IT is 2019 and a revolutionary shift is happening in the way the world works, with economies across the planet going digital fast. In the past few years, Pakistan too, has made some efforts to improve governance through the internet. While the 2018 elections witnessed political parties invest on digital engagement of voters in the country’s largest internet-driven polls, other organs of the state have also introduced measures to improve services they deliver to the public.

For the first time in the country’s electoral history, overseas Pakistanis were able to vote in the elections through the Election Commission of Pakistan’s i-voting portal. Besides, the judicial system recorded a milestone in May this year by hearing cases via e-Court — a system based on video-link connectivity.

Not only has the usage of the internet by the state and citizens increased manifold, there have also been some significant policy interventions in the recent past. In 2018, the country approved its first ever Digital Pakistan Policy to transform the IT and other sectors of economy for an enhanced economic growth through digitalisation. Under the landmark policy, the country aims to double its IT and ITeS exports by 2020.

The IT industry is already among the top five net exporters of the country with the highest net exports in the services industries. The reported FDI inflow in the ICT sector (IT & Telecom) for the period July 2018-January 2019 is $114.4 million.

In the last five years alone, the services sector – which is largely benefited by thriving e-commerce, fintech, and e-governance – has contributed 70 per cent on average to the country’s GDP growth.

Significant policy interventions and investments may strengthen the technological ecosystem of Pakistan and help it move forward the way it should.

In an effort to address the demands of the widening technology and communications sector, the government has established a 17-member task force on IT and telecommunications comprising prominent members of the tech sector to advise policy changes and develop strategic plans to strengthen the technology ecosystem of Pakistan.

However, in terms of implementation, the progress is slow. Despite the uptick in the launch of online portals in a bid to digitalise governance systems, on the data protection and cyber security front, efforts seem to be at a standstill.

A recent study conducted by Comparitech has revealed that Pakistan ranks 7th among the countries having the worst cyber security. Pakistan’s neighbours India and Bangladesh are ranked at 14th and 6th place, respectively. The introduction of a draft law on data protection and privacy by the IT and telecom ministry is a welcome step, but it is yet to be enacted.

Mobile access and affordability

Timeline of digitalisation efforts in the last year. ─ Design: Essa Malik
Timeline of digitalisation efforts in the last year. ─ Design: Essa Malik

In terms of mobile penetration, the contribution of the mobile market to GDP is relatively low compared to international benchmarks, suggesting considerable scope for expansion. According to GSMA Intelligence’s report on mobile taxation in Pakistan, the majority of the population (59.7 per cent of the population, or 120 million people) is still unconnected to a mobile network. Unique subscriber mobile penetration in Pakistan stood at 40.3 per cent in Q3 2018, which is the lowest level in South Asia.

In order for the government to meet its development objectives and achieve its vision as set out in the Digital Policy 2018, further significant investment into mobile network infrastructure is required. Tax reforms that would make the Pakistani mobile sector more attractive for investment would contribute towards the achievement of these plans and the development of the digital economy in Pakistan to the benefit of consumers.

In 2018, Google’s Head of Large Customer Marketing, South Asia, Lars Anthonisen said he believed Pakistan, which he described as a fast emerging “digital-first country”, will prove to be a good investment for entrepreneurs around the world.

Listing five reasons for companies to expand their digital campaigns to Pakistan, he said that Pakistan’s economy was expected to be the fourth fastest growing economy in the world by the year 2030 — that is largely driven by small and medium-sized enterprises (SMEs). Noting that the country’s internet penetration was at a “tipping point”, Google said that mobile data packages in Pakistan were “some of the cheapest... in the world”.

There is, however, still room for significant investment to improve the affordability of internet services for consumers. Only this year, the provincial governments expanded the 19.5 per cent sales tax on internet and broadband services to lower tier packages.

The availability and quality of mobile broadband play a crucial role in enabling greater online access and digital inclusion within Pakistan, as penetration of fixed internet is very low at 9 subscriptions per 1,000 people.

According to the GSMA report, for the bottom 20 per cent and 40 per cent income groups of the Pakistani population, the total cost of mobile ownership (for both low and medium consumption baskets) is above the “1 for 2” United Nations (UN) affordability target (1 GB of data costing less than two per cent of monthly income). Only two per cent of Pakistanis aged 15-65 own a desktop computer or a laptop.

The affordability of handsets in Pakistan may be impacted in the near future by upcoming regulatory and tax changes. For example, a proposed increase in taxation of handsets in the Supplementary Bill 2019 would increase the price of mobile phones in Pakistan.

In addition, the Device Identification Registration and Blocking System (DIRBS) recently launched by the Pakistan Telecommunication Authority (PTA) could increase the average price of a mobile phone in the Pakistani market, as legal handsets are generally more expensive than counterfeit and illegal devices, unless it is mitigated by government measures, aimed at improving the affordability of handsets.

Digital infrastructure

In 2003, in a major shift for the telecom sector, the deregulation policy allowed massive foreign investment to the country and witnessed a significant uptick in internet subscriptions with the addition of more cellular licenses, 14 LDI licences, 84 FLL licences and 93 WLL licenses.

Internet expansion in the country enabled online banking as the SBP issued branchless banking regulations in 2008, making Pakistan the first country in South Asia to have allowed branchless banking.

For the years to come, the country’s economy continued to be anchored by its telecom industry. According to SBP, during the last five years, the sector has attracted over $2.6 billion FDI whereas a total of about US$ 4.5 billion have been invested by telecom players in Pakistan.

Interestingly with a relatively difficult year, 2018 for Pakistan’s economy, telecom sector stands tall in the overall economy and showed improvement in revenues during FY2018 whereby total telecom revenues stood at Rs 488.8 billion during the year 2017-18. Revenues from telecom sector reached an estimated Rs 268.8 billion during the first two quarters of FY 2018-19, amounting to a historic high.

However, a major problem faced by the telecom sector is heavy taxation. Pakistan’s telecom industry is one of the most highly taxed sectors in the world. According to the PTA, the combined percentage of the tax levied on telecom sector services is around 53 per cent of every Rs1 sold with 17-19.5pc on voice services, and 19.5pc on mobile and fixed-line connections.

In terms of internet access to rural and conflict areas, there is slow, but evident expansion. Earlier this year, mobile internet service was restored in Bajaur tribal district after suspension of around three years.

Possibly the biggest game changer in terms of internet access has come from Pak-China Optical Fibre Cable (OFC), a CPEC project which forms the land-based communication link between Pakistan and China. The 820-kilometre-long fibre-optic cable is expected to extend down to Gwadar in the long term, providing connectivity to far-flung areas along the western border and Balochistan.

Aside from the OFC, China is also working with Pakistan to set up a new submarine cable with landing routes in Karachi and Gwadar, further ensuring faster connections and lowering the likelihood of a major internet breakdown in the country. Huawei claims the deployment of PEACE (Pakistan East Africa Cable) started this year and will be completed by end of 2019.

Fastest growing e-commerce in the world

At the World Economic Forum in 2017, Ebay’s chief executive, Devin Wenig, highlighted Pakistan as one of the fastest growing e-commerce markets in the world. The total value of e-commerce is estimated to cross the $10 billion mark by 2020.

Although the pace of increase in e-commerce adoption in Pakistan has been encouraging over the past few years, the country still lags behind comparable economies in terms of digitalisation of the retail sector and efficiency of its logistics environment.

There are consumer protection laws at the federal and provincial levels of government — the Electronic Transactions Ordinance 2002. However, there is a problem of lack of awareness among the people about the rights they have when transacting online and about the scope and extent of online activities covered under the various protection acts.

There also exists an absence of trust in online platforms, owing to weak consumer protection given little recourse is available in case of payment disputes or return of goods acquired via the e-commerce channel.

One positive development in this regard has been the government’s decision to review the e-commerce policy that is focussed on establishing trusted and easier modes of payment, setting up of consumer protection bodies at federal and provincial levels, and launching a designated platform for trade dispute resolution based on international practices.

While the industry faces numerous basic challenges, the potential of the online space is evolving with the entry of global players in Pakistan. The biggest and most positive development on the e-commerce front is the entrance of digital giants Ali Baba through acquisition of Daraz.pk and Ant Financial (via a 45 per cent stake investment in Telenor Microfinance Bank).

On the payments front, there is a clear potential in the exponentially growing usage of e-commerce platforms on mobile phones.

According to the World Bank Global Findex database, Pakistan has the second highest proportion of adults with a mobile money account (6.9 per cent in 2017) in South Asia, behind only Bangladesh (21.2 per cent). However, only 18.0 per cent of adults in Pakistan had an account with a financial institution in 2017.

According to the SBP, in 2019, 27 banks are offering internet banking service and there are 3.1 million internet banking users registered with banks. During Jan-March ‘19, 8.6 million transactions of value Rs362.3 billion were processed through internet banking. In terms of mobile banking, 23 banks are providing the facility to 5 million customers. These users processed 11.9 million transactions of value Rs.271.3 billion using mobile phone banking apps.

Going by the SBP numbers, banking through digital channels has been gaining increasing popularity in the country in recent years. While international giants such as PayPal have shown little interest in entering the market, local ventures have the ability to plug in that void. Digital Financial Service providers can encourage entrepreneurs to set up their businesses online by providing them with digital payment gateways. The government can also play a key role in digitising its payment mechanisms by moving its Government-to-Person (G2P) transactions online.

Moving forward

Despite prioritising the technology sector in the financial budget, and taking a few policy steps forward, at the macro-level, the country remains without a cohesive and all-encompassing approach to the internet and implications of digitalisation.

In order to support the thriving e-commerce sector and improve the digital ecosystem, there is a need to establish digital payment gateways, improve the regulatory environment, reflect on taxation policies pertaining to mobile phones and the internet, and consider cyber security as an important component of online governance systems.

The writer is a member of staff.