Leading through digital transformation | Political Economy

“nnovation distinguishes between a leader and a follower,” said Steve Jobs. The sentiment is profoundly relevant for Pakistan, where despite significant public investment, the startup ecosystem remains underdeveloped.

The Ministry of Planning and Development has outlined Vision 2025, an ambitious plan for digital and economic transformation. Central to this vision is the role of startups in driving innovation and economic growth. However, addressing critical gaps in infrastructure, regulatory frameworks and incubation models is essential to unlock the full potential of Pakistan’s digital ecosystem.

Pakistan’s youthful demographic — 60 percent of its population is under the age of 34 — can be a significant advantage. A young, tech-savvy workforce an lead the country into a new digital era. Vision 2025 recognizes the power of this demographic and place startups at the center of its economic development strategy.

But while the country has made progress with initiatives like the National Incubation Centers, more targeted efforts are required to align the startup ecosystem with specific industry needs and global best practices.

Globally, specialized incubation centers have proven powerful catalysts for economic transformation. For instance, South Korea’s focus on hardware and electronics-specific incubators helped drive its technological revolution, contributing over $200 billion to its GDP.

Finland is another example. Through its Innovation Finland initiative, the country has heavily invested in sector-specific incubators focused on clean energy, ICT and health technologies. By providing targeted support, Finland has transformed its economy into one of Europe’s leading innovation hubs. These examples illustrate the importance of industry-specific support.

While the NICs aim to nurture entrepreneurship and innovation, their generalized approach has led to weak outcomes. Currently, only one of the eight NICs offers specialized incubation. Many startups admitted to these centers do not align with the incubators’ specific areas of expertise.

The overall graduation rate of startups has improved to around 80 percent, reflecting some progress, but the broader ecosystem remains misaligned with sectoral needs. Adopting specialized incubation models could greatly accelerate innovation in critical sectors such as agriculture, ICT, fintech and climate technology and block chain innovation where Pakistan has significant growth potential.

The Vision 2025 underscores the importance of digital infrastructure in enabling economic development. Pakistan’s position as the third-largest contributor to the global freelance economy highlights its growing digital workforce, particularly in the ICT sector.

However, the country’s digital infrastructure is fragile, hindering further growth. A loss of Rs 1.3 billion due to internet outages underscores the structural deficiencies that affect freelancers and startups alike. Stable and affordable internet access is essential for the sustainability of Pakistan’s digital economy. Nearly 48 percent of the population still lacks access to 4G services.

To address these challenges, Pakistan can draw lessons from countries like Sweden, where an open-access model has expanded fiber-optic infrastructure while maintaining affordability.

Public-private partnerships aimed at enhancing broadband coverage can help bridge the digital divide, particularly in semi-urban and rural areas where many freelancers and startups operate. Investment in localized data centers an reduce reliance on foreign-based cloud services, cutting operational costs and enhancing data security.

Cybersecurity remains a significant vulnerability for Pakistan’s freelancers and digital startups. As global cyber threats increase, a lack of robust cybersecurity infrastructure poses a major risk.

Over the past year, Pakistan has seen a 20 percent rise in cyber attacks. These jeopardize both client relationships and international contracts. Establishing NICs focused on cyber-security can help address these challenges, equipping startups and freelancers with the tools to protect sensitive data and meet global security standards.

Governments around the world have embraced policies that support digital ecosystems and infrastructure development. Singapore’s Smart Nation initiative, for example, has integrated digital innovation into governance, public services and the economy.

Estonia has similarly positioned itself as a digital republiccreating an environment conducive to startup growth, through e-residency and a digital-first regulatory framework. These examples highlight the importance of comprehensive policy frameworks in upscaling digital transformation. Pakistan’s Vision 2025 offers a roadmap. However, the absence of a documented, coherent policy specifically focused on the digital ecosystem remains a shortcoming.

Pakistan risks losing momentum in its digital transformation if an independent unit working under the Planning Commission to oversee progress and innovation is not created soon. A dedicated unit alone could ensure that all digital initiatives align with the broader economic objectives outlined in Vision 2025.

A formal, well-documented policy can provide a clear set of guidelines, objectives and key performance indicators to drive public-private partnerships toward productive outcomes. This policy framework could help realign the startup ecosystem, ensuring that resources are allocated efficiently and that startups have the necessary support to scale.

Private sector engagement is also critical to the success of Pakistan’s NICs. Currently, the government shoulders much of the responsibility for incubation. Global examples show that deep private sector involvement is key to success.

In the Silicon Valley, for instance, private companies co-invest in incubators, providing startups with mentorship, technical expertise and access to international markets. Globally, public-private partnerships in the cybersecurity space have created a dynamic and effective incubation environment. Pakistan must create a regulatory framework that encourages private investment in NICs, helping bridge gaps in both funding and expertise.

In addition to attracting private investment, Pakistan must reform its regulatory environment to encourage foreign participation in its startup ecosystem. Complex regulations surrounding foreign equity ownership discourage venture capital investments in Pakistani startups. Easing these restrictions and providing tax incentives—such as tax holidays or reduced corporate taxes—can make Pakistan a more attractive destination for foreign investment.

Strengthening intellectual property protections is another critical area. Weak IP laws determine both domestic and international investors, limiting the ability of startups to protect their innovations. By developing stronger IP frameworks, Pakistan can safeguard its entrepreneurial talent while attracting global capital.

Vision 2025 presents a unique opportunity for Pakistan to position itself as a leader in digital transformation. This will require concerted efforts across the public and private sectors. Specialized incubation, improved digital infrastructure and a supportive regulatory framework are key to achieving this vision.

If these reforms are implemented, Pakistan can emerge as a global player in the digital economy by 2030, unlocking new opportunities for its youth, freelancers and startups. By capitalizing on the strengths of its young workforce and aligning its incubation efforts with the needs of specific industries, Pakistan can transform its digital landscape, leading the way in innovation and entrepreneurship.

---

Abdullah Khalid is a researcher based in Islamabad

Dr. Maaz Hashmi is an independent policy researcher