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The cost of internet shutdown

During the political drama of last week, one of the many adversities faced by the general public was the banning of the Internet for the majority of the users across the country. While the short-term economic losses may not have been too high (and may have been exaggerated by some players), the bigger issue is the long-term business and investors’ confidence of doing business in a country where the perception of economic default has already kept investors at bay. One may offer some sympathy to the authorities’ decision to degrade digital connectivity to ensure mob-control and narrative-building, but such a measure is at best a tactic, not a strategy, to defuse political volatility.

The internet is a necessity in the modern world and the socioeconomic impact of shutting it down cannot be ignored. The situation is that those at the helm of power –in the government or other agencies – continue to use stale tactics to control the masses where the majority are born and have grown up during the internet and the social media age. The graver issue is that at the policy level digital connectivity is still perceived as a privilege that can be taken away at will, not as a right. In this context, to reassure the public and restore the digital investors’ confidence, it is paramount for a government to establish some ground rules as to which law-enforcement/national-security situations credibly warrant digital contingencies such as the one currently in force.

Better yet, just take cutting connectivity out of the state’s playbook, as it is tantamount to banning the freedom of speech and access to information, further dampening the credibility of government and establishment. Banning the internet undermines the advantages of outsourcing businesses, which have become lucrative due to a sharp currency depreciation. The livelihoods of very large number of low-income and middle-class earners are dependent upon internet connectivity, such as tens of thousands of riders associated with on-demand-economy businesses such as Bykea, FoodPanda, Daraz, Careem and others. These folks were deprived of much-needed income in days of record-high inflation. Their effective income for this month may be down by as much as 20 percent.

The mainstream social media websites are also not fully functional at the time of writing, which means that their users and content producers that rely on such platforms for work are essentially out of work (except for those who are using VPNs). Even for news and information, many are now moving towards social media when the mainstream channels seem to be parroting the narrative of state-run media. Then the loss for telcos in such a situation is estimated to be around Rs1 billion per day, out of which the government revenue loss is about 35 percent (direct and indirect taxes). These telcos are already under financial stress and have advocated digital emergency, as they are unable to pass the full impact of higher costs (including exuberant licensing fees) to the end consumers. There are already rumors of a telco trying to exit the market and such measures of banning internet access would only exacerbate the situation.

Some may argue that the internet was only partially shut down for four days as broadband connectivity to homes and offices was still available. That argument is not well thought through, as barely a tenth of households have fixed-line internet subscriptions. The mobile broadband penetration is around 52 percent, which means half of the connected population was completely cut off. Moreover, the overall tele-density is very low in Pakistan. There are only 9 percent of cell towers that are connected to fiber optic, compared to international benchmarks of 40 percent and regional comparisons of 80 percent in Malaysia and 90 percent in Thailand. Remote regions and rural areas have a limited footprint in terms of fixed broadband services, which additionally differs within cities depending on the socioeconomic profile of each region. Thus, cutting mobile broadband essentially means banning access to the internet for most of the population.

The regulatory situation is worsening when other stakeholders are trying to level up the digital ecosystem. SBP (State Bank of Pakistan) is keen to enhance financial inclusion and documentation through promotion of digital banking. The central bank has recently issued five digital banking licenses as well. And the fintech ecosystem is growing in Pakistan. However, last week, payment throughput (velocity of money) was reduced to half. The number of digital transactions through point of sales (PoS) machines also fell in an identical manner. Certainly, banning access to internet does not send positive signals to those who are interested in investing in the digital banking and fintech ecosystem.

Pakistan needs to accelerate its internet usage to move towards the digital and knowledge-based economy. The average consumption of data in Pakistan per user (7 GB per month) is around half of that of India. Hence, there is a lot of room to grow, but banning connectivity will make it even more difficult to catch up to rest of the world. Digital connectivity is also important for enhancing the services exports, which are extremely important for the country to sustain,considering its extremely weak balance of payment situation. One silver lining is the growth in the freelance workers including content creation on platforms such as YouTube and TikTok.

The bottom-line is that the country badly needs to shift its economic structure, and digital connectivity is one of the core pillarsto make it happen. Tech and other businesses relying on digital connectivity can be the savior of the economy in future. However, banning access to the internet can only damage the potential. The government needs to find innovative ways to control mobs. And it’s better to win their hearts rather than cutting their digital wires.

Ali Khizar, "The cost of internet shutdown," Business recorder. 2023-05-15.
Keywords: Economics , Economic structure , Socioeconomic impact , Digital connectivity , Socioeconomic profile , Political volatility , General public , Political drama , Pakistan

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