In 2013, the U.S. Agency for International Development (USAID) announced Pakistan Private Investment Initiative (PPII), a partnership between USAID and three private equity management partners that would create three private equity funds to invest in small and medium enterprises (SMEs) with high-growth potential. USAID contributed $72 million and each management partner; i.e. Abraaj Pakistan Fund, the Pakistan Catalyst Fund, and the Baltoro Growth Fund, secured matching funds, making approximately $150 million available for investment.
In Pakistan, SMEs employ an estimated 80 percent of the non-agricultural workforce, according to the Small and Medium Enterprise Development Authority of Pakistan. SMEs have the potential to grow into larger businesses, employing a higher number of workers, but many have difficulty accessing capital, particularly as Pakistan’s banking sector often prefers to lend to larger corporations or to the government.
Small- and medium-sized enterprises are a well-known driver of economic growth, but they often face difficulties accessing the capital they need to grow their businesses. By helping its investees to improve their corporate and internal business governance practices and to conduct transparent financial reporting, PPII is transforming them into ideal candidates for further future investment. PPII’s objective is to serve as a catalyst for expanding the use of private equity in Pakistan.
In addition, by establishing multiple investment funds managed by professional fund managers, PPII will serve to enlarge the pool of capable private equity investment professionals, strengthen the business enabling environment for small business, make capital available for SMEs, and promote domestic and foreign investment and lending in SMEs.
PPII is a great example of how the U.S.-Pakistan relationship is evolving beyond traditional civilian assistance toward mutually-beneficial business arrangements. The United States is the largest trading partner for Pakistan, with total bilateral trade volumes approximating USD 5 billion annually.
The U.S. is also where more than 14% of Pakistan’s annual exports now find a market, and there is potential to further enhance these trade volumes and partnership initiatives.
By partnering with the private sector, the U.S. government is capitalizing on the expertise of these investment funds to make smart investment decisions that will spur economic growth and generate profits for investors. Ideally, PPII’s three funds will serve as a model for successful investment in Pakistan’s SME sector and will spur the development of a robust private equity industry in Pakistan.
