Arbitrary internet shutdowns are a self-inflicted wound on Pakistan’s technology sector, undermining the country’s potential to become a hub for digital innovation.
One-hundred and forty three percent. This is how much Pakistan’s technology exports have grown over the last five years, climbing from just $1 billion in fiscal year 2018 to almost $2.6 billion in 2023, according to data provided by the State Bank of Pakistan.
And while Pakistan’s policymakers have been drawing attention to this growing sector, setting big targets and highlighting the overall export potential, the fact is that their actions are undermining the potential and long-term viability of the technology ecosystem.
The key driver of this uncertainty are arbitrary internet shutdowns, which are casting a shadow over what is one of the few economic success stories in Pakistan. Should these shutdowns continue — even if they are limited to certain social media platforms — they are likely to have far-reaching implications for investor confidence, export growth, and the country’s reputation in the global technology market.
Impediment to investments
Growth attracts new investments in any sector, especially one that can generate precious foreign exchange in an economy facing sky-high levels of inflation. But investors also look for stability and predictability when allocating capital, especially patient capital that looks to scale new ventures that require innovation.
In the technology sector, where the pace of change is rapid and the need for reliable internet connectivity is non-negotiable, arbitrary shutdowns are a red flag for both local and foreign investors. The unpredictability of such outages makes it challenging to ensure the smooth operation of digital services and the consistent delivery of products to market.
While organisations can circumvent the shutdowns for the time being through the use of virtual private networks (VPNs) and multiple wired and wireless connections, overall sentiment is dented. In addition, VPNs and multiple connections are an additional cost that competitors outside Pakistan do not have to bear. As a result, not only is investor sentiment dented, but broader competitiveness is eroded given higher costs.
Moreover, when internet access is snatched away without notice, technology firms are unable to meet deadlines, causing financial losses and damaging their credibility. For upstart technology firms and freelancers, which are a significant proportion of the overall technology sector, these shutdowns can be particularly devastating, as missing a deadline for one client can have irreparable reputational damage.
Negative perceptions
Negative headlines generated by arbitrary internet shutdowns create a higher risk perception among foreign companies and clients. While these companies may, for example, be attracted to Pakistani technology partners due to lower cost and better quality of product, a higher risk perception may give them pause.
For sectors like software development, customer support, and back-office operations that rely on uninterrupted internet access, such disruptions are a deal-breaker. The unpredictability creates a perception of risk that many companies are unwilling to accept, especially larger foreign companies that typically have a lower risk appetite for significant technology contracts.
This hesitance not only affects new business opportunities but also jeopardises existing relationships. Contracts may include clauses that penalise service providers for downtime, and repeated internet outages can lead to breaches of service level agreements (SLAs), financial penalties, and ultimately the loss of business.
Each time the internet is shut down in Pakistan, it sends ripples through the international media, painting a picture of a country that is not fully in step with the demands of the digital era. This negative press can be as damaging as the shutdowns themselves, reinforcing stereotypes that overshadow the positive work that is happening on the ground in Pakistan when it comes to technology.
Lessons from yesteryears
Pakistanis acutely understand that the narrative of instability is hard to shake off and can linger long after things improve. An example is the long-term impact of worsening security conditions between 2007 and 2015 on the country’s manufacturing export sector. As the level of violence inched up in the country, foreign partners stopped coming to Pakistan, preferring to meet their counterparts in places like Dubai. Many saw the broader political and security risk as a deterrent, taking their orders to other jurisdictions like Bangladesh and India.
These developments led to canceled export orders, reduced linkages with foreign supply-chains, and a long-term decline in investment that the country is still struggling from today.
In the digital realm, the threats may be less visible today, but the consequences of continuous curbs on the internet will be as impactful, if not more, in the coming months and years.
Arbitrary internet shutdowns are a self-inflicted wound on Pakistan’s technology sector, undermining the country’s potential to become a hub for digital innovation. The impact on investor confidence, exports, and the country’s international image is significant and far-reaching.
These shutdowns are also trying to address symptoms, not the underlying issues that are roiling Pakistan’s political economy. In addition, they are having the opposite impact, fueling further discontent across society. Sustained curbs on the internet are a direct threat to Pakistan’s exports and the broader technology sector, and must be stopped immediately.
