In Turbulent Pakistan,Start-Ups Drive a Boom

MODERN AND MUSLI: In Turbulent Pakistan,Start-Ups Drive a Boom
Fast-Growing Economy
Lures Entrepreneurs;
Liposuction and Pilates
By PETER WONACOTT: Wall Street Journal, September 5, 2007; Page A1

ISLAMABAD, Pakistan -- Pakistan's political scene is growing more clouded, but a clear demonstration of confidence in the country's future is coming from an emerging economic force: entrepreneurs.

Scores of new businesses once unseen in Pakistan, from fitness studios to chic coffee shops to hair-transplant centers, are springing up in the wake of a dramatic economic expansion. As a result, new wealth and unprecedented consumer choice have become part of Pakistan's volatile social mix.

Yesterday, two bombs exploded outside this city, killing 25 people. Adding to the political uncertainty is the expected return Monday from exile of former Prime Minister Nawaz Sharif, who was ousted in a 1999 military coup led by Pervez Musharraf. To counter that challenge, President Musharraf is close to sealing a power-sharing pact with another former prime minister, Benazir Bhutto. The two aim to join forces in a government that would take on Islamic extremists who have recently launched a series of suicide attacks around Pakistan.

Clashes between militants and security forces have pushed Pakistan toward an uncertain future. But they have largely overshadowed some of the broader changes taking place.

A new class of entrepreneurs is emerging who, in small but significant ways, have challenged the religious orthodoxy. They provide a stark counterpoint to the rising Islamic radicalism that the U.S. and others view as a threat to Pakistan's position as a staunch Western ally. And with many importing ideas from abroad, they are contributing to Pakistan's 21st-century search for itself.

"Can you be modern and Muslim? How is Pakistan going to link into the global economy?" asks Ali Cheema, an economics professor at Lahore University of Management Sciences, who has researched Pakistan's entrepreneurs. "These people are posing important questions."

By sheer demographic weight, the younger generation will determine Pakistan's direction. Of its 160 million people, 100 million are under the age of 25. Many are rural, poor and unprepared for a role in the global economy. But fast economic growth has also drawn more men and women to the cities, propelling some up the income ladder through education and new jobs.


On a recent summer afternoon, clerics from a Muslim seminary here walked across the street to a new boutique, which purports to be the first couture store in Islamabad. The bearded men, clad in white cotton tunics and trousers, were patrolling the neighborhood for signs of moral laxity. Upon entering the store, they walked over to a rack of slinky shirts.

"Our women don't wear such clothes," declared one of the visitors.

"You're right," replied Yasser Anees, the boutique's 26-year-old co-owner. "Those are for men." The patrol soon departed.

Overall, the entrepreneurial class remains a sliver, just over a million people by some estimates. Much of the business is confined to pockets of urban wealth that most Pakistanis won't experience in their lifetimes. And yet, the brief business careers of many entrepreneurs show how rapidly dramatic change can unfold in Pakistan. That change also helps explain why Gen. Musharraf remains relatively popular among this group.

Following recent events that have engulfed his government in turmoil, Gen. Musharraf can use all the support he can get. His efforts earlier this year to oust the country's Supreme Court chief -- which were unsuccessful -- provoked months of street protests from people worried about the loss of civil liberties, many of them from Pakistan's new middle class.

Meanwhile, many fear the country has become less safe. The Pakistani army has battled militants in the northwest and on the border with Afghanistan, which is where the U.S. government believes tribal chieftains harbor key figures of al-Qaeda, possibly including Osama bin Laden. In July, Pakistani security forces raided a heavily fortified mosque in Islamabad, killing dozens of armed militants.

With Pakistan's past leaders preparing to return from exile, the turmoil is likely to intensify.

Mr. Sharif and Ms. Bhutto will be coming back to a country that is much different, economically at least, from the one they left.

Since Mr. Musharraf's coup in 1999, Pakistan has become one of Asia's fastest-growing economies. In the past eight years, sales of cars have climbed 20% annually, televisions, 29%, and air conditioners, 206%. Over the past four years, economic growth has averaged 7%, according to government figures.

The consumer-driven growth has signaled the spread of a middle class in Pakistan's biggest cities. For decades after independence in 1947, a handful of extremely wealthy industrial families dominated the economy. In the 1970s, nationalization of important industries gave the government a major economic role. In recent years, a privatization program has sought to shrink the state's hand, while introducing more investment and competition.

Pakistan now permits 100% foreign ownership of its banks, prompting more consumer-friendly lending for home mortgages and cars. Meanwhile, a telecommunications monopoly has been broken up and policies have been tweaked to reduce user fees. Cellular subscribers have expanded 94% a year since 1999.

Government economists boast that these changes -- greater access to credit and more mobile phone and Internet connections -- have ushered people into the economic and social mainstream. "Millions of young people now have a way to escape from poverty and get away from extremism," says Salman Shah, an economic adviser to the prime minister.

Not all are convinced the economic traction is sustainable, though. While Pakistan has seen an unprecedented consumer boom, 7.9% inflation and a sluggish job market have undercut modest income gains, contends ABN Amro's senior economist in Islamabad, Sakib Sherani. In luring new industries and cultivating a broad-based business class that will keep the economy globally competitive, Pakistan lags behind countries such as Vietnam, as well as China and India, Mr. Sherani says.

Many critics also contend that substantial amounts of U.S. assistance -- estimated at more than $1 billion a year -- may be the biggest underlying reason why Pakistan's economy is doing well.

But the economy is also sprouting from the bottom, thanks to seed capital from abroad and more credit-friendly banks. Last fiscal year, Pakistan received a record $5.1 billion in foreign direct investment, the government says. Overseas remittances, which are what Pakistanis are returning from bank accounts overseas, hit $5.5 billion in the same period, also a record.

In the past, many entrepreneurs would need to rely on family or unethical money lenders who would sometimes break a leg -- "maybe two" -- if not paid, says Sardar Usman Rashid, chief of the credit division for the SME Bank, a government arm that lends to small and medium-size companies. More choices are available now. This year, SME Bank expects to extend about 6,000 loans ranging from $5,000 to $1.3 million, up from about 5,000 last year. Larger banks are now wading into a loan market for small and medium-size companies valued at about $2.2 billion, according to Mr. Rashid.

"Banks are not so shy about lending to the small guy," he says.

Signs of how this change is rippling through the economy are evident on bustling MM Alam road in Lahore.

A decade ago, Asma Shah opened a small store that centered on novelty-scented candles. In 2004, Ms. Shah, a British citizen of Pakistani origin, sold her apartment in London and brought the capital back to finance a big expansion of her store, called "Candelicious." She's imported silk throw pillows from China, and glass and silverware from India and Thailand. The furnishings offer a cosmopolitan flair to the homes of those looking to veer from traditional Pakistani decor, Ms. Shah says.

On her counter are brochures for a new health club Ms. Shah's sister-in-law is opening. "Body & Soul" will offer personal trainers, yoga and Pilates, a popular physical-fitness regime. The studio promises to "keep you positive and help you bring out your personal best!"

Another prominent symbol of the new Pakistan: cosmetic surgery. Clinics for hair transplants, hair removal and liposuction have popped up on MM Alam road. Some are franchises brought back from overseas by entrepreneurs who believed they spotted a market for the same business at home.

In the past, customers would have splurged for a hair-transplant trip to the U.S. or Europe, but now options are close at home, says Tahir Mahmood, country manager for the International Laser Hair Transplant Surgery Center in Lahore. "There are quite a few bald people in Pakistan," he says. "We have helped the nation by keeping the revenue here."

New niches in Pakistan's economy have created space for people like Haroon Qureshi, a 30-year-old self-employed private-wealth manager. In T-shirt and jeans, smoking Benson & Hedges cigarettes, Mr. Qureshi recounts how earlier this year he made money for clients by buying and selling the same 500-square-yard plot of land -- twice. Those transactions earned him $16,000 in 60 days, he says. Real-estate prices have rocketed in Pakistan's big cities, and on the fringes, as development pushes outward.

Mr. Qureshi believes the social change that has accompanied Pakistan's economic growth is spreading widely and can't be rolled back. On an early August evening, he sits in Masoom's Pancake Lounge, one of two coffeehouses in Lahore started by a husband and wife team returned from Reno, Nev. It's filled with twenty-somethings drinking cappuccino and listening to loud music. Over the din of Hot Chocolate's song, "You Sexy Thing," Mr. Qureshi credits such achievements to Pakistan's top leader, Gen. Musharraf.

"For our emerging economy," he shouts, "we need an army man right now."

Gen. Musharraf's policies also have been good to Mr. Anees, the fashion designer and co-owner of the Islamabad boutique. After graduating from high school, Mr. Anees says his only ambitions were hanging out with friends and wearing cool clothes. The problem was that he couldn't find the clothes he saw in India's Bollywood movies. So he ended up drawing the designs from some foreign glossy magazines that he says were beginning to come into the country.

In 2004, while Mr. Anees was still a student, Gen. Musharraf showed up as chief guest at a fashion show that helped launch Mr. Anees's designs. A year ago, Mr. Anees and his fashion-school classmate, 22-year-old Atif Ali, founded their boutique, called "at Yas."

In June, Fashion TV Pakistan, one of dozens of private television channels that have popped up since Gen. Musharraf came to power, covered the first fashion show of at Yas. After the show, Mr. Anees says the at Yas team received a message from local clerics, via an at Yas employee. "They told us to watch our step," he says.

The owners built a brick wall to obscure their glass showroom. They hired a guard with a pump-action shotgun to stand outside the store.

Though they describe their clothes as "classic," at Yas designers give them flourishes. There are billowy harem pants and see-through tops made from Pakistani chiffon. Many items are priced above $200, a lofty sum in a country where per-capita income is still under $1,000 a year.

Business has been brisk, the owners say. They can barely keep up with orders for lavishly embroidered bridal gowns. In a nod toward the country's conservative crosswinds, they plan a line of designer burqas, which will fit more snugly than the typical head-to-toe gowns.

Some shoppers see at Yas clothes as too racy for formal occasions and too dressy for more relaxed social gatherings. At the store earlier in the day, one young woman complained that she wanted something traditional or modern, not something in between. An hour later, she was squeezing through the door with a full bag.

"That's typical," says Mr. Anees. "People change their minds after they come to our store. Happens all the time."

Write to Peter Wonacott at peter.wonacott@wsj.com