INDIVIDUAL RESEARCH PAPER

“CRITICAL APPRAISAL OF E-COMMERCE IN PAKISTAN:

PROSPECTS AND POTENTIAL IN POST-COVID ERA”

by

Mr. Salman Ahmed Choudri

(Commerce and Trade Group)

35th Mid-Career Management Course

National Institute Of Management, Islamabad

A paper submitted to the faculty of the National Institute of Management (NIM), Islamabad, in
partial fulfillment of the requirements of the 35th Mid-Career Management Course.

I declare that this paper is the end product of my own efforts, research and writing and its contents
are not plagiarized. The paper reflects my own views and is not necessarily endorsed by the faculty
or NIM.

Signature _______________________
Date: December 18, 2022

Paper supervised by:

Mr. Muhammad Masood Ahmad
Course Instructor, NIM Islamabad
 Abstract
E-Commerce is growing rapidly and fast becoming an emerging trend among businesses and
consumers. During the peak of the COVID-19 pandemic, the sector recorded a growth of 46
percent globally. This trend is likely to continue in post COVID era due to immense potential in
the sector and convenience of online shopping. Also, the pandemic has triggered a competition
among businesses for innovation aimed at enhancing the satisfaction of the consumers.

E-Commerce in Pakistan has also seen encouraging growth in the last few years. In 2021,
Pakistan’s E-Commerce market size was USD 5.9 billion. This was made possible through
increased availability of internet, mobile phones, payment gateways and delivery services. Also,
government policies and interventions enabled the sector to increase its foot print and contribute
towards the economy. However, Pakistan lags behind regional countries like Bangladesh, India
and Sri Lanka in E-Commerce growth.

As part of the research aiming to explore the prospects and potential of E-Commerce in Pakistan,
a qualitative and quantitative approach was used to explore the factors hindering growth in online
businesses. The research identified challenges related to ICT infrastructure, payment solutions,
skill development, logistics and absence of legal and regulatory framework to support and promote
E-Commerce. Also, there exists absence of institutions and policies to help the E-Commerce sector
in Pakistan.

The research suggests improving the availability of internet coverage and its affordability
especially in rural areas and smaller provinces including local manufacturing of 4G enabled
smartphones. Also, availability of reliable payment gateways and enactment of data protection
laws would incentivize digital payments. There is also a need for a robust logistics and delivery
infrastructure to allow the sector to grow domestically and internationally. Targeted policies and
initiatives towards skill development could help create employment and rise in IT startups.

Pakistan has a huge potential to emerge as a market leader in E-Commerce in post-COVID era.
The government needs to continue with its reform agenda to harness the prospects of growth in
the sector and to achieve inclusive growth.

ii
 Table of Contents

Introduction ..................................................................................................................................... 1
Statement of the Problem ................................................................................................................ 2
Scope of Study ................................................................................................................................ 2
Review of Literature ....................................................................................................................... 2
Methodology ................................................................................................................................... 4
Organization of the Paper ............................................................................................................... 4
Section I .......................................................................................................................................... 4
1. Overview of Global E-Commerce ........................................................................................... 4
1.1. Impact of COVID-19 on E-Commerce ............................................................................ 6
1.2. Emerging global trends in E-Commerce in post-COVID era .......................................... 6
2. State of E-Commerce in Pakistan ............................................................................................ 7
2.1. Pakistan & South Asia region .......................................................................................... 9
Section II ....................................................................................................................................... 10
3. Prospects and Potential of E-Commerce in Pakistan............................................................. 11
3.1. ICT infrastructure and Services........................................................................................ 11
3.2. Payment Solutions ............................................................................................................ 12
3.3. Trade Logistics and Trade Facilitation ............................................................................. 14
3.4. E-Commerce Skill Development…………………………………..................................18
3.5 Legal and Regulatory Framework………………………………………………………19
Section III...................................................................................................................................... 18
4. Conclusion ............................................................................................................................. 18
5. Policy Recommendations ...................................................................................................... 19
Bibliography ................................................................................................................................. 22

iii
 List of Abbreviations

3G Third Generation Wireless Internet

4G Fourth Generation Wireless Internet
AMA Asaan Mobile Account
ATM Automated Teller Machine
BOI Board of Investment
CoD Cash on Delivery
COVID-19 Corona Virus Disease of 2019
EMS Express Mail Service
FBR Federal Board of Revenue
ICT Information and Communication Technology
LTE Long Term Evolution
NAVTTC National Vocational and Technical Training Commission
OECD Organization of Economic Cooperation and Development
PBS Pakistan Bureau of Statistics
PTA Pakistan Telecommunication Authority
SARS Severe Acute Respiratory Syndrome
SBP State Bank of Pakistan
SECP Securities and Exchange Commission of Pakistan
SME Small and Medium Enterprise
UNCTAD United Nations Conference on Trade and Development

iv
 Introduction

E-Commerce (Electronic Commerce) refers to the production, distribution, marketing, sale or

delivery of goods and services by electronic means”.1 E-Commerce can be mainly categorized into
the following: (i) Business to Business (B2B); (ii) Business to Consumer (B2C); (iii) Business to
Business to Consumer (B2B2C); and (iv) Consumer to Consumer (C2C).

E-Commerce arrived on the world scene with the dawn of internet in early 1990s. It rapidly became
an important part of everyone’s life with the widespread footprint of electronic devices such as
smart phones, laptops, tablets and the availability of broadband internet. The COVID-19 pandemic
proved to be a catalyst for the E-Commerce market due to widespread infections across the globe
and associated social distancing protocols, lockdowns and travel restrictions. The global online
sales recorded 46 percent growth during the two year of the pandemic (2020-21).2

Amidst the pandemic, E-Commerce industry in Pakistan also experienced substantial growth vis-
à-vis traditional segments of the economy. Businesses and governments quickly adapted to sudden
disruption in traditional business activities. It proved to be an incentive for businesses to shift their
activities online and allowed the government to expedite digitalization of the economy. Online
platforms like Daraz, HomeShopping, Yayvo, ShopHive and many new entrants stepped into the
role of service providers for businesses and consumers. Pakistan’s E-Commerce market size
reached USD 5.9 billion in 2021, making it the 37th largest market globally.3

These positive trends in E-Commerce market are expected to continue in post-COVID era. The
outbreak of severe acute respiratory syndrome (SARS) in 2003 in China proved to be a catalyst
for digital revolution of Chinese retail sector. E-Commerce companies like JD.com, one of the
largest online retailers in the world was a direct response to the epidemic. The same also provided
the consumer base for Alibaba’s business-to-consumer (B2C) branch Taobab, which was launched
in 2003 (OECD, 2020).

E-commerce is an important instrument to induce inclusive growth in an economy due to its

positive impact on productivity, competition, and innovation and consumer welfare. This
necessitates understanding the environment of E-commerce in Pakistan, challenges/impediments
to its growth and a comprehensive assessment to propose public sector interventions for realizing
the potential in the sector (Ismail, 2020).

1
E-Commerce in the World Trade Organization: History and latest developments in the negotiations under the Joint
Statement (iisd.org)
2
CBRE Global E-Commerce Outlook 2022_Update.pdf
3
https://www.statista.com/
 Statement of the Problem

E-Commerce is fast transforming the global economic landscape. This transition from traditional
economies to digital economies was accelerated with the advent of the COVID-19 pandemic. This
trend is likely to continue in post-COVID era for a number of reasons including persistent risks of
the virus, high growth prospects and consumer convenience.

E-Commerce in Pakistan also saw a surge during the peak of COVID-19. Amidst lockdowns and
restrictions, various digital segments of the economy adapted to benefit from the presented
opportunities. However, adaptation to the new norms of doing business remained slow vis-à-vis
regional competitors due to frail digital infrastructure, limited payment solutions, low skill
development and others.

Pakistan’s economy which is already faced with acute economic challenges, E-Commerce can be
an instrument of inclusive growth. This research paper will critically examine E-commerce in
Pakistan during COVID-19 vis-à-vis regional and global trends. The paper will also discuss the
prospects and potential of growth in E-Commerce in post-COVID era and will suggest policy
interventions to maximize economic gains. The research questions framed are:

Question: How did Pakistan’s E-Commerce perform during COVID-19 vis-à-vis

regional and global trends?
Question: What are the prospects and potential of E-Commerce in Pakistan in post-
COVID era? What are the impediments and challenges?
Question: What policy interventions could be suggested to sustain and expand E-
Commerce in Pakistan?

Scope of Study

The research paper aims to analyze the performance of E-Commerce in Pakistan during COVID-
19 pandemic vis-à-vis regional economies and global trends. It also aims to understand the
challenges and impediments in the sector to analyze prospects and potential of E-Commerce. On
the basis of the research, the preferable course of action would be advised and possible public
policy intervention would be proposed.

Review of Literature
OECD (2020) in its report signified the importance of E-Commerce during the COVID-19
pandemic in providing opportunities to businesses to operate and consumer’s convenience. The
report highlighted the cross-cutting issues faced by E-Commerce and underlined the need for
improved IT infrastructure, access to finance for SMEs, regulatory reforms, innovative, fair
competition, logistics network and an enabling environment for businesses. The report also

2
suggested that these changes will be of a long-term nature, keeping in view the unpredictable
nature of the epidemic, convenience habits of the consumers and opportunity driven investments
in E-Commerce.

SBP (2020), in its report did a comprehensive analysis of the digital economy of Pakistan. As per
the report, Pakistan made substantive progress in E-Commerce, e-banking sector and various
regulatory/facilitative measures taken by governments to support expansion of these sectors. The
report also highlighted the challenges faced by the E-Commerce market concerning low internet
connectivity, lack of IT infrastructure, lack of literacy and skill development, limited payment
mechanism and digital divide across the country. To attain digital and financial inclusion, more
efforts would be required on part of the government.

E-Commerce Policy Framework (2019) is a comprehensive document containing E-Commerce

policy introduced by the government to induce growth in the sector. The policy provides a glimpse
of the current status of E-Commerce in Pakistan and interventions by the government to encourage
digitalization. Malkani (2020), while analyzing the E-Commerce Policy 2019 of the Government
of Pakistan, highlighted the shortcomings in the document. The author stated that the policy lacked
clear and robust roadmap for expansion of the sector and that it should have reflected a much
detailed understanding on institutional gaps, deficiencies in infrastructure and cross border E-
Commerce.

Katz (2020) stated that digitalization had a positive effect in mitigating the impact of COVID-19
pandemic. However, the impact in developing countries was limited due to digital divide. The
governments needed to tackle the issue of digital divide through investment in infrastructure
development. The pandemic had presented opportunities for E-Commerce provided companies
invested in IT systems and automation of business processes (Kumari, 2021).

Imtiaz (2020), viewed that Pakistan was likely to face challenges in the E-Commerce industry.
The issues of privacy, security and trust remain constant despite the increase in adaptability to
online business. Unless, these core issues were addressed, the possibility of inclusive growth and
sector’s integration in the national economy remained a problem. Trust, privacy and security are
major impediments to E-Commerce growth in Pakistan (Chaudary, 2014).

Khaskheli (2016), highlighted the importance of E-Commerce for SMEs in Pakistan. SMEs have
lesser resources in comparison to large enterprises so their outreach to mass markets is a challenge,
which could be overcome to a large extent through online platforms.

3
 Methodology

The study adopted an approach that was qualitative in nature, using both primary and secondary
sources. For primary data, the information was obtained through unstructured interviews of
relevant officials from the Ministry of Commerce, Pakistan Telecommunication Authority (PTA)
and Board of Investment (BOI).

Secondary data was obtained from published research, online journals and articles, working
papers, data portals of local and international organizations including United Nations Conference
on Trade and Development (UNCTAD), World Bank, Organization for Economic Cooperation
and Development (OECD), Euromonitor, Statistica along with official websites of State Bank of
Pakistan (SBP), Pakistan Telecommunication Authority (PTA), Ministry of Commerce and
Pakistan Bureau of Statistics (PBS). In a nutshell, the data was obtained from varied sources for a
critical analysis of the E-Commerce market and reaching at conclusions.

Organization of the Paper

The research paper is divided into three sections. Section-I presents overview of the global E-
Commerce market and emerging trends in post-COVID era. Later part explains the state of E-
Commerce in Pakistan and aligned infrastructure and does a comparison with regional markets.
Section-II analyzes the prospects and potential of E-Commerce in Pakistan and also highlights the
challenges and impediments to growth in the market. Section-III deals with the Conclusion and
Recommendations.

Section I

1. Overview of Global E-Commerce

E-Commerce sales amounted to approximately USD 5.2 trillion4 last year. The growth in the
market is forecasted to reach USD 8.1 trillion by 2026, mainly due to the unprecedented COVID-
19 pandemic which necessitates businesses to adapt and consumers to shop online. E-Commerce
will continue to gain control, even in countries where online shopping is already popular5.

There are many other factors which are driving growth in E-Commerce including widespread use of
smart phones, availability of broadband internet, improved infrastructure including logistics and
market expansion. Global E-Commerce platforms such as Alibaba and Amazon are the front-
runners in providing innovative digital platforms to their customers. China is the market leader in

4
https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/
5
https://www.morganstanley.com/ideas/global-ecommerce-growth-forecast-2022

4
terms of percentage internet sales followed by United Kingdom, United States, South Korea,
Denmark, India and Philippines.

Figure 1

Source: Statista

Developing economies are also poised for significant growth E-Commerce. In parts of Southeast
Asia and Latin America, E-Commerce could grow by 17 percent and 20 percent, respectively, over
the next five years6.

Figure 2

Source: Euromonitor, Morgan Stanley Research estimates

6
https://www.morganstanley.com/ideas/global-ecommerce-growth-forecast-2022

5
1.1. Impact of COVID-19 on E-Commerce

The COVID-19 pandemic had a significant impact on every segment of the industry. Businesses
were forced to shift from ‘traditional’ to ‘online’ platforms to retain their customer base. Similarly,
consumers were compelled to make purchases over the internet due to lockdowns, social
distancing protocols and travel restrictions. During the first two years of the pandemic (2020-21),
E-Commerce sales grew by 46 percent7.

Figure 3

Source: CBRE Research (June 2022)

The pandemic triggered a healthy competition among digital platforms like Amazon, Walmart,
eBay and Spotify to provide free tools and additional services to their customers. It also had an
impact on social media as many businesses turned to Facebook, Instagram, YouTube and Twitter
for advertisement purposes. Likewise, governments responded by improving on the ICT
infrastructure to offset the losses to the traditional industry. Forecasts show that by 2040, 95
percent of all retail sales and purchases will be made and facilitated online8.

1.2. Emerging global trends in E-Commerce in post-COVID era

E-Commerce has spurred competition and innovation. New trends and innovative technologies are
fast emerging which are changing the way people shop online. Brands and digital platforms are
investing heavily in digital technologies to retain and expand their customer’s base. Listed are
some of the trends that are altering the E-Commerce market:

7
CBRE Global E-Commerce Outlook 2022_Update.pdf
8
https://www.thenews.com.pk/print/744670-the-future-of-e-commerce

6
  Augmented Reality - the technology allows brands to make decisions about their
products in a virtual format, thereby increasing the product value. Ikea (Swedish-Dutch
furniture brand) launched IKEA Place, an application on the Apple Store, to make the
buying decision a lot easier for customers.

 Virtual Reality - the technology allows brands to create virtual online stores for
customers. Amazon and Alibaba have enabled their customers to shop in a virtual
format, improving decision making and increasing the product value.

 Alternative Payment Models - are getting increasingly popular among shoppers. E-

wallet, payment by card and cryptocurrency is making payments convenient for the
customers.

 Voice Assistants - Google Assistant, Alexa, Siri, and Cortana are getting more attention
by the customers.

 Chat Bots - makes it easy for customers to retrieve right information about products
through text and audio message available on the retailer’s website.

 Social Commerce – existing online social platforms like Facebook, Instagram are now
being used by brands to market and sell their products.

2. State of E-Commerce in Pakistan

E-Commerce in Pakistan has seen promising growth in the last few years. In 2021, the market size
was estimated at USD 5.9 billion, making it the 37th largest E-Commerce market globally.
Domestic E-Commerce improved immensely with increased mobile usage, availability of internet,
modes of payments and delivery services. It is estimated that 50,000 merchants are listed with
online marketplaces such as Daraz, Foodpanda, Jomo, Bastaan, Dukan, Shophive and Shopsy.

Growth in E-Commerce can be attributed to rising tele-density in the country. According to latest
figures by Pakistan Telecommunication Authority (PTA), there are 194 million cellular
subscribers in Pakistan. Out of these, 121 million are 3G/4G subscribers and 124 million are
broadband subscribers9. It shows that mobile users, internet users, coverage of 4G (Long-term
Evolution) LTE services and adoption of social media is on the rise in Pakistan. Also, improved
logistics network, delivery services, payment methods have supported growth in the online
business. Increasing number of E-Commerce platforms in the country is further evidence to this
fact. The Covid-19 pandemic gave further boost to the growing E-Commerce market and led to
many new product categories being increasingly delivered through E-Commerce. This trend is

9
https://www.pta.gov.pk//en/telecom-indicators

7
expected to continue growth in post-COVID era as Pakistan’s E-commerce market is expected to
generate USD 7.6 billion revenue in 2022 and an annual growth rate of 6.09 percent between 2022
and 2025, resulting in a projected market volume of US$9.1 billion by 202510.Figure 4 shows E-
Commerce transactions via debit/credit cards and e-Wallets in FY 2022. Online Payments
increased over the same periods from 2019 to 2021. However, 90 percent of Domestic E-
Commerce continues to be conducted through Cash on Delivery (CoD). Likewise, E-Commerce
exports enhanced during the period Jan 2021- April 2022, amounting to USD 12 million. Figure 5
shows data for exports to 85 countries, with United States being the largest market. Designer
clothing shops topped the online store ranking for Pakistan in 2021.

Figure 4

E-Commerce Market size Growth

Q3FY2022 35.4
76

FY2021 21.9
60.6

FY2020 10.2
34.9

FY2019 5.7
26.1

0 10 20 30 40 50 60 70 80

E-Commerce Volume (In Millions) E-Commerce Value (Amount in PKR Billion)

Source: State Bank of Pakistan

Figure 5

E-Commerce Exports Value: USD

1533 1470
1600 1400
1400 1045 1074
1200 848 946 910
1000 806
800 611 508
600 347
159 228 242
400
200 11
0

ExP_2021 Exp_2022

Source: Federal Board of Revenue (FBR)

10
https://www.brecorder.com/news/40170403

8
2.1. Pakistan & South Asia region

The COVID-19 pandemic impacted the entire global economic landscape. Countries rushed to
adapt with the new norms of conducting business and to come up with innovative ideas to minimize
the impact of economic crisis. The pandemic accelerated the expansion of online business in
almost all countries including developing nations. However, adaptation varied based on the level
of e-readiness in a country. Countries like India and Bangladesh, who had more mobile and
internet penetration registered massive increase in E-Commerce. However, in Pakistan, the
performance of E-Commerce vis-à-vis regional countries remained minuscule due to multiple
economic, social and intellectual barriers. Figure 6 provides a snapshot of the mobile and internet
penetration in Pakistan.

Figure 6

Source: Pakistan Telecommunication Authority (PTA), September 2022

Though tele-density has increased considerably in Pakistan, yet there remain gaps in critical
infrastructure such as internet coverage, rural/urban divide, gender-based usage, internet and
financial inclusion when compared with regional countries. The United Nations Conference on
Trade and Development (UNCTAD) B2C E-Commerce Index 2020 ranked Pakistan 116 out of
152 economies11. When compared with India and Bangladesh, Pakistan is far behind in terms of
transiting to digitalization of economy and financial inclusion.

The Inclusive Index 2022 measures the extent to which the internet is accessible and affordable,
but also aims to identify positive social and economic outcomes. According to its latest report of
2022, Pakistan ranked 79 out of 100 countries and the lowest in South Asia region after India,
Bangladesh and Sri Lanka12. Pakistan performed slightly better than Bangladesh in terms of
affordability of the internet.

11
tn_unctad_ict4d17_en.pdf
12
Economist Impact: The Inclusive Internet Index, supported by Meta

9
 Figure 7
OVERALL
Rank / 100 Score / 100 Δ
50 ↓2 India 74.1 +1.7
59 ↑3 Sri Lanka 69.4 +2.5
64 ↑5 Bangladesh 66.4 +2.9
79 ↔ Pakistan 58.1 +1.2
Source: EIU Inclusive Index 2022

According to World Bank’s Global Findex Database 2021, only 21 percent of the adults and 13
percent of women had account ownership in Pakistan. This ratio of account holders is low when
compared to India (78 percent), Bangladesh (53 percent) and Sri Lanka (89 percent)13 respectively.
In India, account ownership increased from 35 percent in 2011 to 78 percent in 2021. In Pakistan,
it grew by just 11 percentage over the past decade, which is low when compared to other South
Asian countries.

Though Pakistan lags in E-Commerce, the market is on a growth trajectory. In the one year
between 2018 and 2019, E-Commerce penetration in total retail increased by 0.4 percent reflecting
a fast-growing positive trend14. This increased activity was the direct result of government’s
interventions to facilitate and promote online businesses in the country, leading to an expansion in
total E-Commerce market size.

Section II
Pakistan has all the right indicators to be a potential market for E-Commerce. The country has
witnessed growth in E-Commerce due to improved ICT infrastructure and timely interventions by
successive governments. The pandemic proved to be a catalyst for businesses to shift online and it
is estimated that this positive trajectory will continue in post-COVID era provided there is
improved access to broadband internet, smartphones, multiple digital payment options and
logistics.

Government of Pakistan launched ‘Digital Pakistan’ policy in 2019 with a aim to bolster access to
broadband internet, digital infrastructure, skill development and innovation in information
technology. Prior to this, various initiatives were launched to promote ICT infrastructure including
National IT Policy (2000), Cellular Policy (2004), Broadband Policy (2004) and Telecom Policy
(2015). Provinces also took various initiatives such as Provincial IT Boards and digital policies of
Punjab and Khyber Pakhtunkhwa were established to enhance ICT ecosystem.

13
https://fintechworldreport.com/
14
https://www.euromonitor.com/consumers-in-2019/report

10
3. Prospects and Potential of E-Commerce in Pakistan
E-Commerce Policy Framework (2019) is integral to the overall ‘Digital Pakistan’ policy with a
purpose to facilitate E-Commerce through targeted government interventions such as the
establishment of National E-Commerce Council, integration with custom clearance system,
simplified registration process for businesses and exemptions. The policy was wanted to provide
support to businesses especially Small and Medium Enterprises (SMEs) to benefit from
digitalization. SMEs make up almost 98 percent of the businesses in Pakistan and can play a pivotal
role in promoting economic growth in the country.

To analyze prospect and potential of E-Commerce in Pakistan, this section aims to understand
country’s performance against the pillars of growth as identified under ‘eTrade for All’ UNCTAD,
Ministerial Conference held at Nairobi in 201615.

3.1. ICT infrastructure and Services

The access to ICT infrastructure and services has a positive correlation with E-Commerce. In
countries like China and India, growth would not have been possible without access to fast
broadband internet, its coverage to rural areas and availability of smartphones. Recently, Pakistan
also made headways in the availability of 3G/4G internet service under the National Broadband
Policy (2015) and the launch of ‘Smartphone for All’.

Pakistan Telecommunication Authority (PTA) data from September 2022 shows that there were
194 million cellular subscribers. There were 121 million 3G/4G and 124 million broadband
subscribers with a total tele-density of 87.98 percent16. With the growing young population bulge
in the country, there will be greater shift towards digital economy. E-Commerce will become more
significant as use of smartphones and internet broadband penetration increases, in return creating
employment and growth of the economy.

Despite the progress made in the ICT infrastructure, there remain issues in terms of limited
coverage of internet, urban/rural divide, high prices of smartphones, taxes on imported
smartphones and gender gaps in mobile ownership. Pakistan was ranked 116 out of 152 countries
by B2C E-Commerce Index 2020, UNCTAD17 on E-Commerce readiness, which is a down grade
of two points when compared with 2019 rankings. The share of individuals using the internet was
only 24 percent of the total population. When compared with India (ranked 71), Sri Lanka (ranked
91) and Bangladesh (ranked 115), Pakistan has the least preparedness in South Asia region.
Similarly, Pakistan is among the top countries with unbanked population, only 21 percent of
individuals (15 years and above) had a bank account in 2020.

15
eTrade for all | E-Commerce and Digital Trade for Development
16
https://www.pta.gov.pk//en/telecom-indicators
17
tn_unctad_ict4d17_en.pdf

11
 Figure 9

Source: UNCTAD B2C E-Commerce Index 2020

Smartphone ownership is also very low in Pakistan for both men and women, 37 per cent and 20
per cent respectively18. The ownership of a smartphone by women is less due to social factors
including disapproval by the families. Pakistan has been ranked only above Iraq and Yemen in
terms of gender parity by the World Economic Forum’s global gender parity index19. Inclusion of
women in the mainstream can generate economic activity in the E-Commerce market.

Mobile purchase is becoming a serious issue as prices have sky rocketed in the last one year due
to depreciation of the rupee coupled with high taxes on imported commercial smartphones and
personal use. Though local manufacturing of mobile phones increased in the last few years yet
major production/assembly is of 2G phones and not 4G compatible smartphones.

3.2. Payment Solutions

The digital payments market is set to grow globally at 19.4 percent between 2021 and 202820. E-
Commerce market in Pakistan has seen increased digital payments integration in the last 2 to 3
years. This has been achieved through branchless banking, availability of other payment options
and financial inclusion.

The National Payment Strategy was launched in 2019 with a specific purpose to develop a robust
digital payments network. The State Bank of Pakistan (SBP) introduced regulatory reforms
through the introduction of branchless banking, electronic money institutions and others. In
addition, payment rails were introduced in the form of RAAST for efficient end-to-end digital
solutions.

18
Addressing the Mobile Gender Gap in Pakistan (gsma.com)
19
World Economic Forum’s Global Gender Gap Report 2020
20
How Digital Payments Can Change Your Business (forbes.com)

12
Also, SBP launched the Asaan Mobile Accounts (AMA) in 2021 with the support of Pakistan
Telecommunication Authority (PTA) to strengthen digital payment systems and for financial
inclusion of a huge unbanked population in the country21. It also launched ‘Roshan Digital
Account’ for overseas Pakistanis to open foreign currency accounts and to make payments online.
Presently, SBP is working on the development of a Micropayment Gateway (MPG), in
collaboration with Karandaaz, to offer simplified retail payments.

The Security and Exchange Commission of Pakistan (SECP), initiated regulatory reforms to allow
investments in financial technology for improving digital payments. International companies like
Stripe and Checkout.com investment in Pakistan to tap fintech opportunities. Also, startups
including Nayapay, Sadapay, Wemsol, Finja and i2c were granted approval for operations. A
number of commercial banks also started offering international payment gateway services
including United Bank Limited (Visa), Muslim Commercial Bank (Mastercard) and Faysal Bank
(Payoneer). Figure 8 illustrations the growth in payment gateway integration since 2019.

Amazon added Pakistan to its ‘Sellers List’ in May 2021. More than 6000 sellers were registered
and recorded sales worth USD 20 million22. Similarly, Hyper Wallet (sister concern of Pay Pal)
aided to bring in proceeds from Amazon. These developments have opened vast opportunities for
attracting investment and supporting startups and young entrepreneurs to launch online businesses.

Figure 8
Number of E-Commerce Merchants with Payment Gateway
Integration
4,445

3,003

1,707
1,362

FY2019 FY2020 FY2021 (Q1+Q2+Q3)

FY2022
Source: State Bank of Pakistan, 2022

21
https://www.phoneworld.com.pk/branchless-banking-asaan-mobile-account-scheme-launched/
22
Ministry of Commerce

13
Presently, there are 35 banks with 16,897 ATM points. Apart from this, 5 Point of Sale (POS)
acquiring banks have installed over 96 thousand POS machines. E-Commerce merchants have
reached 4,445, reflecting a growth of 12 percent over the same period last year23 (Shanahan, 2021).
However, Cash on Delivery (CoD) continues to be the preferred mode of payments, as reflected
in Figure 10.

Figure 10

Source: State Bank of Pakistan, Annual Report (2020)

There are many factors contributing to slow growth in digital payments such as the unbanked
population, gender gap, consumer and retailer mistrust in the digital payments. According to World
Bank’s Fintech Report 2021, the largest number of unbanked adult population is concentrated in
seven big economies including Pakistan. Also majority of the unbanked population constitutes
women. There is an urban/rural divide in Pakistan which limits the digital payments in Pakistan.
Though there exist payment gateways, yet international payment solutions such as PayPal are not
yet available in Pakistan. This restricts businesses transactions and digital payments with most of
the developed economies.

3.3. Trade Logistics and Trade Facilitation

E-Commerce has significantly altered traditional logistics and supply chains. Today, most of
online orders are being delivered at home through logistics service. Therefore, effective and
efficient logistics infrastructure and trade facilitation are essential tools for growth in E-
Commerce. The logistics market in Pakistan has immensely improved over the years with DHL,
TCS and others expanding their network across the country. Also, Daraz, FoodPanda, Careem,
Bykea have added value to the service delivery.

23
https://www.sbp.org.pk/psd/pdf/PS-Review-Q3FY22.pdf

14
Pakistan Post has revamped its operations and is now offering ‘Pak Post Shop’ for E-Commerce
activities. It launched its first mobile application “EMS”, in January 2019 to facilitate SMEs to
send consignments abroad in the shortest possible time and at a much competitive cost.

Pakistan has developed a reasonably well developed logistics infrastructure, however, there remain
bottlenecks in coverage, costs and timelines of packages including storage and customs facilitation
for cross-border deliveries. In 2018, Pakistan was ranked 122 out of 160 countries on the World
Bank’s Logistics Performance Index24.

Figure 11

Source: Logistics Performance Index, World Bank (2018)

The LPI ranks countries on efficiency of clearance process, quality of trade and transport related
infrastructure, ease of arranging competitively priced shipments, competence and quality of
logistics services, the ability to track and trace consignments and the timeliness of shipments in
reaching destination within the scheduled or expected delivery times. When compared with South
Asia Region, Pakistan has underperformed India (ranked 44), Sri Lanka (ranked 94) and
Bangladesh (ranked 87).

3.4. E-Commerce Skill Development

Population Reference Bureau (2017) indicates that there are 38.4 million youth ages 15-24 in
Pakistan. This youth bulge has increased the demand for urbanized education and creation of jobs.
The efforts of the government to promote E-Commerce and ICT through roll out of initiatives by
State Bank of Pakistan, Securities and Exchange Commission of Pakistan (SECP) and
establishment of Business Incubator Centers and Special Technology Zones in the country are
helping improve the ecosystem for startups. Also, improved internet availability, smartphones and
access to finance has helped startups generate economic activity. Resultantly, local startups raised

24
Global Rankings 2018 | Logistics Performance Index (worldbank.org)

15
a total of USD 563.5 million across 255 deals since 2015, with USD 350 million raised via 83
deals in 2021 alone25.

Though Pakistan’s ranking on the World Economic Forum’s ICT Adoption Index has improved
from 127 in 2018 to 110 in 2019, it is still behind countries such as Bangladesh (ranked 108), Sri
Lanka (ranked 107) and Indonesia (ranked 72).

Figure 12

Source: World Economic Forum, ICT Adoption Index

Similarly, Pakistan ranks very low on the Human Capital Index, 2021 as compared to countries
like Sri Lanka and Bangladesh. This is mainly due to the persistent gender gap that exists in the
country. Also, the investments raised by startups in Pakistan has been low as compared to other
regional countries, thus resulting in slow progress in skill development.

3.5. Legal and Regulatory Framework

E-Commerce is conducted online and there is no physical contact like traditional business.
Therefore, consumer-supplier trust is very important when buying and selling online. To overcome
the challenge, many countries over the time put in place consumer protection, data protection and
dispute settlement laws to facilitate online business activity. For example, China revised its laws
to accommodate E-Commerce. Similarly, European Union enacted electronic transaction,
consumer protection and cybercrime legislations to promote E-Commerce and protect consumer
welfare26. The Union also improved on judicial structure and dispute settlement instruments to
address any disputes arising out of online trading.

25
The Pakistan Startup Ecosystem Report (PSER) 2021 – The Pakistan Daily
26
Summary of Adoption of E-Commerce Legislation Worldwide | UNCTAD

16
Pakistan has in place a number of legislations to accommodate E-Commerce including Regulations
for Payment Card Security (2016), Regulations for Prevention against cyber-attacks (2016) and
The Prevention of Electronic Crimes Act (2016). However, there do not exist specific consumer
and data protection laws at the federal and provincial levels.

Figure 13

Source: Adoption of E-Commerce Legislation (Pakistan), UNCTAD

According to UNCTAD Adoption of E-Commerce Legislation, there exists weak consumer

protection laws in Pakistan. Also, privacy and data protection draft legislation is yet to be
approved. In such an environment, there is a mistrust on online business especially digital
payments due to which Cash on Delivery (CoD) is the most desirable mode of payments by both
customers and suppliers for minimizing the element of uncertainty.

However, during the peak of COVID-19 pandemic and amidst lockdowns and social distancing,
digital payments improved. Companies like Daraz improved customer protection by significantly
improving its service delivery and option of a refund and exchange. It was followed by other online
platforms offering similar consumer protection policies.

Pakistan’s existing consumer protection legislation does not have specific provisions for electronic
commerce. For this reason, consumers are reluctant to approach Consumer Courts. Also, there are
no alternate dispute resolution systems for E-Commerce transactions like China, who has a multi-
tiered dispute resolution mechanism to ease out burden on the Courts and for quick disposal of the
matters.

17
 Section III

4. Conclusion
The COVID-19 pandemic has put E-Commerce at the front line of commercial activities. During
the peak of the virus, when traditional retails were in distress, online businesses boomed. New
trends and innovative technologies are fast transforming the market. Countries with well-
established digital infrastructures are poised to register significant growth in E-Commerce in post-
COVID era.

E-Commerce in Pakistan is also pacing well as evident by the rising online retail sector in the
country. The pandemic coupled with improved ICT infrastructure has given further boost to the
sector. There is rapid growth of startups, innovation and competition in the sector having a
spillover effect on consumer welfare.

The government being cognizant of immense potential in the sector has fast tracked reforms in
telecommunications, payments solutions, logistics, skill development and regulatory
infrastructure. Positive engagement with Amazon has resulted in Pakistan being added to the seller
list, which will open avenues for growth in exports. A number of policies have been introduced
with the aim to facilitate economic growth in the country through targeted interventions.

As encouraging and welcoming these developments are, Pakistan continues to lags behind
countries in South Asia region. There are many factors which contribute to this slow growth vis-
à-vis developing countries including low internet penetration, rural/urban divide, large unbanked
population, gender gaps, limited payment gateways, shortage of skilled human resource and weak
logistics infrastructure. Moreover, there do not exist sufficient regulatory and legal frameworks
which limit the growth prospects in the sector.

To realize the potential of E-Commerce, the government needs to continue its reforms agenda to
promote growth. Efforts are required to enhance access to internet broadband in smaller provinces
and rural areas through greater availability and affordability. Telecommunication sector needs to
boost network coverage and lower roll out costs. The government also needs to encourage
smartphone ownership through local manufacturing of 4G enable mobiles and rationalization of
taxes on imported smartphones.

To encourage digital payments, there is a need for developing more payment gateways. Also,
buyers and sellers need to be encouraged to shift to digital payments through reward schemes, tax
exemptions and data protection laws. Similarly, international payment gateways like PayPal
should be facilitated to operate in Pakistan to enhance cross-border trade.

18
Pakistan’s huge youth bulge can be an instrument of economic growth. The government needs to
encourage ICT startups through facilitation and creation of employment opportunities. IT
incubators and technology zones need to be established to enhance skill development and for
inclusion of women entrepreneurs in the E-Commerce market. On the logistics front, digitization
of addresses and consolidation of delivery centers will help reduce transit times and improve end
delivery to customers. Pakistan Post needs reforms including access of its vast network across the
country by private logistics companies.

Pakistan has all the right indicators to emerge as a market leader in E-Commerce in post-COVID
era. E-commerce can be an instrument of economic convergence and inclusive growth in the
country. Experience from countries like China shows that E-Commerce can be a powerful
instrument to improve people’s lives and create employment and generate economic activity. To
harness potential of E-Commerce, Pakistan needs to continue its current growth trajectory and
undertake essential reforms to provide an enabling environment to the private sector.

5. Policy Recommendations

Recommendation Responsibility

i. ICT Infrastructure and Services

Improve internet coverage of 3G/4G in smaller  Pakistan Telecommunication Authority
provinces like Baluchistan and rural areas of  Telecommunication Companies
Punjab, Sindh and KP.

Reduce the price of smartphone and tax  Pakistan Telecommunication Authority

rationalization on imported phones  Federal Board of Revenue

Make internet affordable  Pakistan Telecommunication Authority

 Competition Commission of Pakistan

Promote local manufacturing of 4G enabled  Ministry of Industries

smartphones  Ministry of Commerce
 Federal Board of Revenue
 Special Economic Zones Authority
 Board of Investment

19
 ii. Payment Solutions
Enhance availability of international payment  Ministry of Information Technology &
gateways such as PayPal Telecommunications
 State Bank of Pakistan

Enhance capacity of Banks to facilitate digital  State Bank of Pakistan

payments
Incentivize sellers and buyers to use digital  State Bank of Pakistan
payments solutions  Commercial Banks
 Federal Board of Revenue

iii. Trade Logistics and Facilitation

Improve Customs Clearance processes  Federal Board of Revenue

Establish Courier & Logistics Regulatory  Ministry of Communications

Authority
Improve track and traceability of  Ministry of Communications
consignments  Logistics service providers

Pakistan Post to provide access of its  Ministry of Communications

infrastructure to private logistics and delivery  Pakistan Post
services

iv. Skill Development

Skill enhancement & inclusion of women  Ministry of Information Technology &

entrepreneurs Telecommunication
 Ministry of Commerce
 NAVTTC
 Chambers of Commerce & Industry

Establish Tech Incubators & Special  Ministry of Information Technology &

Technology Zones for Startups Telecommunication
 Ministry of Commerce
 Board of Investment

20
Establishment of e-Chamber of Commerce  Ministry of Commerce
 Directorate General of Trade Organizations
 The Federation of Pakistan Chamber of
Commerce & Industry

Business Facilitation Hubs for e-Commerce  Ministry of Commerce

companies  Trade Development Authority of Pakistan
 E-Commerce Platforms

v. Legal & Regulatory Framework

Establish an independent E-Commerce  Ministry of Commerce

regulator  Ministry of Information Technology &
Telecommunications

Establish E-Courts for dispute settlements  Federal & Provincial Government

Enactment of Data Protection and Privacy Law  Ministry of Information Technology &
Telecommunications

21
Bibliography

Anon., n.d. The Pakistan Startup Ecosystem Report (PSER) 2021. [Online]
Available at: https://thepakistandaily.com/the-pakistan-startup-ecosystem-report-pser-2021/
[Accessed 19 November 2022].
Asadullah Khaskheli, Y. J., 2016. A Review on the importance of E-Commerce for SMEs in
Pakistan. Journal on Innovation and Sustainability, Volume 7.
Asli Demirgüç-Kunt, L. K. D. S. a. S. A., 2021. The Global Findex Database 2021, s.l.: s.n.
Authority, P. T., 2022. [Online]
Available at: https://www.pta.gov.pk//en/telecom-indicators
[Accessed 11 November 2022].
Bashir, I., 2022. E-commerce projected to generate $7.7 bn revenue in 2022. [Online]
Available at: https://www.brecorder.com/news/40170403
[Accessed 14 November 2022].
Batada, D. I., 2020. The News. [Online]
Available at: https://www.thenews.com.pk/print/744670-the-future-of-e-commerce
[Accessed 10 November 2022].
Commerce, M. o., 2019. e-Commerce Policy of Pakistan. [Online]
Available at: https://www.commerce.gov.pk/wp-content/uploads/2019/11/e-
Commerce_Policy_of_Pakistan_Web.pdf
Crotti, R., 2020. Global Gender Gap Report 2020, s.l.: World Economic Forum.
Dr. Raul Katz, D. o. B. S. R. C. I. f. (.-I., 2020. Economic Impact of COVID-19 on Digital
Infrastructure, s.l.: International Telecommunication Union.
Group, W. B., 2018. Logistics Performance Index, s.l.: World Bank Group.
Impact, E., 2022. The Inclusive Internet Index, s.l.: Economist Impact.
Ismail, Y., 2020. E-commerce in the World Trade Organization: History and latest developments
in the negotiations under the Joint Statement, Geneva: The International Institute for Sustainable
Development (IISD).
Kumari, A. S. a. G., 2021. E-Commerce in the Post-COVID era: Challenges, Opportunities and
Consumer's Preferences. In: COVID-19: Implications for Commerce and Mangement, Economy
and Information Technology. s.l.:Research Gate, pp. 19-26.
Malkani, A., 2020. Transforming Transactions: Does Pakistan's E-Commerce Policy Deliver?,
s.l.: Tabadlab Private Limited.
Nation, U., 2020. THE UNCTAD B2C E-COMMERCE INDEX 2020, s.l.: UNCTAD.

22
Neil Blake, A. H., 2022. Global E-Commerce Outlook-What is driving e-commerce in different
markets?, s.l.: CBRE Research .
OECD, 2020. E-Commerce in the times of COVID-19, s.l.: s.n.
Samra Chaudary, S. N. M. A. R., 2014. Factors influencing the Acceptance of Online shopping
in Pakistan. The Lahore Journal of Business, pp. 75-97.
SBP, 2020. Covid-19 and the need to boost Digital Connectivity in Pakistan, s.l.: s.n.
Shanahan, M., 2021. Addressing the Mobile Gender Gap in Pakistan, s.l.: GSMA.
Shoaib Imtiaz, S. H. A. &. D. J. K., 2020. E-Commerce Growth in Pakistan: Privacy, Security
and Trust as Potential Issues. Culinary Science and Hospitality Research. Korea, pp. 10-18.
Stanley, M., 2022. Here's why E-Commerce growth can stay stronger for longer. [Online]
Available at: https://www.morganstanley.com/ideas/global-ecommerce-growth-forecast-2022
[Accessed 11 November 2022].

23