50/50 joint venture between Mayban Ventures Sdn Berhad ("Mayban Ventures"), a subsidiary Corporate Investment of Malayan Banking Berhad ("Maybank") and Mumtaz Khan, founder of Middle East & Asia Arm Capital Partners Pte. Ltd. ("MEACP").
Singapore, Singapore NA
Safat, Kuwait
www.globalinv.net/contentdisp.as p?pageid=553
www.globalenvironmentfund.com
www.gmfa.com
Copenhagen, Denmark
www.ifu.dk
Dubai, UAE
www.kellettsingleton.com
Safat, Kuwait
www.kc-kw.com/sub.php
www.leopardasia.com
Middle East & Asia Capital Partners Pte., Ltd is a private equity rm. Founded by Mumtaz Khan, a leading private equity infrastructure professional in the Middle East and Asia, is focused on infrastructure investment opportunities in emerging markets. It is based in Singapore.
Hong Kong
www.asia.empglobal.com
www.empglobal.com
Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV, Investment Arm specializes in direct and fund of fund investments. The rm invests in seed capital, mezzanine nancing, small, mid sized enterprises, and regional private equity funds. The rm seeks to invest in agriculture and sheries, mining, agribusiness, manufacturing industry, service sector, and banking and insurance industry. It primarily invests in the in the housing, nance, energy, Netherlands trade industry, and infrastructure sectors. It seeks to invest in developing companies and emerging markets with a focus on South Africa, India, China, Poland, Russia, Turkey, Mexico and Brazil. The rm takes minority equity stakes between 10% and 35% in private companies and invests between 3 million ($4.28 million) and 5 million ($7.14 million) per company. The rm makes seed capital investments of minimum 1 million ($1.43 million) per company or fund. New Silk Route is a private equity and venture capital rm specializing in growth capital and buyout investments. It prefers to invest in the consumer services, education, infrastructure, New York, United telecoms, manufacturing, IT, engineering, medical devices, restaurant chains, and nancial services sector. The rm prefers to invest in India, South Asia, Middle East, and other emerging States Asian economies. New Silk Route was founded in 2006 and is based in New York, New York with additional ofces in Bengaluru, India; Dubai, United Arab Emirates; and Mumbai, India.
www.fmo.nl
www.nsrpartners.com
Singapore, Singapore NA
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Appendix c: interviews
Paris, France www.proparco.fr
PAKISTAN Feb. 1826, 2012 Karachi Adnan Afridi, advisor to shaukat tarin, silkbank Ltd. Fawad Anwar, owner, al-Karam textile mills Jehan Ara, President, P@sha Humayun Bashir, country General manager, iBm
Aun Rahman, Pakistan country director, acumen fund Mir Ibrahim Rahman, ceo, Geo tV network Kalim ur Rahman, President and ceo, Js Bank Ltd. Muslim Raza, Provincial chief, smeda Rebecca Ann Seweryn, consulate, Karachi Economic Officer, U.S.
Dubai, UAE
www.rhtpartners.com
Dubai, UAE
sedco.com/businessgroups/subsidiaries/sedco-dubai/
Nasim Beg, ceo, arif habib investments Ltd. Abid Butt, ceo, e2e supply chain management (Pvt) Ltd.
Isfandiyar Shaheen, head of Growth equity investments, cyan Ltd. Imran Shaikh, Vice Presidenthead of marketing, Js Bank Ltd. Rehan Shaikh, coo, hBL asset management Limited Aasim Siddiqui, director, container terminal Ltd. Pakistan international
www.seaf.com
Shahjahan Chaudhary, ceo, team ants Samad Dawood, ceo, cyan Limited and dawood corporation Nadeem Elahai, managing director and country head, the Resource Group
Dubai, UAE
www.swicorp.com/?section=pe
Sohail Wajahat Siddiqui, chairman, Pakistan state oil Shaukat Tarin, chairman, silk Bank Ltd. Lahore Pir Saad Ahsanuddin, entrepreneur and investor Zehra Ali, Lahore University of management sciences Asim Fayaz, curator, tedxLahore Jamil Goheer, co-founder and ceo, Kualitatem (Pvt) Ltd. Saba Gul, co-founder and executive director, BLiss Monis Rahman, chairman and ceo, naseeb networks, inc. Jazib Zahir, adjunct Professor, Lahore University of management sciences islamabad Vinay Chawla, deputy coordinator for economic & development assistance, U.s. embassy, islamabad Robert Ewing, economic counselor, U.s. embassy, islamabad Bilal Gilani, executive director, Gallup Pakistan Ahmad Jalal, Riyada enterprise development, abraaj capital Ayla Majid, islamabad stock exchange Nadia Naviwala, country Representative, U.s. institute of Peace Jonathan Peccia, deputy economic counselor, U.s. embassy, islamabad
Shahid Ghaffar, ceo, hBL asset management Ltd. Fahd Haroon, cnBc Pakistan Zaid Haroon, assistant Vice President, marketing and corporate communications, Js Bank Ltd.
www.carlyle.com
Syed Samar Hasnai, director, sme finance, state Bank of Pakistan/SMEs Dr. Ishrat Husain, dean and director, institute of Business administration
Dubai, UAE
www.tni.ae/private_equity.php
Shakir Husain, ceo, creative chaos Nadeem Hussain, Microfinance Bank President and ceo, tameer
London, UK
www.tlgcapital.com
Ali Jameel, ceo, tPL holdings Irtiza Kazmi, sVP and corporate head south, national Bank of Pakistan Dr. M. Mehdi Kazmi, ceo, asia care health & Life insurance Ghias Khan, ceo, inbox Business technologies (Pvt) Ltd. Saad Amanullah Khan, President, american Business council of Pakistan Sabeen Mahmud, director, Peaceniche William Martin, U.s. consul General, Karachi Asif Misbah, managing director, macter international (Pvt) Ltd. Jay Munir, Political and economic chief, U.s. consulate, Karachi Mohsin Nathani, ceo, standard chartered Bank (Pakistan) Ltd.
Mumbai, India
www.yesbank.in
Global
Lahore University of Management Sciences (LUMS) National University of Sciences and Technology (NUST) Institute of Business Administration (IBA) National University of Computer and Emerging Sciences (FAST) The Indus Entrepreneurs (TiE) Pakistan Software Houses Association for IT and ITES (P@SHA) Associations & Networks The Organization of Pakistani Entrepreneurs (OPEN) PeaceNiche Social, Entrepreneurship, and Equity Development (SEED) Ventures Business Support Organizations Small and Medium-Size Enterprise Development Authority (SMEDA) SME Business Support Fund (BSF) Universities with Presence or Massachusetts Institute of Technology (MIT) University of Pennsylvania Wharton Business School Experience in Pakistan Babson College Harvard University Organizations with Presence or Kauffman Foundation Invest2Innovate Experience in Pakistan American Pakistan Foundation Center for International Private Enterprise (CIPE) Organizations without Presence The Unreasonable Institute TechnoServe or Experience in Pakistan Small Enterprise Assistance Funds (SEAF) Center for Entrepreneurial and Executive Development
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Appendix d: Acronyms
WASHINGTON, D.C. Dec. 710, 2011; Jan. 1820, 2012; Mar. 22, 2012 Philip Auerswald, associate Professor at the George mason University school of Public Policy, senior fellow at the Kauffman foundation Jeffrey Bakken, Director, Office of Pakistan Affairs, U.S. agency for international development Shamila Chaudhary, analyst, eurasia Group; senior fellow, new america foundation; Jeremy Chen, Pakistan Desk Officer, U.S. Department of state Daniel Cutherell, Policy analyst, center for Global development Robert Deutsch, senior advisor for Pakistan to the special Representative for afghanistan and Pakistan, U.s. department of state Robert Drumheller, Vice President of structured finance, overseas Private investment corporation Ziad Haider, White house fellow Mark Karns, Multi-Sector Advisor, Office of Afghanistan and Pakistan affairs, U.s. agency for international development David Kassebaum, sr. international attorney, millennium challenge corporation Rebecca Lawlor, economic advisor, U.s. department of treasury Senator Richard G. Lugar, U.s. senate Damian Murphy, senior Policy advisor for foreign Policy, national security and homeland security, senator Bob casey David Nobles, Pakistan Desk Officer, U.S. Department of state Michael Phelan, senior Professional staff member, U.s. senate committee on foreign Relations Ambassador Robin Raphel, senior advisor for Pakistan to the special Representative for afghanistan and Pakistan, U.s. department of state Sara Shroff, director, Buxton initiative Milan Vaishnav, Visiting fellow, center for Global development CAMBRIDGE, MASS. Nov., 2011Mar., 2012 Juan Pablo Chauvin, doctoral fellow, Growth Lab, center for international development, harvard Kennedy school of Government Ricardo Hausmann, Professor of the Practice of economic development, harvard Kennedy school of Government Vally Khamisani, mid-career master in Public administration, harvard Kennedy school of Government Asim Khwaja, Professor of international finance and development, harvard Kennedy school of Government Jake Liebschutz, master in Public Policy, harvard Kennedy school of Government Ambassador Cameron Munter, U.s. ambassador to Pakistan PHONE INTERVIEWS Nov., 2011Mar., 2012 Garrett Johnson, co-founder, sendhub; former Professional staff, U.s. senate committee on foreign Relations Richard Johnson, U.s. development (Retired) agency for international This appendix includes a list of acronyms, with their definitions, used throughout this study, in alphabetical order. 2&20 two-and-twenty incentive structure caGR compound annual growth rate cdc formerly commonwealth development corporation, now simply cdc Group (United Kingdom) ceed center for entrepreneurship & executive development cGs credit guarantee scheme cnG compressed natural gas dB doing Business report (World Bank) dca development credit authority (United states agency for international development) DFI Development finance institution dfid department for international development (United Kingdom) disco Power distribution company dod department of defense (United states) dos department of state (United states) eBitda earnings before interest, tax, depreciation, & amortization emPea emerging markets Private equity association eRR economic rate of return esG environmental, social, & corporate governance standards eV enterprise value fdi foreign direct investment fit feed-in tariff fof fund of funds FY Fiscal year Gci Global competitiveness index (World economic forum) Gda Global development alliance (United states agency for international development) GdP Gross domestic product Ge General electric Genco Power generation company Gni Gross national income GoP Government of Pakistan GP General partner iBa institute of Business administration (Karachi) iBh indus Basin holdings ict information & communications technology ifc international finance corporation (World Bank) imf international monetary fund iPo initial public offering iPP independent power producer iRR internal rate of return it information technology KLB Kerry-Lugar-Berman Bill (aka enhanced Partnership for Pakistan act) Kse Karachi stock exchange Ldi Long distance & international LP Limited partner LUms Lahore University of management sciences m&e monitoring & evaluation mcc millennium challenge corporation mit massachusetts institute of technology mof ministry of finance (Pakistan) mQm muttahida Quomi mahaz NAIRU Non-accelerating inflation rate of unemployment nis new independent states (Western nis enterprise fund) nUst national University of science & technology oPen organization of Pakistani entrepreneurs oPic overseas Private investment corporation (United states) PcG Partial credit guarantee Pe Private equity PeGcc Private equity Growth capital council PePco Pakistan electric Power company Pes Pakistan economic survey Pii Pakistan investment initiative Pio Public international organization R&d Research & development s&P standard & Poors sBa standby agreement sBP state Bank of Pakistan sci saif center of innovation seaf small enterprise assistance funds seed support for east european democracy act siB social impact bond smeda small & medium enterprise development authority (Pakistan) smes small & medium-sized enterprises sPV special-purpose vehicle tfBso task force for Business & stability operations (United states) tic technology incubator center tie the indus entrepreneurs U.K. United Kingdom Un United nations UnPRi Un Principles for Responsible investment U.s. United states Usaid United states agency for international development Usd United states dollar UsG United states Government Vc Venture capital WB World Bank Wdi World development indicator Wef World economic forum
Kalsoom Lakhani, founder and ceo, invest2innovate Josh Lerner, Jacob h. schiff Professor of investment Banking, harvard Business school Ali Siddiqui, Principal, Js Group Stephen Smith, Partner and director of international operations, Js Private equity ADVISOR Meghan L. OSullivan, Jeane Kirkpatrick Professor of the Practice of international affairs, harvard Kennedy school of Government POLICy AREA CONCENTRATION SEMINAR LEADERS Stephen Kosack, assistant Professor of Public Policy, harvard Kennedy school of Government Monica D. Toft, associate Professor of Public Policy, harvard Kennedy school of Government
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