Why innovation takes a back seat?

By Ali Salman, Originally published in The Express Tribune, August 15th, 2016.

A single innovation has the potential of saving $50 million a year by ensuring conservation in the usage of natural gas we burn carelessly in our water geysers during winters.

The man behind the machine, Zia Imran, who holds the promise through his path breaking product ‘Jal Bujh’, is a text book case of how innovation happens.

His story also has insights for innovation-policy based upon his frustrating experiences with tax and regulatory authorities.

Jal Bujh

Innovation survives and thrives if it solves problems. The product that helps gas customers to turn the geyser on and off through the comfort of their hand held touch screen helps solves a great personal pain – and reduces their utility bill by a great margin.

Imran, being an electrical engineer, needed an industrial design expert to convert his idea into a proto-type that he found. He also needed software writers to code the application, with whom he collaborated.

There are some signs that a handful of these communities are now emerging in at least the big cities.

The Government of Punjab’s Plan 9 is Pakistan’s largest technology incubator, and in all, it has incubated 102 starts-ups in e-commerce, computer vision, alternative energy to ICT and IoT devices.

There are similar initiatives which exist in the civil society sphere. One example is Pakistan Innovation Foundation founded by Athar Osama, which promotes innovation in the country by recognising inventions as well as research and advocacy.

The start-ups need, foremost, a hassle free payment system. However, e-commerce in Pakistan is inhibited by archaic rules.

For instance, Paypal does not work in Pakistan. Even for small shipments, one needs to approach banks for opening L/Cs, which also face controls by the central bank on sending money abroad.

Moreover, the taxation structure is quite complex, and while it may work for large corporations, it is certainly a nightmare for start-ups..

Most start-ups are coming up in the services business. The government has levied a 10% withholding tax and a 17% sales tax on services. On a sale of Rs500, this implies an advance tax liability of Rs135.

How can a services business create a margin which can afford an advance tax of 27%?

Furthermore, sales tax registered companies have to file a sales tax return every month, even if they make no sales. This all adds up significantly to the cost of doing business. Missing to file a Nil return (suggesting there is no business that month) qualifies FBR to impose a fine of Rs25,000/-!

The public procurement protocols have built-in bias against innovators and start-ups. All tenders floated quote some years of production as one of the conditions for bidders, thus new and small entrants are automatically screened out.

In the US, the government procurement allows smaller firms to enter by design and in fact, make it obligatory for large bidding firms to include smaller firms and vendors in project execution. As to what extent does a direct support from the government helps innovation is very difficult to ascertain.

In the case of ‘Jal Bujh’, none was sought.

Funded by bootstrap capital, and later on supported by friends and family members, as well as some crowd-funding platforms, the product has largely survived on private funds for Research and Development (R&D) stage and actual production.

In this context, the example of Jal Bujh is also instructive. It got a breakthrough in sales by a bulk order from the country’s largest publicly owned gas distribution company. This role provides a legitimate example of government support, which is only a business decision, and not a support in terms of any grant or subsidy.

The gas company will eventually recover the amount from its customers.

Economic growth is not possible on the back of only state-sponsored infrastructure projects – the true backbone of economic growth is innovation led business growth.

 

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