Organisations the world over are rapidly advancing towards digital transformation and the integration of AI in their processes. Conversely, in Pakistan, businesses are confronted with issues as basic as interrupted internet connectivity.

Given the unprecedented surges in its value addition to Pakistan’s economy that the IT industry had been experiencing, this situation is becoming increasingly problematic. Pakistan’s ecosystem is going through a plummeting phase due to frequent and prolonged internet slowdowns, and now the blocking of virtual private network (VPN) services is making it even harder for IT and information technology enabled services (ITES) companies to survive. In fact, given that it is a requirement for most tech companies, business process outsourcing (BPO) organisations and call centres to connect with their clients through VPNs as a global standard practice for data protection, Pakistani businesses are on the brink of losing major Fortune 500 clients. With every shutdown or slowdown, Pakistan suffers a loss of at least $24 million per day. For a country with a meagre GDP of $338 billion, this accounts for a daily GDP loss of 2.6%. Speaking of the IT industry alone, according to estimates provided by the Pakistan Software Houses Association (P@SHA), the tech industry loses about eight million dollars daily for each day of internet slowdown.

As established tech enterprises face immense setbacks, especially in terms of losing their international clients, concurrently, start-ups, micro-businesses and freelancers are suffering even more. Due to the slow internet speeds and inconsistent connectivity that started to occur in the latter half of 2024, users in Pakistan have been facing substantial difficulties in loading websites and transferring media on WhatsApp, along with a ban on e-commerce-intensive social media platforms. A recent report by Top10VPN highlighted that the financial losses experienced by Pakistan due to internet outages and social media app shutdowns in 2024 were the highest in the world – amounting to approximately $1.62 billion in economic value.

Pakistan’s start-up ecosystem started to gain global prominence in 2021 and 2022, with tech start-ups emerging at unprecedented rates and attracting international investments into the country. Regrettably, this ecosystem is now undergoing stunted growth. From operational disruption, financial losses and dissatisfied clients, this turn of events has shaken investor confidence and delayed funding rounds.

In terms of operational disruptions, leading to, among other challenges, delays in product launches and updates, tech start-ups now have to consistently juggle with the challenge of maintaining customer relationships due to delays in service delivery. Start-ups that have remote work setups have faced financial losses as a direct consequence of poor connectivity. Furthermore, the increased costs of using VPNs and alternative connectivity solutions are making sustainability a challenge. Another major concern, particularly for app-based start-ups such as e-commerce, fintech and logistics, is the weakening of customer relationships, falling consumer retention and higher churn rates due to poor user experience and service delivery.

The most affected verticals are e-commerce, fintech, delivery/logistics, edtech and freelance start-ups. While disruption in digital payments, online banking and mobile wallets has resulted in a loss of trust due to delays in transactions, in parallel, e-commerce and delivery start-ups face reduced customer engagement and delays in order processing and logistics operations.

According to the State Bank of Pakistan, in the third quarter of FY year 2023-2024, Pakistan’s banks and EMIs facilitated $460 billion in digital retail transactions, averaging approximately five billion dollars daily. With a daily KIBOR rate of 0.035%, payment delays alone are imposing an estimated two million dollars in daily costs on the economy. To give another example that underscores the economic fallout, Pakistan processes approximately five billion dollars’ worth of e-commerce transactions on an annual basis, which roughly translates to $14 million in revenue earned per day.

This implies that a single day of internet disruption is equivalent to a national economic loss of $14 million. The lost business opportunities caused by the slowing down of WhatsApp and other communication platforms further amplify this decline.

Edtech start-ups too have to endure interruptions in virtual classes, exams and online learning platforms, directly impacting student engagement. In addition to the above-mentioned verticals, start-ups that have pivoted their business models to providing freelance and outsourcing HR services are encountering irrecoverable damages in terms of losing potential projects and, more importantly, existing international clients. Delays in project deliveries, inability to meet timelines and fragmented communication have all resulted in disgruntled clients.

As the internet slowdown has shaken the confidence of international investors for start-ups now forced to operate in an unstable digital environment, timelines for fundraising have been extended due to operational delays. With limited internet access impeding product testing and development, SaaS start-ups particularly have to bear the brunt of this, as they entirely rely on uninterrupted internet connectivity for their cloud-based services. All these factors have combined to make scaling and expanding into new markets a far-fetched goal for start-ups.

If not addressed in a timely way, these prolonged internet issues could drive start-ups to relocate to more stable digital environments, resulting in aggravated levels of brain drain and talent deficit in Pakistan, and the dream of making Pakistan Asia’s next tech hub will fade. In the immediate future, there will be a dip in the ranking of Pakistan’s start-up ecosystem on the global stage. Although P@SHA and leaders of the tech industry are playing a commendable role in bringing the long-term economic repercussions to public attention, the responsibility lies with the government to address the causes of these disruptions.

Without decisive policy reforms and a commitment to ensuring uninterrupted digital connectivity, Pakistan will fall further behind in the global tech race. Failure to act now will hinder economic growth, deter potential investors and restrain innovation, further limiting the already scarce opportunities for Pakistan’s young people.

Nabeel Qadeer is Deputy Group CEO, BenchMatrix. nabeel.akmal@gmail.com