Data Localisation Requirements May Hinder Pakistan’s Digital Economy, Says New Paper

A new research paper, “Data Localisation in Pakistan: Challenges and Opportunities,” examines the operational and economic impact of data localisation in Pakistan. The paper outlines the regulatory environment in Pakistan and the differentiated consequences of data localisation practices in four sectors: healthcare, IT and ITeS (software), e-commerce, and freelancers.

Commissioned by the Asia Internet Coalition and developed by LIRNEasia, the paper also provides recommendations on how the government can approach and enforce data localisation efforts without impacting the potential of the digital economy.

Slowing Down Economic Growth: Data Localisation’s Big Effect

Data localisation can contribute to slower economic growth, lower productivity, and reduced employment. The report estimated that if the Personal Data Protection Bill based on its May 2023 draft is enacted in 2024, it could result in a decline in labour productivity by 4.7%. Such a reduction, when applied to Pakistan’s growth domestic product (GDP) in 2021, directly impacts the country’s GDP and number of jobs, translating to a loss of USD $ 16.5 billion for the following year and a potential loss of 3.2 million jobs.

While representatives of local businesses welcomed the government’s efforts to improve data protection in Pakistan, they also shared three key areas in which data localisation requirements were seen unfavourably:

• Fully localised data can result in higher compliance costs, with a Pakistani IT company estimating a 70% increase in hosting costs.
• There are also human resource constraints, with businesses requiring more employees to run operations.
• Skill gaps in the local market can also hinder businesses’ smooth transition to localised data, not being able to capitalise on larger talent pools in other countries.
• In addition, centralised data storage can heighten the risk of data breaches, as businesses would have to compromise the security benefits of a decentralised architecture.
• Concerns around data recovery and data mirroring can also arise under such data localization requirements.

“The fourth industrial revolution is driven by the digital transformation of our economies and societies, resulting in global integration of value chains, economic growth, and job creation. Open data flows are crucial to Pakistan’s digital growth, and there are ways in which Pakistan can reconcile its digital security and privacy needs with the need for open data flows,” said Rohan Samarajiva, Chair, LIRNEasia and one of the paper’s authors.

Samarajiva added: “An important next step for Pakistan is to review its data protection governance framework across sectors and services with a specific focus on economic growth, job creation, and its vision for digital transformation. Handicapping Pakistan-based firms by imposing additional costs can impede them from competing in the global market and for investment. Other countries with friendlier policies will have an advantage over Pakistani firms. Amid Pakistan’s goals to become a USD $3 trillion economy by 2047, this data localisation can impact the country’s economic growth on the global stage.”

In Pakistan’s current policy and regulatory landscape, some data localisation is required. However, regulating digital platforms and businesses in Pakistan, particularly the use and storage of data would need to be reevaluated to avoid more serious repercussions for businesses and the economy. A lighter touch approach to enforcement can yield a milder impact on Pakistan’s digital economy.

With Pakistan’s regional peers also moving away from such measures, the merits of data localisation do not seem to outweigh the potential economic risks it brings. Continuous engagement with industry stakeholders can help the government refine and adapt the regulatory framework as the digital landscape evolves.

For more information, the report can be found here.