Pakistan’s information and communication technology (ICT) exports are touching record highs every month and recently scaled a fresh peak of $332 million in May. On a trailing 12-month basis, the proceeds now stand at $3.15 billion — finally crossing that $3bn mark. Though this is certainly a welcome development, looking at a longer time horizon reveals a somewhat different picture.

In 2023, ICT exports grew by a meagre 2.5 per cent. There has been another side of record-breaking numbers as well and that is the slowest rate of growth observed in the ICT sector over the last 14 years, with exports of telecom services even taking a dip by 0.5pc.

It can be argued that perhaps due to the macroeconomic slowdown globally, with some of the major markets even dipping into mild recessions coupled with interest rates at elevated levels, the effects are now trickling down to Pakistan’s ICT industry. Understandably, there is restrained spending on discretionary projects in such an environment. No wonder even giants like Infosys and Tata Consultancy Services are undergoing their most tepid periods in a long while.

However, comparing Pakistan’s reasons with the biggest names in the industry is comparing apples to oranges. Our entire ICT exports are a fraction of what Tata or Infosys earn during a year. According to the State Bank, almost two-thirds (65pc) of all computer services and 80pc of software consultancy firms in Pakistan generate revenue under $100,000.

Despite crossing the $3bn export mark, the sector witnessed the slowest growth rate in over a decade

In other words, we are too small to be affected by the global headwinds as the customer spending around those ticket sizes is less elastic.

Between 2017 and 2022, ICT has actually been the best performing category in services exports across all regions other than Oceania, where it came out runner up. However, Pakistan’s share in this value chain is just a meagre 0.0003pc, not even a rounding error. Even that is highly concentrated as almost half the proceeds (47pc) between FY13 and FY22 came from the United States, amounting to $9.15bn. The United Arab Emirates was another important market, contributing over a quarter (26.5pc).

But Pakistan is yet to make a meaningful dent in other major markets. For instance, the country earned just $533m between FY13 and FY22 from Singapore, which is one of the five biggest importers of ICT services globally. This gives you a glimpse of how we are squandering a truly global opportunity by not expanding beyond our traditional hubs.

It matters because our recent history has shown that technology exports are probably the most efficient way to help address Pakistan’s economic challenges, particularly those relating to the external account. Over the last two decades, ICT has been the only major sector driving growth. Nothing signifies this better than the fact that ICT exports have grown elevenfold since 2006 compared to the overall service exports, which grew just 2.2x during the same period.

Unfortunately, the tide is reversing. According to the State Bank of Pakistan, information and communication gross domestic product is projected to dip in the fourth quarter FY24, the sixth such instance in the last eight quarters. This is in stark contrast to the yesteryears when this sector was by far the biggest growth driver.

There is a silver lining to this rather gloomy picture though. Currently, Pakistan stands almost at the same level where Japan was about 11 years ago but has now grown ICT exports to more than $10.3 billion as of 2022. Similar has been the story of Poland and Romania, both of whom were in identical positions not too long ago.

If the right policies can be put in place, there’s no reason why Pakistan cannot catch up to the $10bn club. But that’d require a move away from the status quo, which was only strengthened in the latest budget as it once again missed an opportunity to make meaningful reform for the sector. While the policymakers would be tempted to seek solace in the sudden revival in proceeds, it’s important not to get carried away and look at a more holistic picture to set the course right.

Mutaher Khan is the co-founder of Data Darbar and Ahsan Jamil is the founder and managing partner at sAi Venture Capital

Published in Dawn, The Business and Finance Weekly, July 1st, 2024

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