Pakistan’s great firewall could scuttle struggling tech sector

This article was originally published in Rest of World, which covers technology’s impact outside the West.

Pakistani entrepreneur Ahmed Khan has spent the past nine years building Cheetay, a last-mile delivery startup. Khan had previously co-founded Daraz, a leading e-commerce platform in South Asia which was acquired by China’s Alibaba in 2018, and felt confident in his new company’s success.

At one point, Cheetay had real momentum: it raised around $30 million in several rounds from venture capitalists, and expanded its services to include grocery delivery. The company even won multiple tech industry awards in 2019.

But in the past few years, business stalled because of the post-Covid-19 financial crunch and an economic crisis in Pakistan. Meanwhile, global investors were reluctant to back Pakistani startups due to political turmoil in the country, which ranked among the nations with the most internet shutdowns in 2023. Then, this past July, the Pakistan government said it was setting up an internet firewall to enhance the country’s cybersecurity.

As local digital rights activists opposed the firewall and said it would allow the government to monitor and regulate content on the internet, Khan struggled to raise funds.

“Our investors no longer feel it is worth their money,” he told Rest of World during a visit to his office in August. He has decided to shut down the company entirely.

“Cheetay had long reconciled with internet outages over unrest and protests,” Khan said. “However, with the latest digital policies and the talks of the firewall, the restrictions are just unbearable for the tech industry … Who would want to invest in Pakistan right now? Who would want to deal with all this uncertainty?”

Many Pakistani tech entrepreneurs and industry experts are worried about the industry’s future as they believe the firewall would cut them off from the world. They say the government is trying to imitate its close ally China – which has the world’s largest and most sophisticated internet firewall — without having a similar domestic infrastructure to support its move. The internet firewall could cost Pakistan’s economy $300 million, according to the tech industry body Pakistan Software Houses Association.

Even as the Pakistani government has denied using the firewall for censorship or control, some of its moves in recent years have given the industry reasons to worry: X was banned in Pakistan in February, and last year, Wikipedia was temporarily shut down after it failed to comply with the national telecommunications regulator’s requests to remove what it deemed “blasphemous content.”

“China has built the world’s largest cloud and the biggest online marketplace, Alibaba,” said Mudassir Malik, a member of the Pakistan Software Houses Association’s central executive committee. “They have the largest manufacturing units [and] offer the highest subsidies, hence they don’t need to connect themselves with other countries. Pakistan’s payment processes, banking channels, [and] standard applications – be it social media or other apps of daily use – are all international. The country cannot reap any benefits from a firewall.”

Pakistan’s tech industry contributes around 1% to the country’s gross domestic product and over 10% to its annual exports. The sector generates a revenue of more than $3.2 billion a year, 15% of which is contributed by freelance tech workers. The country also has a budding tech startup industry, which has attracted global investment giants like Tiger Global in recent years.

The growth of the tech startup industry, however, has been slow because of political instability in the country.

“Pakistani startups are often a hard sell to global investors in any case, given the risk profile of the country,” Misbah Naqvi, co-founder and general partner of Pakistani venture capital fund i2i Ventures, told Rest of World. “The internet disruption creates a greater perception of risk for investors, especially those outside the country. This would lead to investors preferring other markets where technology infrastructure is more reliable.”

Concerns about the state of Pakistan’s industry have flared in recent weeks.

In mid-August, internet users in Pakistan started reporting slower speeds and problems with sending photos and making calls on WhatsApp, one of the most frequently used internet messaging apps in the country. Activists and tech industry experts believe this disruption has been caused by the government’s moves to install the firewall and filter content.

On August 14, an association of internet service providers in Pakistan reportedly said that the government had heightened efforts to monitor internet traffic, which caused internet speeds in the country to drop by up to 40%. Slow internet is “creating a chaotic situation for businesses and individuals who rely heavily on fast, reliable connectivity,” the Wireless and Internet Service Providers Association of Pakistan said in a statement, adding that call centers and e-commerce professionals were among the worst hit.

Asfandyar Farrukh, co-founder of the Chainstore Association of Pakistan, the largest trade body of organized retailers in the country, told Rest of World that even physical stores have suffered due to the recent internet disruptions.

“In recent weeks, WhatsApp has been affected, hindering multimedia sharing, live location sharing, [and] voice calls,” Farrukh said. “It makes it very challenging to communicate with people. As a result of the recent internet disruptions that we have seen, which could be attributed to the firewall, the entire gig economy is impacted.”

The government has denied it had anything to do with the slow internet speeds and blamed the issue on a faulty undersea cable, a cyberattack, and the overuse of virtual private networks (VPNs).

The IT ministry and the Pakistan Telecommunication Authority did not respond to Rest of World’s requests for comments.

Even before the recent disruptions and talks of the firewall, Pakistan had limited access to global technologies, freelance writer and digital rights activist Tehreem Azeem told Rest of World. For instance, PayPal is not available in the country, making it hard for freelancers like Azeem to receive payments from international clients.

“While doing my freelance work in China, I used to receive payments via PayPal, and I cannot even access that money in Pakistan,” said Azeem, who has lived and worked in China for six years. “I have that money, but I have no way of using it.”

Azeem said that while China blocks certain apps and websites, it offers local alternatives like Baidu for searching the internet and WeChat for shopping and making calls. “In Pakistan, we have no such alternatives,” she said.

The comparisons with the Chinese firewall are inevitable given Pakistan’s history of tech partnerships with China.

In 2015, the two countries signed a $62-billion pact, which includes projects to set up a fiber optic network, digitise television transmission, and share surveillance technologies. In recent years, the Pakistan government has taken tech-related decisions – such as imposing a centralized domain name system and plans to block VPNs – which have led digital rights activists to believe the country’s firewall will be similar to that of its neighbor.

Cheetay founder Khan said the firewall could end up benefiting Chinese companies.

The move would deter Western investors from backing Pakistani startups, and as the domestic ecosystem weakens, pave the way for Chinese companies to take over. “The case of Daraz is there for all to see,” Khan said. “What’s happening with the firewall in Pakistan is a very negative signal to already on-the-fence international investors,” Ambareen Baig, who leads research at startup accelerator, Accelerate Prosperity, told Rest of World. “[It] will certainly deter a lot of others from investing in the space.”

Kunwar Khuldune Shahid is the Pakistan correspondent for The Diplomat, and a former digital editor for the Pakistan edition of the MIT Technology Review.

This article was originally published in Rest of World, which covers technology’s impact outside the West.