Rupee Crash, Default Gossip, Inflation Are Holding Pakistan’s E-Commerce Scene At Gunpoint

The Pakistani economy has been reeling from one crisis after another, which has affected purchasing power hard and made consumers more price-cautious.

Meanwhile, the cost of operations — already under pressure from a commodity super cycle — for businesses including e-commerce stores, has gone up substantially. This was made even worse by government-imposed restrictions on imports.

The intensity of the crisis has particularly been amplified since early 2022, which has seen rapid devaluation, record inflation, and rumors of default.

According to the ‘State of B2C E-commerce in Pakistan‘ report by Data Darbar and AlphaVenture, the ongoing economic and political situation in Pakistan, including the 86.65 percent YoY drop in VC funding, has choked the key source of funds to subsidize customer acquisition and growth and put a serious strain on e-commerce companies as they struggle to maintain their existing levels, let alone grow.

According to the report, the percentage change compared to 2021 levels shows a clear declining trend up until September, before making a slight recovery in O-N-D (October, November, and December). Seven out of nine click-and-mortar stores analyzed for this report recorded lower traffic in 2022, compared to the previous year. This is despite reportedly record year-end clear campaigns. In e-commerce, four of the seven platforms had less traffic in 2022, which on an aggregate basis fell 18.8 percent YoY.

Pakistan’s e-commerce market is ranked 47th in the world, with a $6.4 billion revenue forecast for 2023. Electronics and media have the largest share, accounting for 34.1 percent of the total.

Over the next five years, the compound annual growth rate (CAGR) is expected to be 6.2 percent. The expected growth rate is “relatively muted” as a result of the currency’s continued depreciation and the resulting reduction in economic growth forecasts.

Despite the fact that the online B2C retail market has grown in size over the years, the country still “lags well behind” comparable economies such as Indonesia, the Philippines, Egypt, and Bangladesh, according to the report. Pakistan’s market size is the smallest in both absolute and relative terms among the peer group.

According to the report, the largest click-and-mortar store in Pakistan is J., with global revenue of $71.8 million per year, followed by Limelight ($50.3 million), Gul Ahmed ($48.3 million), Khaadi ($29.1 million), and Sapphire ($34.2 million).

Similarly, Daraz was the most popular e-commerce platform in terms of traffic, with 112.1 million visits per year, followed by Priceoye (14.7 million), Bagallery (13 million), Laam (5.9 million), and (4.1 million).

Funding for e-commerce startups has been on a “steep upward trajectory” since 2019, rising from $2.3 million in 2019 to more than $190 million in 2022. The sector’s share of total investment value in the country increased tenfold, despite the fact that most of this capital has recently been deployed in the B2B segment.

Last year, the e-commerce sector accounted for more than one-fifth of all investments made in Pakistan.

Since 2018-19, the number of e-commerce merchants registered with banks has seen a steady increase in digitally paid orders. The number of transactions increased, as did their value in rupees. Throughput reached Rs. 34.2 billion in the October-December quarter of 2022, while volumes remained lower than in the same period last year.

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