This article is based on the analytical report on Pakistan Mobile Ecosystem, prepared by GSMA Intelligence which is a definitive source of global mobile operator data, forecasts and represents all public and private mobile operators in Pakistan.
Digital Pakistan under PTI-led Government
The world we live in is a digital world with 4th Industrial revolution taking over economies. This new industrial revolution is based on digital economies and Pakistan is far behind the world in the field of innovation and technology till date. The 65% of young population and overwhelming adaption to internet (23% on YoY basis) is still not enough to pull Pakistan out of list of worst economies in Global Innovation index (105th out of 121 nations).
The PTI-led government since the beginning of their tenure is bent on transforming Pakistan into a knowledge-based economy with changing the concept of education in country. GSMA reports appreciates Prime Minister Imran Khan’s involvement in this initiative and acknowledges exemplary initiatives taken by sitting government for early digital inclusion and use of cutting-edge technology in social and economic aspects.
2018 Digital Policy Pakistan
In 2018, PTI-led government launched Pakistan’s first National Digital Policy which aimed at making Pakistan a full-fledged digital economy with IT and Telecom sectors as main contributors. The government is using a multi-pronged strategy for implementation of Digital Policy. These strategies include policy interventions for a harmonized regulatory environment, digital awareness, youth skill development, original research and innovation, smart government ecosystem with IT based government to government, government to public/consumer/busines services.
The government has already taken several initiatives under the National Digital Policy which includes:
- Digitization of several government departments including Pension related services, Police departments, land records and Post office services. The process is still ongoing with added efforts to gather recommendations for increasing digital reach of all population.
- Virtual One Stop Shop for registration of new companies with FBR at SECP
- Tax Asaan Mobile App for payment of taxes, NTN/STRN inquiry in collaboration with State Bank of Pakistan (SBP) and Federal Board of Revenue (FBR)
- Online Pakistan Software Export Board (PSEB) portal for IT firms’ registration
- Prime Minister Complaint Portal for citizens to launch any complaints against any government department.
- Establishment of Pakistan’s first National Science and Technology Park (NSTP) in collaboration with National University of Sciences and technology (NUST) on 10th December, 2019.
- Workshops and government supported public-private forums for freelancers which resulted in making Pakistan 4th largest freelance market globally.
Chief Digital Officer for Pakistan, Tania Aidrus highlighted that the report prepared by GSMA Intelligence is taken up by government as a guiding tool for developing future strategies and policies in IT sector.
Fundamental Components of a Digital Economy
There are several constructs of a digital economy including access to mobile phones, high speed internet, digital identity, digital commerce and so much more. The report by GSMA critically analyzes these factors and their significance for Pakistan as well as steps needed for Pakistan’s government to enable Pakistan reach the desired level of digital economy.
Key Components of Digital Economy
GSMA identifies 6 main components of a Digital Economy focusing on which individually can help government reach the stage of transforming Pakistan into a full-fledged digital economy.
Connectivity is the basis of any digital society which allows individuals, corporates and governments to perform functions on a digital platform. In Pakistan, broadband connection and mobile connections both exist with mobile connectivity being a primary source of connectivity with deep penetration in masses.
- Digital Identity
Digital Identity refers to unique persona, profile or account of individuals online. These identities are usually verifiable by mobile and desktop devices which in turn can be used for privacy and safety of online transactions and information sharing.
Internet platforms refer to multi-faced backdoor channel that connect service providers, consumers, third parties on a single front platform.
- Digital Citizenship
Digital Citizenship refers to use of online platform by government to disseminate services to public. These services include information sharing, registrations, pensions, complaint handling and record displays. Federal government has enabled digital citizenship in past 2 years through launch of Complaint portal, tax registration and payment online, payment of challan online, registration with SECP, SBP online, health care apps (recent COVID-19 related apps) and many more.
- Digital Lifestyle
Digital lifestyle is achieved when majority of population in a country are able to use mobile phone for availing services, access information, conduct businesses or meetings, play games, and use social media or apps for communication. This, in turn is dependent on access of masses to affordable smart phones, literacy and IT skill rates and cost of mobile internet connections.
- Digital Commerce
Digital commerce is the use of internet for payments of services and products, or receiving payments via mobile applications instead of brick and mortar financial institutions. EasyPaisa, JazzCash and U-Paisa are some of the examples of digital commerce.
Significance of Mobile and ICT sector for Pakistan’s GDP
According to the 12th Five Year Development Plan for Pakistan, the aim of government is to raise GDP growth rate to around 5% in 2018-2023 period. The world is shaken by the pandemic of COVID-19 with its unstoppable attack on economies along with healthcare. Pakistan is one of the worst affected nations as of today with cases exceeding 110,000.
However, with population constantly growing at over 2% rate annually, the government needs to work on its mobile ecosystem as digitization is one of the few tools that can boost Pakistan’s economy in every situation. Mobile ecosystem comprises of mobile manufacturers, mobile users, operating system developers, mobile app developers, website developers, networks, carriers, mobile advertisement and marketing companies, app stores, mobile cloud, mobile app, website and handset testing and developing tools and others.
Impact of Mobile Ecosystem on Pakistan’s GDP and Revenue
According to GSMA report, a minor increase of 10% in mobile broadband penetration can result in significant 1.5% rise in GDP. Currently, the mobile ecosystem contributes more than 5% of Pakistan’s GDP which is a significant contribution.
This contribution includes both direct and indirect benefits from mobile ecosystem with indirect contribution from increased efficiency, productivity and cost saving as major contributor. According to GSMA analysis, similar contribution is expected to rise to 6.6% or $24 billion by 2023 if policies remain intact.
The mobile ecosystem contributed around $2.2 billion to public sector revenue with its heavily taxed structure.
Impact on Employment
The mobile ecosystem employs around 450,000 individuals in Pakistan according to 2018 survey. The mobile sector is a part of services sector in Pakistan that constitutes around 35% of employment in Pakistan.
With significant contribution of mobile ecosystem in Pakistan, it is important to evaluate how well has Pakistan’s Mobile market been performing in various areas and what are the lagging factors in its expansion and growth.
Current Analysis of Pakistan’s Mobile Market
Internet usage and Smartphone penetration in Pakistan
As a struggling emerging economy, Pakistan has made significant progress in increasing mobile penetration and internet usage among masses. With 89 million unique subscribers in 2019, Pakistan still has a large base to cover with over 100 million individuals under age of 25. GSMA recognized role of Federal, provincial governments and Pakistan Telecom Authority (PTA) in propagating use of mobile phones and increasing connectivity in Pakistan. In 2018, Pakistan still lagged behind South Asian countries in mobile penetration and connectivity index with score of 39.8 compared to 45.7 for South Asia.
Similarly, the sales of smartphones have geared up recently in Pakistan as more than 80 million smartphone connections have been recorded in 2019. In Network Readiness Index 2019, Pakistan ranks 98 our 121 countries. Several companies are coming up with locally made 4G smartphones including Jazz that targets low income segment of society.
Based on the present-day data, the percentage of 4G connections is expected to reach 129 million in 2025.
However, government needs to take some concrete steps to further enhance this penetration as currently, Pakistan lags significantly behind the rest of South Asia including India, and Indonesia. Pakistan also has largest segment (20%) of population that is out of network coverage while Indonesia and Bangladesh has only 5% ratio.
Sector wise Penetration in Pakistan
Due to increased mobile connectivity, last 5 years have witnessed fast-paced growth in sectorial digitization in Pakistan. Some of the sectors that witnessed high mobile penetration includes
Agriculture with online registrations of milk and honey farmers through platform created by Jazz, GSMA and Farmer line. The collaboration used JazzCash service to pay milk farmers for their online registration, milk procurement records and sales.
Transport sector has seen growth in two major areas. Firstly, the highways and motorways authorities including NHA developed apps for not only information purposes but also registration and payment of e-tags, and e-challans through non-banking and banking channels online. The app also allows people to use interactive maps and journey planning.
Another major penetration of mobile among masses came with launch of cab services like Careem, Uber and Bykea and buses like AirLift and Swvl in all major cities of Pakistan. Not only are these services huge success among consumers but have rapidly increased use of mobile internet for registration, use of service and payment of service.
Banking systems have been revolutionized in Pakistan through branchless banking services from Telenor’s EasyPaisa, Ufone’s U-paisa and Jazz’s JazzCash. The services have greatly improved the access of people living in remote areas of Pakistan to banking services without incurring high costs of bricks and mortar structure.
Lower Capital Expenditure in Pakistan
A significant factor in expanding network connections in the country is capital expenditure (CAPEX) by Pakistani mobile operators on development of infrastructure. Out of total $67 billion spent on mobile networks in South Asia, Pakistan has spent $3.5 billion. The capex for Pakistan is still significantly lower than the rest of South Asia. For 5G networks, capex for India and Sri Lanka is beyond 40% while in Pakistan it is hardly 10%.
The spectrum pricing for 5G network needs to be flexible and coherent to attract investment by companies.
Increasing Domestic Cellphone production
Pakistan lacks local cell phone producers with Samsung and Huawei leading the sales in Pakistan. PTA has taken several steps to promote local manufacturing of smart phones in Pakistan. For this purpose, PTA has granted permission to 26 local companies to manufacture cell phones with monthly assembly of around 100,000 mobile phones. The local manufacturing is also generating employment for over 3000 individuals in Pakistan and can further be increased with appropriate government policies.
Conflict between service providers and FBR
The tax regime in telecom/mobile sector in Pakistan is a complex system and is a constant source of conflict among telecom/mobile sector and revenue board of Pakistan. There are six type of taxes on mobile sector including SIM card taxes, Activation taxes, Additional VAT for services, Handset taxes, Usage taxes and Custom duties.
Considered as luxury products, taxes on mobile phone known as total cost of mobile ownership (TCMO) is highest (31%) in South Asia.
Despite several issues, Pakistan’s cellular Internet of things (IoT) connectivity is increasing with major telecoms like Zong, Telenor and PTA implementing China Mobile’s IoT platform One Net, and narrowband IoT network site in Pakistan. GSMA intelligence estimates that licensed cellular IoT connections in Pakistan will exceed 3.8 million connections in 2025.
Ease of Doing Business
Due to favorable policies of government of Pakistan, Pakistan has been moving upwards in World Bank’s ranking of Ease of Doing Business. Pakistan has moved from 147th position in 2018 to 136 in 2019 and further moved up to 108 in 2020. The World Economic Forum has also upgraded Pakistan’s position in Global Competitiveness Index in 2019 to 110 out of 141.
Under PTI-led government and Digital Pakistan Policy, State Bank of Pakistan is taking further steps to improve framework for Electronic Money Institutions (EMIs) for mobile payments and online trade which will further improve foreign investment in Pakistan.
GSMA Recommendations for making Pakistan a Digital Economy
Based on the analysis of GSMA Intelligence, Pakistan is still an untapped market for its potential in digital economies. GSMA recommended following steps for Federal government and Ministry of IT, Telecommunication and E-commerce to make Pakistan a full-fledged digital economy in coming years.
New Tax Regime for Digital Sector
One of the biggest hurdles in expansion of mobile ecosystem to grass root level of Pakistan and its lag behind other South Asian economies is the complex tax regime for telecom/mobile sector. PTA is already in negotiations with the government and FBR to rationalize taxes on ICT and IoT sector to ensure availability of mobile phones and mobile data for users. While telecom GSTs are around 8% in Iran and 18% in India, Pakistan has a 19.5% ratio in provinces. The taxes related to mobile ecosystem in Pakistan are given below.
Pakistan’s Digital Policy states that access to internet is a fundamental right of every citizen, therefore, government needs to end the regressive tax regime for the sector. A reduction of 3% GST can result in mobile broadband penetration by 1%, mobile data usage by 1.7%, Sector revenues by 1.4% and GDP by 0.06% per annum.
Reducing the taxes on smartphones and internet connections can contribute hugely towards e-commerce as with increasing online business platforms and current COVID-19 situation, online transactions are already on a surge and with right policies can cross sales in billions.
Data Privacy Laws and Digital Identity
Data availability, identification of users and their privacy are another source of concern for digitization of economies. Pakistan already has a well-established institute of NADRA which is capable of issuing National Identity Cards (NICs) for citizens over age of 18 years.
The government of Pakistan along with Pakistan Bureau of Statistics (PBS) and NADRA needs to develop a comprehensive digital identity database for Pakistanis. The database can not only digitize e-government services like social grants, pensions, complaint services like Citizens Portal but will also help government formulate strict data privacy laws with ability to enforce online regulations. GSMA identifies several services that can benefit from a wholesome digital approach by government.
This digitization of public services for e-government is a necessary step towards digital economy where a wholesome approach is required from government level to build end-user confidence level. Around 166 million mobile connections in Pakistan are bio metrically verified in past few years which can be reconciled with NADRA database and PBS database to eliminate any risk of fraud and data privacy breach online.
Moreover, operators should be allowed to expose bio metric data against SIM cards to access Know Your Customer (KYC) details and prevent fraud. Block chain technology should also be explored by Pakistan to address cyber security concerns and introduce safe cross border transactions.
New Policies for Spectrum Allocation and License Fees
Pakistan has allocated second lowest broadband spectrum for local operators which is a major barrier in efficiency of online transactions and digital transformation of businesses. With ever rising population and their use of internet, consumers now require more bandwidth spectrum and higher speeds, however the license fee structured by government is too high for local providers and is seriously hampering the growth of market. If government of Pakistan wants to increase its internet coverage to untapped areas of the country, the broadband spectrum allocation and its license fee should be made more accessible for local operators.
Pakistan still lags behind in formulating a transparent spectrum licensing process as all stakeholders are not taken on board with decision making. With 5G services on the edge to enter markets, Pakistan still needs to devise cost effective methods for ensuring availability of mobile broadband services in rural areas that offer more potential in terms of population density. The license pricing and spectrum allocation are a key to develop regional compatibility.
Boosting Network Coverage & Infrastructure Sharing
Around 18% of population in Pakistan does not have access to internet services. This is mainly due to high infrastructure and upfront costs that hinders interests of local operators to expand in areas where profitability is uncertain. The government needs to devise policies that are supportive of network and infrastructure cost sharing to increase approach of local operators to untapped areas and increase efficiency of network services.
Already mobile download speed in Pakistan is higher than most of its neighbors, however, due to lack of network sharing, download speeds are not up to regional levels. Allowing infrastructure and network sharing will help local operators expand their services to underserved areas as well as boost up download speeds. The network sharing regulations can also increase investments in mobile ecosystem in Pakistan.
Another factor that needs to be overlooked is Pakistan’s fibre strategy where fibre deployments are limited to big cities. The government is already in process of establishing public-private partnerships and Universal Service Fund (USF) to stimulate fibre deployments.
Uplifting IT skills and startup support
Capitalizing on Prime Minister Imran Khan’s vision of channeling Pakistan’s youth potential towards digital economy, several strategies are being formulated to expand IT sector. The literacy rate of Pakistan is a major hindrance to skill development of youth for using internet and mobile data. Several projects including Jazz Smart School, Digi-Skills Programme by Ministry of IT and Telecom provide free education in IT, freelancing and eCommerce programs.
The government needs to take further initiatives like venture capitals in collaboration with private sector to promote youth’s participation and talent in IT sector. Already under the National Incubation Program, government has collaborated with Ignite, Jazz and Team up and have so far incubated 350 startups to promote culture of Digital entrepreneurship. Moreover, National Science Technology Park established by NUST and Federal government are all set to incubate more IT related startups.
The government needs to formulate new policies to encourage Corporate Venture Capital (CVC) by protecting investors. Moreover, regulations on tax exemptions, credit facilities, increased participation of private sector and subsidies on technology parks should be formulated to encourage more start ups and contribution in digital economy.