Hajra Naz
Pakistan proudly became the first country to volunteer for the Digital FDI Initiative, paving the way for the launch of Digital FDI-Enabling Projects (DEPs) in 2022. This initiative is designed to enhance digital foreign direct investment in Pakistan by fostering a supportive, digital-friendly investment environment.
The project seeks to attract investors and stimulate activity, offering opportunities:
- To access advanced technologies
- Global Expertise
- Robust infrastructure.
These investments have the potential to boost resilience, boost competitiveness, and quicken economic growth. This report analyses Pakistan’s digital economy using the Digital FDI framework illustrated in Figure 1.
Project activities
Pakistan’s Digital FDI-Enabling Project (DEP), which aims to expand its portfolio of digital FDI, fits in perfectly with its larger digital transformation goal. The initiative aims to identify and eliminate growth impediments while revealing the potential to improve foreign direct investment in Pakistan’s digital economy through collaboration with key stakeholders and analysis of the digital landscape. The structured approach includes the following activities:
Initial Engagements
Conducted introductory meetings to align project objectives with the Government of Pakistan counterparts.
Performed a desk review to evaluate:
- Policy and regulatory frameworks.
- Trends and developments in FDI, technology, and investment landscapes.
- Key stakeholders and factors influencing digital FDI in Pakistan.
Stakeholder Consultations
- Organized a comprehensive consultative exercise with 70 key stakeholders, including local and international entities.
- Held 65 in-person consultations in Islamabad, Lahore, and Karachi, supplemented by five virtual sessions.
- Engaged a diverse group of stakeholders across the digital ecosystem, as detailed below.
This structured approach ensures a thorough understanding of Pakistan’s digital investment landscape and fosters informed decision-making to attract and grow digital FDI.
Six Priority Actions
1. Promote Sectoral Projects
Facilitate private-sector initiatives based on sector priorities and ticket size to connect local players with international investors and partners.
2. Prime Minister’s Office Role
Strengthen the PM’s Office’s involvement in implementing digital economy priorities and boosting investor confidence through a better enabling environment.
3. Human Capital Development
Bridge the industry-academia gap to enhance digital skill sets through advanced education and internationally accredited training programs.
4. Investment-Friendly Policies
Offer a rationalized and stable tax policy and regulatory framework to position Pakistan as a digital-centric investment destination.
5. Special Technology Zones (STZs)
Expedite the operationalization of STZs to attract global investors and technology players.
6. Efficient Spectrum Management
Ensure fair pricing and transparent processes for spectrum management, enabling timely network deployment and improved connectivity.
This structured approach sets a strong foundation for implementing actionable reforms to advance Pakistan’s digital FDI growth.
Pakistan’s digital ecosystem
To promote foreign direct investment (FDI) in the digital ecosystem, Pakistan launched the Digital Economy Project (DEP) to identify the factors that drive, hinder, and present opportunities for intervention. This multi-stage process involved extensive consultations with key stakeholders, combining in-country and virtual inputs to create actionable insights.
Digital FDI Framework
The project leverages the Forum’s Digital FDI framework to develop Pakistan’s digital economy. Analysis of the current digital landscape is categorized under relevant pillars to identify stakeholders, challenges, and opportunities for FDI. While each pillar is distinct, they often overlap when applied to Pakistan’s dynamic digital ecosystem.
Defining the Digital Economy in Pakistan
Pakistan lacks a formal definition for the “digital economy,” and no standalone metrics are assigned to it in official datasets. Consequently, the analysis relies on indicators from identifiable digital segments and FDI trends.
Read More: SDF to Invest $100M in Pakistan’s Mineral Infrastructure Growth
Key Stakeholders and Engagement Activities
Pakistan’s digital economy involves a complex network of stakeholders operating at federal, provincial, and sectoral levels. The DEP team actively engaged these stakeholders to gather insights and inform project outcomes.
Activities included
- Stakeholder Mapping: Categorized key players influencing and governing the digital economy (see Annex for details).
- Consultations: Conducted multiple in-country and virtual engagements.
- Follow-Up Meetings: Ensured clarity and alignment on objectives.
- Workshops: Hosted a dedicated session for stakeholders to share perspectives and align on outcomes.
Mapping Pakistan’s Digital Economy
The DEP analyzed the country’s digital ecosystem through consultations, surveys, and research. Key findings are organized as follows:
1. Digital Infrastructure
Physical Infrastructure
- Broadband Expansion: 91% population coverage, with 3G/4G accessible to 81%.
- Subscriber Growth: 142.3 million broadband users in 2024 (91% growth since 2019).
- Mobile-First Landscape: 79.1% mobile phone ownership, with 65% being smartphones.
- Fixed Broadband Penetration: Less than 2%, marked as a priority for development.
Regulatory Infrastructure
- Initiatives such as PRMI and Special Technology Zones (STZs) aim to streamline processes and attract digital FDI.
- Enhanced coordination between federal and provincial agencies is required to minimize regulatory fragmentation.
- Critical legislation, including the Personal Data Protection Bill, needs finalization to strengthen the investment climate.
2. Digital Adoption
- The Digital Pakistan Policy (2018) spurred digital growth in sectors like banking, education, and health, but SMEs face adoption barriers due to low digital literacy and limited access to tools.
- Post-pandemic digital acceleration needs sustained support through macroeconomic stability and regulatory consistency.
3. New Digital Activities
- Cloud Computing: Local sponsors dominate data centers, with international players like AWS and AliCloud entering through partnerships.
- Social Media Platforms: Platforms like Google have established liaison offices, while others maintain virtual presences due to data protection challenges.
- Data Localization: Strengthening data protection laws and enforcing intellectual property regulations are critical for attracting hyperscalers and ensuring investment security.
4. Digital Services Exports and Outward FDI
- IT Exports: Reached $3.2 billion in 2024, reflecting a 24% year-on-year growth.
- Regional Comparison: Despite progress, Pakistan lags behind regional peers, highlighting the need for supportive ecosystems for outward FDI.
Read More: The Imperative of Social Protection for Gig Workers in the Digital Economy
Recommendations for Strengthening Digital FDI
To enhance FDI in Pakistan’s digital economy, the following recommendations have been prioritized:
- Develop a Unified Digital Governance Framework: Foster coordination between federal and provincial agencies to streamline regulatory processes.
- Strengthen Data Protection Laws: Finalize the Personal Data Protection Bill and enforce intellectual property protections.
- Support Digital Infrastructure Growth: Focus on expanding broadband, operationalizing STZs, and ensuring fair spectrum pricing.
- Enhance Digital Literacy: Bridge gaps through advanced education and internationally accredited training programs.
- Simplify Bureaucratic Processes: Expedite document handling, dispute resolution, and arbitration to improve investor confidence.
These strategies aim to position Pakistan as a competitive destination for digital FDI and foster long-term growth in the digital economy.
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Digital FDI in Pakistan
Pakistan has garnered relatively modest levels of digital Foreign Direct Investment (FDI), especially when compared to regional counterparts like:
- India
- Indonesia.
For context, FDI in India is approximately 20 times higher.
Figures 3, 4, and 5 provide a five-year overview of digital FDI trends in three key sectors:
- IT
- Telecommunications
- Start-ups.
Read More: First Digital Bank in Pakistan: Banking Anytime, Anywhere
Between 2018 and 2024, Pakistan experienced some growth in net digital FDI, though fluctuations were evident, with net FDI turning negative in 2023 and 2024. This shift indicates higher outflows than inflows. A eminent spike in digital FDI happened in 2020, fueled by investments amid the COVID-19 widespread, but this force has since diminished.
In FY 2022, the IT and telecom divisions together accounted for 6% of Pakistan’s add-up to FDI, a critical drop from 25% in FY 2020. The later decay in digital FDI is credited to challenging nearby and worldwide macroeconomic conditions, counting instability in the Pakistani rupee (PKR) against the US dollar.
The formation of a modern government in February 2024 presents an opportunity to stabilize political conditions, modify investor certainty, and draw in renewed digital FDI.
Historically, Pakistan’s telecom sector led digital FDI inflows, but in FY 2022, it recorded a net outflow of $29 million due to taxation, spectrum pricing, and currency fluctuations. With spectrum prices tied to the US dollar, telecom operators face challenges in fulfilling payment obligations.
Changes are required to ease financial pressures and make the division more investment-friendly.
Growth openings include the upcoming 5G spectrum auction, MVNO approach, versatile gadget fabricating activities, and the National Fiberization Policy, which points to extending high-speed internet. Additionally, the National Space Policy 2023 could enhance connectivity and technological advancements.
Start-ups have emerged as key drivers of digital FDI, attracting $355 million in 2022, primarily in fintech, edtech, and agritech. However, investments dropped to $37 million by late 2024. Deals like DigitalOcean’s $350 million acquisition of Cloudways highlight the potential of technologies like blockchain and IoT to reshape Pakistan’s digital economy. Strategic support could revive growth and strengthen the sector.
Pakistan’s digital opportunity
The Digital FDI-Enabling Project aligns closely with Pakistan’s emerging digital agenda, offering a high-impact opportunity to drive the growth of the digital economy.
Digital Nation Pakistan
Since the launch of the first Digital Pakistan Policy in 2018, Pakistan has made strides in strengthening its digital ecosystem. By 2024, IT exports reached $3.2 billion. The newly elected government approved the Digital Nation Pakistan plan, focusing on the digital economy, society, and government to boost investments and exports.
The National Digital Commission and the Pakistan Digital Authority were established to address institutional challenges, Initiatives like:
- The Pakistan Regulatory Modernization Initiative (PMRI)
- Digital Economy Enhancement Project (DEEP)
- The Asaan Karobaar Act aims to simplify regulations and foster a thriving digital economy.
Full digital transformation by 2030 could add PKR 9.7 trillion ($34.9 billion) to the economy.
Analysing Pakistan’s digital investment landscape
Pakistan’s growing digital market offers vast potential for investors, driven by an untapped consumer base, opportunities for innovation, and increasing government incentives. A young population enhances prospects for digital adoption, but challenges like economic fluctuations, political transitions, and regulatory complexities must be addressed.
Expanding connectivity in underserved areas can bridge digital divides and drive growth. Insights from 70 stakeholders highlight key opportunities and challenges, shaping recommendations for Pakistan’s digital future.
Opportunities in Pakistan’s Digital Economy
Untapped Market Potential
- Pakistan’s digital economy remains underdeveloped, presenting first-mover advantages for investors in emerging technology sectors.
- Rapid FDI inflows in startups during 2020-2021 highlight investment opportunities.
Youth-Driven Digital Growth
- With a median age of 23, Pakistan’s large youth population is tech-savvy and adaptable, offering a skilled workforce to support digital growth.
High Mobile Penetration
- As a mobile-first economy with 143 million broadband users and 64% smartphone penetration, Pakistan provides a growing market for digital services and businesses.
Fiscal Incentives
- The government offers tax breaks to boost trade and investment, including initiatives like the mobile manufacturing policy and special technology zones, fostering economic progress and innovation.
Special Zones for Innovation
- 18 special technology zones offer tax exemptions and forex benefits, attracting FDI and driving digital innovation.
Key Challenges for Growth
Policy and Institutional Alignment
- Integrated policy design and better coordination between federal and provincial agencies are critical for leveraging the digital economy.
Regulatory and Investment Barriers
- Simplified capital access, reforms for digital asset collateral, and profit repatriation mechanisms are needed to boost investor confidence.
Skills and Academia-Industry Link
- Aligning education with industry needs and developing expertise in AI, blockchain, and coding are essential for workforce readiness.
Infrastructure and Adoption Gaps
- Addressing procedural barriers like the Right of Way for optical fiber, optimizing telecom taxation, and improving service affordability can expand connectivity beyond major cities.
Data Governance and IP Protection
- Strengthening data protection laws and intellectual property frameworks will foster innovation and attract foreign investors.
Pakistan’s digital landscape is ripe with opportunities, but sustained growth depends on addressing these challenges through cohesive policies, infrastructure investment, and workforce development.
Policy options
Through consultations, 55 policy options were developed to address challenges and unlock opportunities in Pakistan’s digital economy. These align with investor survey insights and focus on:
- Strengthening institutional frameworks
- Ensuring regulatory coherence
- Supporting digital-native businesses with targeted tax policies
- Developing cost-effective digital infrastructure.
Other priorities include bridging the industry-academia gap, facilitating cross-border funding, and enhancing intellectual property and data governance. Each policy was prioritized based on its potential impact and the resources required for implementation.
The full distribution of policy options can be found in Annex 3, with Table 4 providing a summary of their placement within the action priority matrix.
DEP implementation
The key steps in implementing DEP included prioritizing essential policy options and developing practical action plans.
Priority areas
A consultative workshop was organized to align actionable strategies with Pakistan’s economic growth goals, particularly in the digital sector. The event gathered stakeholders from federal and provincial institutions, business associations, financial entities, incubators, digital enterprises, academia, and experts.
Details of participants are provided in Annex 4. Through collaborative discussions, the workshop addressed challenges and opportunities to boost digital FDI, identifying key priority actions. Participants reviewed and analyzed the 55 policy options in sector-diverse groups, ensuring a holistic approach.
The governance structure for the implementation phase
A Technical Working Group (TWG) has been formally established to offer specialized expertise and guidance, functioning as an independent body to develop actionable plans for the six priority actions in partnership with the government.
Over four weeks, the TWG conducted regular meetings to draft detailed action plans, which are now under review by government partners, including the BOI and MoITT. For successful implementation, the TWG aims to secure formal approval and commitment from the leadership of both the BOI and MoITT.
Draft action plans
Draft action plan 1 – Priority action 1
Draft action plan 2 – Priority action 2
Draft action plan 3 – Priority action 3
Draft action plan 4 – Priority action 4
Draft action plan 5 – Priority action 5
Draft action plan 6 – Priority action 6
The Way Forward
The next step involves finalizing and implementing the action plans. Thanks to the project team’s well-organized procedure, the project has advanced significantly. Implementing the action plans after they are complete will be essential to establishing an atmosphere in Pakistan that encourages digital foreign direct investment. The steps ahead include:
- Finalizing, approving, and securing endorsement of the draft action plans from relevant government agencies.
- Starting the execution of the action plans with support from the World Economic Forum and the Digital Cooperation Organization.
- Displaying the project’s victories on universal platforms to pick up worldwide recognition.
- Conducting a comprehensive affect appraisal to assess the viability and results of the executed activities.
