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Amid the controversy over the government’s new social media regulations (Removal and Blocking of Unlawful Online Content (Procedure, Oversight and Safeguards) Rules (released in November 2020), what has largely evaded interest is the government’s insistence that social media companies must have physical presence in Pakistan. While this requirement is aimed at pulling the social media companies close, the social media companies are complaining that new rules are pushing them away.

The requirement was also mentioned in the early-2020 version of these rules (Citizens Protection (Against Online Harm) Rules). Now, social media companies that have more than half a million users are required to register with the PTA and establish “permanent registered office” (preferably in the capital) within nine months of the passing of these regulations (~July 2021). Besides, they need to install database servers within Pakistan for storage of data content within eighteen months (~April 2022).

It isn't clearly spelled out what would happen if a social media firm failed to register with the PTA or if it registered but subsequently didn't open an office in Pakistan by the deadline. However, it is also mentioned in the same rules elsewhere that a fine of Rs500 million can be imposed if a social media firm failed to adhere to any of the rules. While the penalty is steep, it isn’t clear if it is enforceable in the next six months. The said rules have been challenged in court by citizens over human rights concerns.

So far, there appears to be no progress on “local incorporation”. Earlier this week, the PTA reportedly told the Islamabad High Court that famous social media platforms have been instructed to establish their offices in Pakistan. Meanwhile, the big tech companies – under the banner of Asia Internet Coalition (AIC), which represents major social media firms such as Facebook, Twitter, Google, LinkedIn, etc. – have recently expressed “alarm” over scope (too broad) and process (non-transparent) in making these rules.

Major social media firms are expected to give pushback on local incorporation. The AIC, for instance, has argued that this demand discriminates against foreign tech firms by erecting a non-tariff barrier in services trade. In a subtle warning, it has suggested that going down this route will expose Pakistan’s own IT firms and freelancers doing business abroad to similar demands of “local presence”. AIC also maintains that “forced data localization” would raise user costs, lower user security, and harm local competitiveness.

“Any requirement for forced local incorporation and physical office presence will have a deleterious impact on foreign direct investment, economic growth, and Pakistan’s growing IT industry. Instead of forcing companies to open local offices, Pakistan should be encouraging and facilitating foreign investment through incentives, creating an enabling environment, and growing the base of internet-connected consumers,” the AIC wrote in a direct letter to PM Imran Khan just a month ago.

Nevertheless, a case can be made that Pakistan’s lagging digital ecosystem needs an active local presence of some of these major tech firms for rapid development. It’s been more than a decade since these platforms massively took off in Pakistan and generated business – it’s time to give back. While virtual learning and development tools are made available by players, especially Google, this market may be better served by local research programs, innovation centers and certifications run by tech majors.

Next door, India has had success on this count after Google announced $10 billion digitization fund last year. The issues that Google will tackle in India over seven years – e.g. developing local content, making Internet affordable, digitizing small businesses, and scaling online education and tele health – are also present in Pakistan and exacerbating its digital divide. As pointed out in this space before, Pakistan is the second-largest market in this region in terms of potential new Internet users (100mn) after India (500mn). Both the government and AIC members must evaluate why Pakistan is off the tech investment radar.