Amazon in Pakistan

                      Amazon Pakistan

Despite the hype and the pomp, Pakistan’s addition to Amazon’s list changes little for sellers

In May this year, Pakistan was added to the list of countries authorized to sell products on Amazon. This news was met with joy from the government and celebrations from all sides. Exports were to increase and there was a new way to start a business.

 

However, long before the announcement, people in Pakistan were selling products on Amazon. In fact, according to one study, despite not having a Pakistani presence, nearly 70 percent of textile sellers on Amazon sourced their products from Pakistan. However, these are large producers and exporters mainly of Pakistan's textile industry. At the individual seller level and with Amazon's magic that anyone can sell anything and mint money, these sellers would source products from countries other than Pakistan and set up their businesses on Amazon by going through complex steps to register businesses in countries like the United States or England through their friends who are settled in these countries.

 

The business would be "headquartered" in these other countries; all products would originate outside of Pakistan and pass through the country where the business was registered. Except that the trade was run by Pakistanis but no or very little revenue from these trades came to Pakistan. Amazon allowed Pakistan on the list to end these special loopholes.

 

After six months, nothing has changed. In fact, retailers selling products through Amazon say that a combination of regulatory hell in Pakistan, a lack of cheap products to sell, and Amazon's seeming reluctance to verify accounts registered in Pakistan means they will continue to sell through third countries.

 

Understanding why Pakistan’s inclusion in the list has resulted in such a meek response requires knowing how selling works in Pakistan, and why the old system suits retailers in Pakistan better.

The Amazon system 

 

In 1995, Amazon.com sold its first book, which was shipped from Jeff Bezos' garage in Seattle. In 2006, Amazon.com sold far more than books and had sites serving seven countries with 21 distribution centers worldwide totaling more than 9 million square feet of warehouse space.

However, most of the products that Amazon ships are not owned by Amazon. Retailers, big brands, and individual sellers send inventory to Amazon's warehouses and the company takes care of the rest, including packaging items, processing customer payments, and shipping. The supplier is pretty much the lifeblood of the Amazon system. While Amazon still doesn't have operations in Pakistan, six months ago it allowed Pakistanis to officially become Amazon retailers.

Now selling on Amazon is not easy. Just getting started requires significant investment, discipline, and marketing skills. Space on Amazon is extremely competitive. This means that the only way to stay competitive is to buy very specific products in bulk at low prices and then sell them through Amazon. This means they will have to export the product to Amazon's warehouses where they will be shipped from.

There are very few products in Pakistan that have the advantage of being cheap. For example, one of the vendors we spoke to focused on textiles such as towels, which are cheap in Pakistan. Basically, the process, they explain, is that they buy towels directly from the factory in bulk at a cheap price. They then export the entire volume to Amazon, which stores them in its warehouses and sells and ships them over time. This is where the problems of Pakistani sellers begin.

The old order versus the new 

 If anyone wanted to sell towels on Amazon from Pakistan before May 2021, they had to go through a series of complicated steps. According to the new order, Amazon has allowed you to set up an account with your Pakistani address, Pakistani documents, and a Pakistani bank account for money transfers.

 

Under the old order, sellers from Pakistan set up companies in the markets they targeted for sales. For example, if you want to sell in the US, you would approach a friend and ask them to set up an Amazon account under your name with your address and bank account details, in exchange for possible business partnerships or some commission.

 

All financial matters would be handled in the foreign market where you have an Amazon account and where you sell. Amazon would pay you in to your friend's US account, and since the establishment is foreign, taxes also apply in the foreign country according to their rules. “You need a credit card to pay Amazon and you need a bank or wallet account for Amazon to pay you back your earnings. All this happened outside Pakistan,” says one vendor. “Once Amazon pays you, the money can go anywhere in the world. Except when it's accepted in Pakistan, it becomes a problem.'

 

Essentially, as a new seller, already on a tight budget, you're falling into a death trap where an established seller would drop prices to bleed your money and drive you out. You can move in with a brand-new product, but again there is a chance that your competitors will do the same and drive you out because of their strengths in those categories.

 

The safest bet, sellers tell us, is to choose products smartly in categories that have less competition and you can buy those products at lower prices. And besides China, there is no other place in the world where you can get all kinds of products at prices lower than the rest of the world.

 

The seller Profit spoke to was also from China and said there are many challenges for Pakistanis to source products from another country, ship them to another country, sell them there and repatriate the profits to another country.

 Red taping 

When you source products from China and have to pay suppliers there, the SBP rules are strict for the outflow of foreign exchange with the payee having to go through the documentary hassle of sending the money and answer questions from the SBP as to why the money is being sent abroad and other restrictions consisting in the need to recover the proceeds from the sale within 180 days.

For example, if as a seller you are sourcing a product from China because you are selling a product originating in the UK or US, you prefer to ship products from China directly to the UK or US. Because if you ship it to Pakistan first and then ship it to the UK or the US, your costs will simply go up and you won't be competitive.

 

As the vendors tell us, from SBP's point of view, the products you are taking from China mean that SBP thinks your products will be sold in China if they don't come to Pakistan and expects that sales revenue will have to come. from China. So if you are making payments to China and the proceeds from the sale of those payments are coming to Pakistan from the US or the UK, that is a problem with the SBP, but its hands are also tied. FATF and anti-money laundering compliance have the SBP's hands tied and cannot function without aggressively screening payments coming into Pakistan. On the seller's side, this is a pain that discourages sellers: they would prefer to set up companies abroad, open foreign bank accounts and direct all payments outside of Pakistan, effectively depriving Pakistan of remittances for Amazon e-commerce sales.

Then there is another restriction for sellers selling from Pakistan if they send payments to, say, China to buy products, the profits must be repatriated within 180 days. "As soon as the 180 days are approaching, you'll start getting letters and the banks will call you asking where the money that was sent abroad is going," the seller told Profit, choosing to remain anonymous for fear of retaliation from the authorities if he complained.

Products are not sold all at once on Amazon. Sellers can send a limited number of units to Amazon, or they can choose to send a large quantity to again save on shipping costs, depending on projected sales. Sellers can sell 1,000 units of a product per month, but they can ship 6 months' worth of inventory coming from China to save on shipping to Amazon again, in which case there is no 180-day refund. Sellers are better off if they make the initial payment and repatriation once against him and when payments from Amazon start coming into their foreign accounts, there is no need to bring that money into Pakistan and all payments to suppliers can be taken care of outside Pakistan.

However, Aisha Moraine, a joint secretary in the commerce ministry who spearheaded the campaign to bring Amazon to Pakistan, said the SBP had lifted the 180 restrictions on Pakistani sellers but admitted there were still issues being looked into.

In fact, vendors told us that setting up companies abroad and doing all business outside of Pakistan brings additional profits. Since you can't bring your accumulated wealth to Pakistan due to SBP check issues and since we have tax issues where FBR is chasing anyone who can earn money, this can be a way to move out of Pakistan.

Think about it: you have thousands of pounds or dollars of money in the UK and US, which you can only bring into Pakistan in limited amounts. That too after finding ways around the law like setting up a fake company and falsely invoicing your friend in the UK for services through a fake company just to receive those payments. It is better to go to the country where you are selling and continue from there without having to deal with the pains of operating in Pakistan.

Let's recap. Amazon sellers in Pakistan previously had one option to sell in Pakistan; that means setting up companies abroad and keeping everything outside. Now that Amazon has allowed Pakistan to set up accounts using Pakistani addresses and information, sellers still prefer to do business on Amazon by setting up foreign entities and continue to do business as long as keeping only in Pakistan will not work Willing. In fact, it can lead to trouble with the authorities as the tax-hungry FBR will hound you for life. In all of this, claims of rising exports on the back of sales from Amazon are falling apart. It's still a dream and probably will be for a while.