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Information Technology
Developing an infrastructure for e-commerce

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It abolishes the geographical barriers to deliver goods and services anywhere in the world.

By Syed M. Aslam
Aug 07 - 13, 2000

Pakistani IT industry is poised to play a much more active role in the national economy, thanks to an all-out support and priority accorded to it by the Musharraf government. Duties on the import of computer hardware, accessories and data communication equipment have already been abolished and a number of incentives are expected to increase the volume of software exports substantially.

Electronic Commerce, being an integral part of IT industry, has already revolutionalised trade and marketing the worldover, developed countries in particular. The spillover of e-commerce has also reached numerous developing countries and even in a number of under-developed countries. The popularity of e-commerce and its successful replacement of the traditional business can be attributed to many advantages it offers.

Electronic Commerce enhances trade efficiencies by eliminating the delays and cutting the documentation costs by allowing trade partners to exchange transaction data digitally. It also reduces errors to help increase productivity and efficiency. Most importantly, it abolishes the geographical barriers to deliver goods and services anywhere in the world.

In all developed, countless developing and many under-developed countries electronic business has replaced the traditional ways of doing business. National governments the worldover have been busy in developing extensive infrastructure to help transact data electronically. The importance of e-commerce has also been recognised by the present government in Pakistan and finally the IT is getting the attention which it rightly deserves.

Though e-commerce is already taking place in Pakistan its level is the lowest in the region. A review of the progress report of 14-member Asia Council for the Facilitation of Procedures and Practices for Administration, Commerce and Transport (AFACT), there are only 100 business-to-business (B2B) users in Pakistan compared to 75,000 in Hong Kong which tops the list. The business-to-consumer volume is greater but no statistics are available. Just how low narrow the base of B2B business is evident from the fact that the number of B2B users in Sri Lanka is ten-times that in Pakistan. And though Iran has a same number of B2B users it enjoys a better rating than Pakistan as far as infrastructure readiness, awareness/education and investment in the e-commerce is concerned.

AFACT is dedicated to guide, stimulate, improve and promote the ability of business, trade and administrative organisations of the member nations to exchange products and relevant services effectively. Pakistan became an AFACT member only last month.

Though late, the beginning has finally been made to initiate and implement e-commerce in the country. An e-commerce Action Plan for 2000-2001 has been prepared and the good news is that many of the proposals, which will form the part of the IT policy, are already being implemented in last two months while others are in the process of implementation ahead of the announcement of the Policy. The question is where will it begin.

Talking to PAGE the principal consultant to the Institute of Business Administration on e-commerce, Javed A. Naushahi, said that like elsewhere financial sector is not only the pre-requisite but also the springboard for the establishment of e-commerce base in Pakistan. Of the entire financial sector, banking is the most ready and also the most promising segment to provide a solid e-commerce base for the country. The banking sector is poised to become the catalyst for the development of e-commerce in the country and the government is targeting this particular sector to establish a e-commerce network.

The e-commerce action plan aims to connect 2,487 branches of 25 local banks, including five major nationalised commercial banks, and all foreign banks with the e-commerce network, EC Pak Service, in twelve major cities of the country by next year. Initially five biggest commercial banks have been selected to be connected. In the initial phase branches of these banks in the same city will be connected to their main office. In phase 1, branches in various cities will be linked with the head office while in phase 2 all these banks plus all other DFIs/NBFIs, the central bank 'State Bank of Pakistan', and overseas link will be connected to the system. In the next phase public and private stakeholders such as the premier tax collecting agency CBR, provincial governments, National Savings centres, post offices, utilities companies, government bodies, money changers, trade houses, airlines, shipping lines, clearing agents, insurance companies and other public and private institutions will be linked. Ultimately the EC Pak service will include the financial, trading, customs networks; international links.

Electronic commerce is becoming increasingly important not only for its logistics efficiency and productivity gains but also because the digital enability may become a condition of trade with other countries in the very near future. Like elsewhere developing an e-commerce infrastructure is imperative for Pakistan.

Do we have the needed e-commerce infrastructure? Yes, of the three basic requirements — human resource, data carrier facility, and solutions (hardware and software) we have the first and the last and that only in the financial sector and that too in banking — the most ready and most promising springboard, catalyst and the single most important pre-requisite for the e-commerce, Javed said.

Highlighting the importance of financial sector in the development of the e-commerce he said that the GDP of any economy basically comprises three main elements — Agriculture, Manufacturing and Services. Trends show that economies where services contribute over 60 per cent to the GDP enjoy a high per capita income of over $ 20,000. In the US, services sector contribute 77 per cent to the GDP compared to agriculture, which though immense contribute just 2 per cent while manufacturing and others contribute the rest of 21 per cent. Services sector has immensely benefited from the e-commerce to play an increasingly important role in the knowledge-based economies of the developed world, he added.

Furthermore, he said, the Information and Telecommunication Technology (ICT) is the catalyst for the increased economic prowess of the developed world where it is the single biggest contributor to the GDP of upto 37 per cent. The ICT can play a similar role in Pakistan to give the much needed shot in the arm to the services sector for the overall benefit of the national economy which heavily relies on traditional weather-prone agriculture sector and stagnant manufacturing base.

While human resources and solutions are available in the banking sector to enable it to take the e-commerce initiative, developing e-commerce infrastructure in sectors other than banking will be a challenge. Citing a general lack of knowledge, reliable infrastructure and shortage of quality professionals needed for developing the e-commerce infrastructure in other sectors, Javed said that it is time to revamp the state-owned Pakistan Telecommunication Company Limited. PTCL is strictly a voice-base system and has to be updated to include data services system without which e-commerce activities could not be facilitated. Global trends show that revenues of the telecommunications operators from voice service is on a decline while the revenues from data service is on the rise. Today telecommunication operators the worldover have find it fit to create a separate entity to better meet the growing demand for data services in addition to the traditional voice-base business. PTCL yet remains indifferent to the growing demand for data service and the immense potential it can have on its revenue. Data services account for less than one per cent of PTCL's revenue as per its annual report.

World trends also show that national telecommunication carriers have subsidiaries in collaboration with experienced carriers to share the knowledge and alongwith the technology transfer to improve the knowledge of infrastructure and to offer quality services to the customers essential for ICT. PTCL can benefit from these global experiences. The inability of the PTCL to offer quality services have resulted in many data network providers in Pakistan to offer alternate solutions.

Enhancing the share of PTCL's data service is also imperative for another vital reason — without it the share of ICT will not increase to give the most needed boost to the services sector. ICT, as mentioned above, contributes upto 37 per cent to the GDP in the developed economies in 1998, and trends indicate that it must have further increased since then.

Though less than 10 per cent or 280,000 of the total 3.1 million telephone subscribers are registered Internet users the total number of Internet users in the country is 1.2 million. This includes those who use the Internet at educational institutions, offices, someone else's PC as well as those using the services at one of many Internet cafes in the major urban centres. The lack of IT culture in a country which have pockets of riches in sea of poverty and illiteracy, though understandable, poses a big detriment to the development of e-commerce. However, with a number of Pakistani companies putting the country on the map of global IT itinerary by winning worldclass orders overseas and with the realisation that IT is the future by those highly or even formally educated future looks promising.

Having talked about the merit of developing an e-commerce infrastructure the next logical question which arises here is what will be the financial impact of the full-scale implementation of e-commerce in Pakistan. According to a study conducted by Pakistan Institute of Development Economics last year the full scale implementation of e-commerce would help widen the tax-net by Rs 42 billion due to electronic documentation. It would also help save Rs 18 billion in cost savings and increased competitiveness from efficiency gains in the manufacturing sector, logistics, financial, information and various other services.

Besides boosting the local economy by substantial Rs 60 billion, the e-commerce implementation will also have $ 2 billion impact through increased exports, capitalisation and workers remittances. This should be impetus enough to develop the e-commerce infrastructure, a process which is in initial phase here in Pakistan. See the attached table.

Stakeholders

E-commerce infrastructure should provide connectivity to all the stakeholders — government and private organisations such as customs, port authorities, traders and banks — to electronically complete the transactions. Initially, priority should be given to facilitate international B2B trade to help Pakistan retain its existing foreign trading partners as well as to seek new ones. Globally B2B e-commerce constitutes 80 per cent of all electronic trade and requires special infrastructure. On the other hand, B2C (business to consumer) e-commerce does not require any special infrastructure and can be conducted through the existing internet accounts for the remaining 20 per cent.

EC-DC

Pakistan should also probe how it could benefit from the International Telecommunication Union's (ITU), United Nations specialised agency for telecommunication, Economic Commerce for Developing Countries (EC-DC) project. Under the EC-DC project, participating countries can benefit from first-class security, trust and services for e-business transactions under affordable conditions by pooling and sharing available resources.

Launched in March 1998 at the ITU World Telecommunication Development Conference in Valetta, Malta the EC-DC project crosses a number of ITU programmes aimed at bridging the digital divide. EC-DC project co-ordinate the establishment of e-business infrastructure, enable the transfer of e-business and related technologies required for the development of human resources, address e-business policy and strategy, and forge neutral and non-exclusive partnerships with industry.

Using the World Trade Centre network's global infrastructure of 328 centres in over 100 countries the project offers countries lacking secure trusted infrastructures, digital certification and electronic payment facilities EC-DC can help developing countries a cost-effective way to access e-commerce. In addition to the potential economic benefits, the project helps to create an environment to stimulate investments and developments of the much needed ICT infrastructure.

Prospects

Much remains to be done to develop an e-commerce infrastructure in the country. However, it is encouraging that a beginning has been made and targets are being fixed to usher the e-commerce revolution in Pakistan without which no international trade would be possible in near future. Developing an e-commerce infrastructure to facilitate B2B trade is a must and the priority accorded to it is timely.

Financial Impact of Full-Scale Implementation of E-Commerce in Pakistan

Widening of Tax-Net Due to Electronic Documentation

***Legitimate part of black economy

Rs 30 billion

***Illegitimate part of black economy

Rs 5 billion

***Single invoice system

Rs 4.5 billion

***Hundi system (non-bank personal transfers)

Rs 2.5 billion

Cost Savings and Increased Competitiveness

***Efficiency gains (manufacturing sector, logistics, financial, information and other services)

Rs 18 billion

Total

Rs 60 billion

Foreign Exchange Impact

***Increase in exports

$ 800 million

*** Increase in capitalisation

$ 400 million

***Workers remittances

$ 800 million

Total

$ 2000 million