The year 2024 started with a slow pace for startups in Pakistan after reaching $72 million in 2023 and $347 million in 2022. The trend mirrored the global VC slowdown, with a 35% year-over-year decline from the investment levels of 2022, and remaining flat month-over-month in February 2024.

One of the primary reasons for the dry 1Q2024 in Pakistan was the event of general elections earlier this year, keeping investors on the sidelines with a wait-and-see approach until the political landscape became clearer. However, as the new government took charge, the capital markets witnessed a surge in foreign investment flows, reaching up to $38 million from February 8th to date, reflecting improved investor confidence in positive policy changes expected under the new setup, especially the finance team.

The formation of the new government, the smooth last review of the IMF program for US$ 1.1bn tranche, and stability in currency parity, are positive indicators for economic stability. The new government plans to implement key structural reforms, especially with the support of a new, larger and longer IMF program, to address challenges hindering the country’s economic growth potential. The government’s allocation of Rs 2 billion for the Pakistan Startup Fund is another positive stance towards supporting entrepreneurship in Pakistan.

With challenges such as a high illiteracy rate, limited access to basic education and healthcare, supply chain challenges, and low financial inclusion, there is a substantial opportunity for disruption in Healthtech, Fintech, Edtech, Retail, and B2B e-commerce sectors in the country.

Later this quarter, an Egypt-based fintech MNT-Halan has acquired Advans Pakistan Microfinance Bank. As global monetary easing is expected from the second half of 2024, it should help attract further liquidity into the startup ecosystem in Pakistan.

AI technology is at the forefront of this new startup era. Globally, more than a fifth of all funding in February 2024 went to AI companies, with US$ 4.7 billion invested in the segment. As AI technology is revolutionizing product development, market analysis, and customer engagement strategies, it is crucial for Pakistan’s startups to effectively integrate AI into their operations that can enhance efficiency, tailor their offerings more closely to customer needs and stay ahead in a highly competitive market. By leveraging AI, startups can demonstrate proof of concept early on, which is the key element for attracting investment in the current funding climate.