Growing in the Information Age
Pakistan is failing to take advantage of seismic shifts in telecommunications
Pakistan has a population of ~220 million people and 166 million mobile subscribers.
Sounds pretty good, right?
Wrong!
Scratch beneath the surface and you will find that Pakistan still has a long way to go to make access to broadband a reality for the vast majority of its population:
There are only ~80m NGMS subscribers (the PTA’s term for broadband).
This comes to about 48% of total subscribers.
Out of the 80m, only ~50m are 4G connections.
This means that only 30% of total subscribers in the country have 4G connections.
It is also worth noting that there is a gender divide: 93% of men own a mobile phone compared to less than 40% of women, and 21% of men use mobile phones for financial transactions compared to less than 7% of women.
4G adoption is a critical metric that shows a country’s ability to take advantage of the coming 5G revolution. Pakistan lags the rest of South Asia, with only 23% of all connections being 4G.
Meanwhile, the PTA is talking about 5G readiness in the country, as if simply talking about things will yield results.
Increasing access to modern telecommunications is critical to long-term economic success.
We have seen major shifts in telecommunications technologies over the last 20 years. From autonomous vehicles plying congested roads to 5G remote surgery, modern telecommunications are reshaping and reorienting our world in unimaginable ways.
This only represents a very thin slice of the changes being ushered in by technological breakthroughs - I did a podcast on this, which you may want to watch or listen to.
These shifts are not just a chance to catch up with the rest of the world.
They are a once-in-a-century opportunity to leapfrog ahead.
Sadly, Pakistan is failing to take advantage of this seismic shift.
If the country does not course correct, it is highly like the country will fall further behind countries like Vietnam and Bangladesh.
Investment data also supports the hypothesis that Pakistan is missing the boat.
At a time when Reliance Jio, a telecommunications behemoth across the border, has brought in billions of dollars in investment as it seeks to transform India’s digital ecosystem, Pakistan saw a net foreign direct investment of just over $600m in telecommunications in FY20.
It is worth noting that this paltry investment is only maintaining the existing infrastructure, not growing it, because the barriers are too high for both the consumer the investor.
Mass adoption of digital technologies can:
Bring in foreign direct investment into the country, a critical need given Pakistan’s chronic balance of payments problems.
Catalyze the adoption of digital payments, which is critical for formalizing and documenting the economy.
Make freelancers more competitive, which can boost export earnings for the country.
Enable better education and health outcomes through distance learning and telemedicine.
Allow startups to grow outside of the Karachi-Lahore-Islamabad corridor.
A study shows that increasing data usage is good for economic growth: doubling mobile data consumption can increase GDP growth by 0.5 percentage points, while a 10% increase in mobile penetration improves long-term factor productivity by 4.2 percentage points.
Pakistan needs to grow both these things, so it is only logical for the government to increase access to broadband data at a rapid pace.
So What Has Gone Wrong Here? Follow the Money.
First and foremost, successive governments have been penny-wise and pound foolish. By placing heavy taxes on the entire digital ecosystem, Pakistan has stunted its growth.
Users in Pakistan pay taxes on:
SIM cards
Activation
Usage
Handset purchases
Import duties
Additional value-added taxes
Meanwhile in Afghanistan, a much poorer country by comparison, users only have to pay usage taxes on their device and internet usage.
The only rational explanation for over-taxing this sector is because it is an easy target for meeting the government’s tax collection targets. Policymakers should be forward-looking and help the digital ecosystem grow, which according to GSMA contributed almost $17 billion to Pakistan’s economy in 2018!
There are other issues that compound problems as well, including the regulatory burden across the economy, lack of quality education — critical for building a robust digital ecosystem — and the inability of successive governments to have a long-term approach to economic policymaking.
The Path Forward
Let’s be honest. Pakistan has immense structural problems that it needs to overcome. These are complex issues to solve and require leaders to walk over a minefield. Given where the country is today, it is unlikely that these issues can be solved any time soon. But expanding access to digital technologies and modern communications is much, much easier.
Here are three steps the government should take today to signal a shift in its thinking:
Reduce the tax burden on the telecommunications sector. The government must signal that it sees telecommunications as a catalyst for economic transformation, not as a sector that can help plug revenue gaps. This is critical for accelerating the adoption of new technologies — at the consumer and the business level — and increasing investment flows into the telecommunications sector.
Launch a mission to double 4G subscribers. Without a sharp increase in 4G connections, companies will not be keen to invest in next-gen 5G technologies. After all, if they are failing to get consumers to buy the last-gen equipment, why should they invest billions into the next-gen technologies?
Create a national payments interface and incentivize non-cash transactions. Pakistan had a digital identity program long before India developed its Aadhar system. Today, however, Pakistan’s eastern neighbor has leapfrogged ahead, developing a robust India Stack that is a case study worth emulating. To incentivize adoption of digital payments — and formalize the economy — the government must declare a tax holiday on non-cash consumer transactions.
The Digital Pakistan initiative is a step in the right direction, even though it has faced controversy in recent weeks. But with a taxation regime that makes it really expensive for businesses to invest in and consumers to adopt new technologies, it is not going to meet its intended goals.
The Prime Minister has said that he is keeping an eye on the construction sector and is holding regular meetings to stay informed about progress. My advice to him is that he should also make some time for Pakistan’s digital ecosystem and demand that his government usher in an information revolution in the country before his term is over.
Your treatment of the topic is precise and to the point. The format (headings and bullet points) is very helpful for those on the go. Looking forward to reading more of these. Keep it up.
This is an excellent newsletter! Thanks Uzair! I'd love to know more about digital payments, and how how it's being developed. For example: how can the consumer's privacy be protected? Who will own the data?, etc.