Hailed as a strong new source of job-creation, the e-commerce sector is said to be booming in Pakistan. With sales expected to cross one billion dollar in sales this year, business leaders have been sounding buoyant about growth prospects. Recently-released political manifestos have also talked a good game on boosting the digital economy.
It appears as though the sector has taken off. But has it, really? Two kinds of exclusions, both seemingly intractable, are holding back the digital economy.
One is the continuingly high degree of ‘financial exclusion’ in the country. The bank account ownership in Pakistan stood at only 21 percent of adult population as of 2017, latest World Bank data show. This issue is part of the broader problem of limited financial depth in the country and resultantly shows up in the form of inadequate payment options for online shopping.
As a result, over 90 percent of online transactions are being settled via cash on delivery (COD). The COD payment mode affords suspecting customers some reassurance as to product functionality. And it happens to be a norm that is also seen in other South Asia markets. But, COD is a bane for online vendors, which have to confront cash-flow issues related to logistics and liquidity.
The other exclusion is of the digital kind. As per the PTA data, mobile broadband (3G & 4G) subscribers totaled just over a quarter of the population, as of May 2018. Other global indices put Internet penetration below 20 percent of the Pakistani population. An ITU report in 2016 placed Pakistan’s Smartphone penetration at less than three percent. More alarmingly, country numbers contained in the latest Findex report suggested that over 50 million Pakistani adults were without access to mobile phones!
It is clear that a lot of work is cut out at the policy and regulatory levels to broaden the availability of affordable broadband in under-served and un-served areas across the country. Besides, the need is to improve the digital literacy skills of the people – an issue linked to the broader issue of adult literacy rate, which stood at 59 percent in 2016. Also important is to ensure consumer protection through policies in areas of quality standards, product return/exchange policy, user privacy, and data protection.
Lack of progress on such issues feed into the e-commerce sector’s ability to take off. Recently, the UNCTAD’s B2C E-commerce Readiness Index (2017) placed Pakistan at number 120 among 144 economies. That ranking is down ten places over 2015, puts Pakistan among bottom-three Asian economies in the mix, and has the country trail Iran (47), China (65), and India (83), and Bangladesh (103).
The year 2018 may well be the year when online retail sales cross one percent of total retail sales in Pakistan. That will be a nice milestone to be passing by. Beware, though, this ride is on an auto-pilot mode. For sustainable growth and job-creation, the incoming government must prioritize e-commerce by creating regulations that enable business as well as protect consumers.
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