July 31, 2006	Monday	Rajab 4, 1427

INDIAN companies exported $19 billion in the form of information technology (IT) and information technology enabled services (ITES) in 2004. Their example is not unique; Russia, other eastern European countries as well as the Philippines and Costa Rico have shown tremendous promise in terms of IT export potential. However, until recently, Pakistan’s IT exports have remained well below $100 million per annum.

Other than the traditional problem of human resource shortage, there is a lack of financing opportunities for IT companies. In order to confront this problem the local office of the Center for International Private Enterprise (CIPE) and Pakistan Software Houses Association (PASHA) held a roundtable conference in May.

CIPE, an affiliate of the US chamber of commerce and one of the four core institutes of the National Endowment for Democracy, has supported more than 800 local initiatives in 95 developing countries involving the private sector.

The purpose of its round table conference with PASHA was to draft a series of resolutions to facilitate IT financing in Pakistan which would then be forwarded to the highest quarters in the government.

The draft resolution contained both short/medium term resolutions for working capital and long-term resolutions for growth capital. It recommended establishment of a joint task force comprising the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan(SECP) and PASHA to look into the problem of IT financing that included amendments to IPR legislation.

ITES software, patents and source codes should be recognised as tangible assets and the amendments should be compatible with US data protection law. Banks and NBFCs should be encouraged to advance cash and asset lending for the IT sector, minimum criteria should be set up by PASHA for valuation of IT assets and finally, IT companies should be encouraged to develop ‘source key’ based software which can be activated/de-activated at the will of the lender, improving its secondary market value.

The long-term resolutions envisaged the establishment of a donor-backed agency with private equity fund to be managed exclusively by the private sector and monitored by a credible external supervisory body. It also called for the removal of restrictions on IT exports which currently stands at $150,000, the establishment of schemes similar to local machines manufacture (LMM) financing on preferential rates for IT companies through the SBP and for the extension of income tax exemption (currently expiring in June 2007) on VC/PE companies for 10 years from the start of the fund.

Two weeks after the conference the recommendations were finalized. Thereafter, a working committee has been set up by the government to look into the issue. It is headed by Muhammad Ashraf Khan of the SBP. It also includes a representative from the ministry of IT and telecom, the Pakistan’s Banks Association, the SECP and PASHA. Barrister Zahid Jamil, of PASHA, will advice the government on the legal aspects of the issue.

As a further step to the roundtable conference on private equity investment was also held with the aim of establishing a policy on private equity. Obviously, if laws about equity and investment change, they will affect not just the IT sector but also all other industries.

Jehan Ara ,the President of PASHA, said she was delighted with the developments so far;’ The conference has highlighted the key issues, the major players are looking at it, the government is considering changes and we hope for progress’, she said.