The government has recently projected the country’s export of IT (information technology) and ITeS (IT enabled services) to increase to $10bn by 2025 from the present estimated level of $2.8bn.
The target, a Pakistan Software Export Board official contended while speaking with Dawn, will be achieved by creating infrastructure — including IT parks in major cities, documenting the IT sector, and helping firms gain access to markets for their products and services.
“We have, to a large extent, succeeded in creating an enabling environment in the country over the last few years for IT entrepreneurs and firms to develop new products and services for exports,” he said on condition of anonymity, referring to the establishment of several IT incubators at major universities for facilitating young IT freelancers and technology startups, especially in Lahore.
While industry players agree that Pakistan has a significant potential for raising its IT and ITeS exports, the majority of them do not share the government’s optimism about a quantum jump in the country’s exports. “The PSEB target is completely unrealistic. Our exports have grown organically over time and I don’t see a swifter growth in the near- to medium-term,” the chief executive of a Lahore-based IT systems integrator and e-infrastructure provider said.
Broadly speaking, three major issues are constrain IT exports from Pakistan. “The most important issue facing exporting firms is the unannounced travel restrictions on Pakistanis travelling abroad.
“Whenever we want to go abroad for business development or sales, our engineers and technicians are not issued visas by most embassies. As a result we have to open our offices abroad and hire local people. This raises our costs and makes us very expensive,” he said, saying his company had opened offices in the Middle East, Africa and the UK.
He pointed out that although Pakistan’s IT related exports are already touching the $3bn mark, only a fifth of the revenue is remitted back home. “The rest is either used by the exporting firms to cover the cost of their offices abroad, marketing and salaries, or for their future business expansion plans.
But travel restrictions are not the only reason IT firms open their offices outside Pakistan. They are also able keep a chunk of their earnings outside the country and avoid paying heavy tax on their revenues. Another exporter said the government’s tax policies are blocking growth of IT firms.
“At present, an IT company has to pay 8pc of its revenues as tax whether it makes profit or loss. Sometimes the companies, particularly young ones, are forced to pay this tax out of their pockets in the hope of increasing their business and making profits at a later stage. The taxation policies are also one major factor blocking growth.”
IT exporters also underscore the government’s procurement policies as the third major factor hampering growth at home and expansion in export markets.
“Start-up firms cannot meet any of the prerequisites needed to qualify for public sector contracts because they do not have the experience and capital required to compete with their larger rivals,” a Karachi-based IT company owner, who employs 300 people, said. “How can you get export orders unless you have not developed a profile in the domestic market?” he asked.
A software engineer, who teaches IT at a private university in Lahore, said Pakistan had missed the IT bus. “Since we did not focus on our IT industry when the developed countries were outsourcing their business processes, it will now be near impossible to replace or even catch up with Indian and Chinese firms.”
He said Pakistani companies remained very small in size compared to Indian firms. “Our biggest company employs less than 700 people while India has giants employing up to 200,000 IT engineers and technicians. How can you compete with them? Our companies do not have the kind of size required to meet the needs of large global corporations.”
That is not all. The IT professor said Pakistan started focusing on its IT sector at a time when the security situation had started to deteriorate after the 9/11 events.
“IT processes are critical to the day-to-day business of corporations in the United States and Europe. Even a small glitch in the back office can lead to disruption in their business. So they think twice before hiring a Pakistani company for their IT needs. The risk factor is too big for them at present to look at Pakistan as a destination for outsourcing their processes.”
He blamed lack of government focus on the IT industry, shortage of trained manpower, the country’s unfavourable perception, low usage of technology by government and private firms, and the absence of laws supporting mergers and acquisitions as responsible for the stunted growth of Pakistani companies.
“Strategic growth requires an enabling environment for mergers and acquisitions. We lack such an environment. We don’t have a culture of mergers and acquisitions. Nor do we have the legal framework for that,” he argued.
“By now, we should have had 20-30 big firms to take advantage of the development in Africa, the Middle East and elsewhere, and increase our IT services exports. You need to be a big company to compete globally and handle big orders.”
He said India and Pakistan had entered the field of IT at the same time. “India has grown rapidly and its IT industry fetches an estimated $100bn in IT export revenues because it created a highly trained and educated workforce for its growing IT industry, and took strong diplomatic initiatives to bring the global IT business to the country.”
He said the IT industry needs the government to hold its hand to grow in size and get global business. “Regrettably, this hasn’t been the case in Pakistan, and our companies have to compete hard to win contracts in the global markets.
Published in Dawn, Economic & Business, April 3rd, 2017