Digital Pakistan 2022: Broadband Penetration Soars to 90% of 15+ Population

The year 2022 was a very rough year for Pakistan. The nation was hit by devastating floods that badly affected tens of millions of people. Macroeconomic indicators took a nose dive as political instability reached new heights. In the middle of such bad news, Pakistan saw installation of thousands of kilometers of new fiber optic cable, inauguration of a new high bandwidth PEACE submarine cable connecting Karachi with Africa and Europe, and millions of new broadband subscriptions. Broadband penetration among 140 million (59% of 236 million population) Pakistanis in  the15-64 years age group reached almost 90%. This new digital infrastructure helped grow technology adoption in the country. 

Internet and Mobile Phone Banking Growth in 2021-22. Source: State Bank of Pakistan

Fintech: 

Mobile phone banking and internet banking grew by 141.1% to Rs. 11.9 trillion while Internet banking jumped 81.1% to reach Rs10.2 trillion.  E-commerce transactions also accelerated, witnessing similar trends as the volume grew by 107.4% to 45.5 million and the value by 74.9% to Rs106 billion, according to the State Bank of Pakistan.  

Pakistan Startup Funding in 2022. Source: i2i Investing

Fintech startups continued to draw investments in the midst of a slump in venture funding in Pakistan. Fintech took $10 million from a total of $13.5 million raised by tech startups in the fourth quarter of 2022, according to the data of Invest2Innovate (i2i), a startups consultancy firm. In Q3 of 2022, six out of the 14 deals were fintech startups, compared to two deals of e-commerce startups. Fintech startups raised $38 million which is 58% of total funding ($65 million) in Q3 2022, compared to e-commerce startups that raised 19% of total funding. The i2i data shows that in Q3 2022, fintech raised 37.1% higher than what it raised in Q2 2022 ($27.7 million). Similarly, in Q2 2022, the total investment of fintech was 63% higher compared to what it raised in Q1 2022 ($17 million).

E-Commerce in Pakistan. Source: State Bank of Pakistan

E-Commerce:

E-commerce continued to grow in the country. Transaction volume soared 107.4% to 45.5 million while the value of transactions jumped 75% to Rs. 106 billion over the prior year, according to the State Bank of Pakistan. 

Pakistan Among World's Top 10 Smartphone Markets. Source: NewZoo

PEACE Cable: 

Pakistan and East Africa Connecting Europe (PEACE) cable, a  96 TBPS (terabits per second), 15,000 km long submarine cable, went live in 2022. It brought to 10 the total number of submarine cables currently connecting or planned to connect Pakistan with the world: TransWorld1, Africa1 (2023), 2Africa (2023), AAE1, PEACE,  SeaMeWe3, SeaMeWe4, SeaMeWe5, SeaMeWe6 (2025) and IMEWE. PEACE cable has two landing stations in Pakistan: Karachi and Gwadar. SeaMeWe stands for Southeast Asia Middle East Western Europe, while IMEWE is India Middle East Western Europe and AAE1 Asia Africa Europe 1. 

Mobile Data Consumption Growth in Pakistan. Source: ProPakistan

Fiber Optic Cable: 

The first phase of a new high bandwidth long-haul fiber network has been completed jointly by One Network, the largest ICT and Intelligent Traffic and Electronic Tolling System operator in Pakistan, and Cybernet, a leading fiber broadband provider.  The joint venture has deployed 1,800 km of fiber network along motorways and road sections linking Karachi to Hyderabad (M-9 Motorway), Multan to Sukkur (M-5 Motorway), Abdul Hakeem to Lahore (M-3 Motorway), Swat Expressway (M-16), Lahore to Islamabad (M-2 Motorway) and separately from Lahore to Sialkot (M-11 Motorway), Gujranwala, Daska and Wazirabad, according to Business Recorder newspaper.

Mobile telecom service operator Jazz and Chinese equipment manufacturer Huawei have commercially deployed FDD (Frequency Division Duplexing) Massive MIMO (Multiple Input and Output) solution based on 5G technology on a large scale in Pakistan. Jazz and Huawei claim it represents a leap into the 4.9G domain to boost bandwidth. 

Pakistan Telecom Indicators November 2022. Source: PTA

Pakistan's RAAST P2P System Taking Off. Source: State Bank of Pakistan

Broadband Subscriptions:

Pakistan has 124 million broadband subscribers as of November, 2022, according to Pakistan Telecommunications Authority.  Broadband penetration among 140 million (59% of 236 million) Pakistanis in 15-64 years age bracket is 89%.  Over 20 million mobile phones were locally manufactured/assembled in the country in the first 11 months of the year. 

Bank Account Ownership in Pakistan. Source: Karandaaz

Financial Inclusion Doubled In Pakistan in 5 Years. Source: Karandaaz

Documenting Pakistan Economy:

Pakistan's unbanked population is huge, estimated at 100 million adults, mostly women. Its undocumented economy is among the world's largest,  estimated at 35.6% which represents approximately $542 billion at GDP PPP levels, according to World Economics. The nation's tax to GDP ratio (9.2%) and formal savings rates (12.72%) are among the lowest. The process of digitizing the economy could help reduce the undocumented economy and increase tax collection and formal savings and investment in more productive sectors such as export-oriented manufacturing and services. Higher investment in more productive sectors could lead to faster economic growth and larger export earnings. None of this can be achieved without some semblance of political stability. 

Related Links:

Haq's Musings

South Asia Investor Review

Digital Silk Road

State Bank Targets Fully Digital Economy in Pakistan

Campaign of Fear Against CPEC

Fintech Revolution in Pakistan

E-Commerce in Pakistan

The Other 99% of the Pakistan Story

FMCG Boom in Pakistan

Pakistan at 75

Fiber Network Growth in Pakistan

Riaz Haq's Youtube Channel

 

PakAlumni Social Network

Pakistan's GDP Grossly Underestimated, Stocks Highly Undervalued

Even with the run-up (in KSE-100), Andrew Brudenell, manager of the HSBC Frontier Markets fund (HSFAX) in London, says Pakistan is one of the cheapest markets he follows, at about seven times earnings. He notes that earnings growth has kept pace with the market. The firms, he adds, are typically cash-rich, boast strong return on equity levels in the 20% range, and pay good dividends. In Pakistan, the informal, cash-based economy for goods and services is larger than the formal economy.  Barron's, November 17, 2012

Growing gap between dismal official economic statistics and consumption boom coupled with strong corporate profits in Pakistan is a challenge for many analysts around the world. Most believe that Pakistan's GDP is, in fact, much larger and growing faster than the government data indicates.

Informal Economy Estimates:

 M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE), have published their research on estimates of the size of Pakistan's informal or underground economy.

Kemal and Qasim explore several published different approaches for sizing Pakistan's underground economy and settle on a combination of  PSLM (Pakistan Social and Living Standards Measurement) consumption data  and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08". Here are the figures offered by the authors for 2007-8:

1) Formal Economy: Rs. 10,242 billion= $170 billion (using Rs.60 to a US dollar)
2) Informal Economy: Rs. 9,365 billion = $156 billion
3) Total Economy (Sum of 1 & 2): Rs. 19,608 billion = $326 billion

Assuming that the ratio of formal and informal economy remained the same in 2011-12, here are the figures for Pakistan's total economy as of the end of last fiscal year which ended in June, 2012 :

1) Formal Economy: $210 billion
2) Informal Economy: $191 billion
3) Total Economy: $401 billion

Hypermart Lahore

Naween Mangi of Businessweek in her piece titled "The Secret Strength of Pakistan's Economy" described how Pakistan's informal cash-based economy evades government's radar, illustrating it with the story of a tire repair shop owner Muhammad Nasir. Nasir steals water and electricity from utility companies, receives cash from his customers in return for his services and issues no receipts, pays cash for his cable TV connection, and pays off corrupt police and utility officials and local politicians instead of paying utility bills and taxes.

Karachi Stock Market:

Comparing Karachi and Mumbai Share Indexes

A string of strong earnings announcements by Karachi Stock Exchange listed companies and the Central Bank's 1.5% rate cut have helped the KSE-100 index exceed 16,000 level, a gain of 42.1% (33.2% in US dollar terms) year to date. In spite of this run-up in KSE-100, Andrew Brudenell, manager of the HSBC Frontier Markets fund (HSFAX) in London, remains bullish on Pakistani equities, according to Barron's. Pakistan is one of the cheapest markets he follows, at about seven times earnings. He notes that earnings growth has kept pace with the market. The firms, he adds, are typically cash-rich, boast strong return on equity levels in the 20% range, and pay good dividends.

Conclusion: 

While Pakistan's public finances remain shaky, it appears that the country's economy is in fact healthier than what the official figures show. It also seems that the national debt is much less of a problem given the debt-to-GDP ratio of just 30% when informal economy is fully comprehended. Even a small but serious effort to collect more taxes can make a big dent in budget deficits. My hope is that increasing share of the informal economy will become documented with the rising use of technology. Bringing a small slice of it in the tax net will make a significant positive difference for public finances in the coming years.

Related Links:

Haq's Musings

Investment Analysts Bullish on Pakistan

Precise Estimates of Pakistan's Informal Economy

Pak Consumer Boom  Fuels Underground Economy

Rural Consumption Boom in Pakistan

Pakistan's Tax Evasion Fosters Aid Dependence

Poll Finds Pakistanis Happier Than Neighbors

Pakistan's Rural Economy Booming

Pakistan Car Sales Up 61%

Resilient Pakistan Defies Doomsayers

Land For Landless Women in Pakistan

Pakistan's Circular Debt and Load-shedding

Hypermart Pakistan