Immediate impact: January - July 2020

A lockdown was imposed in Pakistan on 21 March 2020 and continued for the months thereafter with varying intensity across the country’s provinces. The initial lockdown was relatively stringent. Since then, the government has imposed a “smart lockdown”, where most shops and businesses are allowed to operate but within specific time limits.

The impact on entrepreneurs has been predominantly negative. Pakistan has a young and fast-growing national entrepreneurship ecosystem, which had been taking off in the year previous to the pandemic. However, due to the lack of Internet infrastructure (just 40% of the population is estimated to be online), most of these businesses function in the offline arena. Sales have thus been massively impacted. Businesses with customer interest generated during the lockdown have been unable to fulfil sales because of issues with logistics and delivery. The predominant mode of payment prior to COVID-19 was cash-on-delivery, managed by logistics companies, and this too became a huge issue during lockdown. The banking sector has not optimized digital channels for business operations, thus impacting even larger businesses.

The segment of the business community linked with the international economy (exporters and importers) has also been affected. The price of imported goods has increased, as supply-side shock has come into play. Some businesses, such as restaurants, have closed permanently. Private schools represent another sector that has been adversely affected. Since schools are not allowed to operate as normal, the curriculum has been moved online. But many parents do not want to pay the same fees for online learning, so they are finding new schools or cheaper digital options.

Falling revenues for businesses have meant massive layoffs. In terms of investment, there is a substantial liquidity crunch. Funds with available cash have become extremely selective. Many have already needed to provide bailouts to portfolio companies. As a result, startup valuations have decreased rapidly. Although formal data are not available, anecdotal evidence suggests that digital platforms such as e-commerce sites and food delivery businesses are observing a rise in sales. Grocery delivery apps have reported a three to four times increase in sales.

Innovation is occurring particularly in the education and health spaces. The Federal Ministry, which administers over 500 schools, has started a TeleSchool Channel. The Ministry of Health has also been partnering with health tech startups to provide triage services and access to telemedicine. These services have experienced a large increase in users. Social e-commerce businesses (small businesses operating solely on WhatsApp, Facebook and Instagram) are generally seeing increased sales across sectors, including clothing (particularly kids’ clothes and sleepwear), home and lifestyle, exercise and sports equipment, and toys.

Immediate policy interventions: January - July 2020

Schemes to facilitate the development of the business sector have been limited. A State Bank of Pakistan (SBP) package enables SMEs to receive loans at discounted rates if they use the funds to pay employees’ salaries. According to recent data from the State Bank of Pakistan (SBP), around 1,200 SMEs had benefited from the scheme by mid-2020.

The SBP introduced a refinancing scheme to provide concessional credit at a 3% interest rate and generous repayment terms to any business committing to not laying off workers for three months. Federal and provincial governments have recently announced withdrawing some taxes (for example, the government of Khyber Pakhtunkhwa has withdrawn the hotel tax to encourage tourism whenever the sector opens, and the Punjab provincial government has reduced sales tax on restaurants and customers paying digitally).

The government has also been working on the Digital Pakistan agenda, which focuses on digitalizing all aspects of life and all business and governance sectors. This has been accelerated in light of the crisis. Furthermore, some schemes are being developed to increase Internet access, with a focus on infrastructure development, subsidies on the manufacturing of smartphones, and lower taxes on cheaper imported smartphones.

Future economic / policy outlook

The predictions for the Pakistani economy are grim. The International Monetary Fund has projected that Pakistan’s economy will shrink by 1.5% during this fiscal year, compared to 3.3% growth in 2018/19. For FY21, the IMF expects the country’s economy to grow by 2% amid a global rebound of 5.8%. Meanwhile, the World Bank expects Pakistan’s growth to remain muted at 0.9% in 2020/21 before reaching 3.2% in FY22.

The likely outcome for entrepreneurship ecosystems is negative, but may not be overwhelmingly so. A large number of new businesses are cropping up to cater to the post-COVID needs of the country, mostly entrepreneurship born of necessity since people have been laid off. New platforms have been developed in areas such as food delivery, grocery delivery, medicine, baby e-commerce, online pharmacies, door-to-door medical testing sample collection, and edtech.