E-commerce in Pakistan - where it stands

While not entirely in tandem with the global growth of cross-border commerce, borderless business, and international online retail, e-commerce growth in Pakistan has been vivid and robust due to increasing internet penetration, expanding mobile connectivity, and rising digitalization amidst sectoral challenges.

However, the current challenges have hit the industry hard enough to strain e-commerce sales severely. Skyrocketing inflation and currency depreciation have incredibly deteriorated the purchasing power of the masses – also referred to as demand destruction. In addition, VC funding in e-commerce startups has also started to slow down.

A recent report, State of B2C E-commerce in Pakistan, by Data Darbar and Alphaventure, not only shows this trend but also delves deeper into the sector trends, weaknesses, and opportunities. The data in the report shows that Pakistan is the 47th largest market for e-commerce, with a forecasted revenue of $6.4 billion for 2023, led by electronics and media (34%), furniture and appliances (29%), and fashion (20%). However, its 5-year CAGR is expected to be around 6 percent, which is relatively weaker than the growth incurred over the last five years due to currency slippages and a weak GDP growth forecast.

Also, compared to peer countries like Indonesia, the Philippines, Egypt, and Bangladesh, e-commerce in Pakistan is still a tiny sector despite the robust growth over recent years. In absolute and relative terms, the E-commerce market size is the smallest among peer countries, contributing to a GDP of a little over 1.5 percent. However, a lacuna is that the comparison is based on card-based e-commerce transactions and does not consider IBFT payments.

Another critical observation in the report is related to funding in the sector. There has been a massive jump in funding rounds by e-commerce players from 2019 till 2022; not only has there been a slowdown recently, but the funding is concentrated in B2B e-commerce than B2c e-commerce.

There are also observations that while the average ticket size of a digitally paid transaction has recovered in 2023 from the lows of early 2022, it remains much below the high reached in 2017, around Rs12000. Moreover, the recent recovery in 2023 relative to 2022 is said to be due to the impact of inflation as the number of transactions is down amid rising throughput.