KARACHI: This year Pakistan’s e-commerce sector has performed better than ever before as digitalisation and larger internet accessibility paved the way for almost 100% increase in sales of local and international merchants.
Sales reached Rs40.1 billion in FY18 compared with Rs20.7 billion in FY17, an encouraging growth of 93.7%, according to a State Bank of Pakistan (SBP) report released in late October.
The online market witnessed a boom in the outgoing year owing to the services sector, which now has a 60% contribution to the gross domestic product (GDP), increasing from the previous 52%.
This is the data which the central bank has compiled through digital transactions like credit/debit cards, interbank fund transfers (IBFT), prepaid cards and mobile wallets. However, market estimates that cash on delivery (COD) settlements are about 90% of the total volume and about 60% of the total value of B2C e-commerce.
COD is hindering the growth of e-commerce in Pakistan, though it is a general phenomenon in most of the developing countries. Buyers do not trust sellers as products, which they receive, are usually not what they see on web portals.
The trust deficit, which is not allowing people to pay through online payment solutions, still exists. Nevertheless, e-commerce in the country is growing as digitalisation has made it possible to bypass middlemen, who used to eat up most of the business margins. Leading producers of apparel, smartphone, food and electronics have set up websites to connect with their customers.
Large-scale investments in the business-to-business (B2B) category are underway; however, business to consumer (B2C) sector is growing at a faster pace on the back of relatively larger internet penetration in areas where the online connectivity has never reached before.
The country has got 153 million cellular subscribers, more than 73% of the total population of 207 million, out of which 61 million are 3G/4G subscribers with total internet subscribers at 63 million.
Moreover, the scope of 4G is expected to expand in remote areas of Pakistan next year, as the mobile network operator, Jazz, is expected to invest over $200 million to expand its tower network. Other than that bringing 5G in the country is also on the cards, which will further lift the internet accessibility for people.
The growth of e-commerce in the country has also attracted international buying interest as in early May this year, Alibaba, the biggest e-commerce platform, rose from the east and bought Daraz.pk from European internet company, Rocket Internet, in Pakistan. The giant took over the whole Daraz Group in all five countries, including Bangladesh, Myanmar, Sri Lanka and Nepal by acquiring 100% shareholding. Out of these five countries, with around five million customers, Pakistan was the biggest market for the group.
Daraz, which started with only five people in June 2012, now employs a staff of around 1,000 people. On the bright side, Alibaba, instead of bringing Chinese products in the country, decided to keep promoting Pakistani products.
In another development, in March, Alipay, a part of the Alibaba Group, founded in 2004 by Jack Ma announced to buy 45% share in Telenor Microfinance Bank. And in November this year, antitrust watchdog, the Competition Commission of Pakistan (CCP), approved the deal.
According to market experts, Alibaba is creating its complete e-commerce infrastructure including online marketplace, online payment system and its own logistic system, which shows that the country is attractive for investors.
According to a McKinsey Global Institute (MGI) report, “Pakistan can experience an increase in its GDP by a cumulative seven percentage points (roughly $36 billion) and create around four million new jobs during 2016-2025 via an increase in the use of digital financial services (DFS) alone.”
Published in The Express Tribune, December 26th, 2018.