Pakistan needs to carefully look at the export areas it must focus on for the next decade. Our trade deficit of $37.67 billion can only be bridged by focusing on export segments that offer a tremendous growth rate.
Pakistan is currently trying to bring Chinese investment into the industrial sector to develop Special Economic Zones (SEZs). We should focus on areas that offer the best export potential and can fulfil China’s domestic demand.
China is investing billions of dollars in building artificial intelligence parks. It has built huge cities just for IT and IT-enabled services in the last two decades. Similarly, 40 per cent of India’s total exports are coming from its IT and IT-enabled services. India has been unable to become an industrial giant unlike China.
The Philippines has taken its exports of IT and IT-enabled services to $30bn. This sector is providing jobs to around one million professionals. Similarly, India’s IT industry has around 3m professionals. Both of these countries are known for their business process outsourcing (BPO) space, which has the ability to generate a lot of jobs.
Although India is a leader in this field, many countries offer other advantages in the BPO space, such as low costs and specialised skills like gaming, legal, financial services etc. While a lot of countries are stealing India’s share, the global BPO industry is also growing by $10-20bn per year, according to a 2017 report by Everest Global Services.
Pakistan can bring many advantages to the table. It’s already 35pc cheaper than India. As per the A.T. Kearney’s Global Services Location Index, Pakistan ranks third in the world in terms of financial attractiveness (behind Sir Lanka and Egypt) and occupies the 30th position overall. Full foreign ownership is allowed with 100pc repatriation of profits as well tax exemptions on exports. We can further improve our ranking in areas like the ease of doing business and the number and quality of graduates to move up on the scale of global outsourcing destinations.
As for higher-end services, we can train our graduates in the fourth-generation areas, like cyber security, artificial intelligence and big data. Currently, Pakistan produces 30,000 IT graduates annually. Of these, 3,000-4,000 are high-quality graduates. We should work with our universities to increase the quality of our graduates and help them learn fourth-generation technologies. We should also try to train existing graduates in these technologies.
Our target should be to double the number of our IT graduates in the next five years and also increase their quality. These graduates can work for the local industry, go abroad and send home valuable foreign currency or open their own companies, especially in the fourth-generation areas, like cyber security and machine learning given their huge demand in the international market. Generally, companies working in specialised areas don’t struggle to find work as opposed to those competing in non-specialised areas.
We will also need to work on developing low-end skills because a large number of our young population don’t get to the university level. We can also focus on providing skills to non-IT graduates and training people to become accountants, doctors and legal and financial services experts. We already have programmes that are providing skills to the masses. However, we will need to asses which of these are effective and increase our spending accordingly.
Pakistan will also need to work on building huge office infrastructure to accommodate this growth. Currently, it is very difficult to find decent offices in major cities. The ideal global rental in the BPO space is Rs50 per square feet. Currently, all of our major cities have rentals in the range of Rs150 to Rs200 per square feet. One of the biggest IT companies in Pakistan has been struggling to find space at reasonable rates for its 2,000 employees for the last one year.
The solution to this is simple. We can follow the model of SEZs adopted by Philippines and India. They have provided huge incentives to land builders, developers as well as IT and IT-enabled services companies inside SEZs. Many Indian states provide 25-50pc land subsidies to the builders of these SEZs. Instead of taking loans and building huge towers, we can simply build these parks on the basis of public-private partnership. These SEZs will also improve our image as big and small companies along with incubators and event centres will be co-located in these zones.
SEZs offer added advantage of improving the ease of doing business for companies operating inside them. Currently, we don’t have a single-window operation for companies inside SEZs. Adding the single-window operation to the SEZ framework will make it very attractive to international IT players.
An important thing that many countries do is that they spend their budgets on e-governance and automation. Pakistan also needs to increase this spending as e-governance is the only way to control corruption, increase transparency and improve the ease of doing business. Almost all countries that have succeeded in IT exports outsource their work to their local IT industry instead of doing them in-house. This increases their local industry’s capacity and also helps them deliver similar solutions internationally.
Pakistan, unfortunately, has followed the other path by putting thousands of resources on the government’s payroll. Imagine if big government projects, like the national single window and tax automation, are done by local companies. These companies will bring in billions of dollars worth of foreign exchange to the country by doing similar projects in other countries.
The final and most important thing will be to form an exports council with the prime minister as its chair. Its members should include top exporters, finance minister, commerce minister, Board of Investment chairman and industry experts. It should incentivise exporters and monitor how different segments perform every month. It should take their ideas and allow them to lead from the front to increase exports.
Our exporters are our international salespeople. They build Brand Pakistan and bring valuable foreign exchange that will help us become a nation truly independent from debt.
The writer is chairman of Pakistan Software Houses Association.
Published in Dawn, The Business and Finance Weekly, August 6th, 2018