IT industry: setting the right image

The global IT outsourcing wave was of little benefit for Pakistan, thanks to security issues confronting the country. Despite that, Pakistani firms involved in IT & IT-enabled services (ITES) have shown remarkable resilience, growing at an annual rate of 20 to 25 percent.
According to the Pakistan Software Export Board, the countrys IT industry is worth an estimated $2.8 billion, including exports of $1.6 billion in 2008. Industry leaders and experts have long argued that the central banks BPM5 reporting system understates IT & ITES exports and as such does not reflect the industrys true picture and potential.
Based on SBPs figures, IT & ITES-related exports were $154 million in FY08, $183 million in FY09 and $187 million in FY10. However, experts believe that the WTO-prescribed formula provides a better measure of the industrys size and global share.
Indias premier trade body for IT-BPO companies, National Association of Software & Services Companies (NASSCOM), also subscribes to WTOs formula, using which it has recently valued Indias exports revenues at a whopping $59 billion.
Apart from recording sales of direct export-oriented services, WTOs multi-modal formula also takes into account domestic sales to foreign entities operating in the country, earnings of overseas operations of domestic firms, and salaries of employees of domestic firms temporarily working abroad.
While conservative industry estimates put Pakistans IT export revenues over $1 billion per annum based on this formula, SBP reports export earnings for the IT & ITES industry based on official inward foreign remittances only.
Considering the fact that trade in services is much harder to monitor than trade in physical goods, the foreign exchange actually earned provides some degree of certainty in this regard.
With around 1,500 Pakistani companies employing over 0.1 million individuals, the official IT & ITES export figure seems really low. But the online nature of business inputs and outputs might also be at play here.
There are hundreds of IT freelancers in Pakistans major cities doing high-end, sophisticated software and web development work for international clients. Whatever channel their remuneration takes, any inward remittance received would be nothing but IT exports.
Industry insiders say that some Pakistani IT & ITES firms have back offices in Pakistan and front offices abroad. While the back office is used for performing most of the tasks, including IT & ITES services for foreign clients, the front office mainly deals with marketing, client meetings etc. Due to the online nature of the business, there is very limited physical trail.
Any transaction in this scenario would be included in export revenue as per WTO formula; however, it is possible that the entire revenue may not be remitted back to the Pakistani office.
If this happens to be the case, the un-repatriated portion of the revenue would naturally be unreported to banking channels, thereby not showing on the SBP radar.
However, there is little point in arguing with the central bank over their reporting methodology. If the industrys export proceeds are remitted back to Pakistan, the figure would look more realistic.
Recognition of IT & ITES industry as a multi-billion-dollar phenomenon would certainly bring the industry in spotlight and persuade the government to provide an enabling environment for it.
It is imperative for the industry association to release periodic reports on the state of the industrys affairs, its achievements & growth prospects, and global IT export revenues.
Knowing that the industry is in its growth stage, the Ministry of IT needs to invest in education, ICT infrastructure, and human resources.
Many Pakistani companies are among the fastest growing IT ventures in the MESA region, and are being recognised for cutting edge web and mobile applications of late. Pakistan certainly has what it takes to have a crack at grabbing a sizeable chunk of global off shoring and out sourcing markets.