Pakistan’s IT industry has massive growth potential and even greater investment prospects. In light of this, e-commerce giant Alibaba, one of the world’s largest online retailers, with a total market value of $380 billion, has recently signed a MoU with our Ministry of Commerce. This development is aimed at promoting exports from SMEs and may potentially lead to an investment of approximately $400 million in Pakistan’s e-commerce sector – investment at the moment stands at well north of $120 million. Furthermore, this agreement entails the provision of training for SMEs with respect to using e-commerce platforms, along with promoting mobile financial services and online payment services. On the face of it, Alibaba’s entry seems full of benefits. However, it would be wise to consider both the potential benefits, as well as the drawbacks which may arise as a result of the company’s entry into Pakistan.
Alibaba’s partnerships with local vendors could also boost the economy. Good examples here are Careem and Uber; owing to their success, many local start-ups have done well – many have worked on the same model and brought motorbikes and rickshaws to similar businesses. Thanks to these developments, Pakistan’s GDP grew by 5.3% – a 10-year high, and according to Ishaq Dar, the former Federal Finance Minister, for the first time the size of the economy surpassed $300 billion.
Although there are many benefits attached to Alibaba’s entry, a cost-benefit analysis is required to better understand its implications. There are always pros and cons to any new entrant in a market and it will only be after Alibaba starts operations in Pakistan, that we will be able to assess their performance and impact on Pakistan’s economy. As of now, the entrance of Alibaba seems positive, promising a major boost to the economy. Given that the future is all about the internet and technology, the e-commerce industry can only grow in the future. According to an insider source, the e-commerce industry will surpass the one billion dollar mark by 2020 in Pakistan. So let’s keep our fingers crossed and our hopes high.
As for now, Alibaba has bought Daraz.pk from Rocket Internet for what is rumoured to be $150 million ( Rs 1500 crores) marking almost the largest buyout of a Pakistani startup in history. With respect to Alibaba’s interest in Pakistan, there are no two opinions about it: Alibaba executives have visited Pakistan, Jack Ma has met with Pakistani government officials on the sidelines of the World Economic Forum in Davos, and there are public statements from the company and its celebrity chairman about being interested in investing in Pakistan.
It is also clear that Alibaba wants to get into the e-commerce space in Pakistan, as evidenced by the persistent rumor mill that Daraz.pk is an acquisition target. Of course, that makes sense. Daraz.pk is by far the largest e-commerce player in Pakistan and, at least on the surface, makes for an attractive acquisition target, both in terms of its market position as well as the quality of its personnel and technology. How much does Daraz.pk make in revenue? That is hard to ascertain since the company does not release financial information. It did, however, state that it made Rs1 billion during its Black Friday sale in November 2016. Blockbuster sales events such as these tend to make up anywhere between 20% and 25% of an e-commerce company’s annual revenues, so a ballpark estimate of Daraz.pk’s revenue would put them around Rs4-5 billion. If $150 million is indeed the selling price, that would imply that Daraz.pk is being sold at around 3 to 3.75 times its annual revenues. That is not surprising, given that it is a fast-growing e-commerce company and may well be a fair price.
It is expected that Pakistan's first online leasing website Dreams.pk will be taking charge of the Pakistani consumers after Alibaba taking over daraz.pk. This website is offering different sorts of products both on cash as well as on lease for the convenience of their customers.