IT: build scale

Export of IT services – especially software – still remains a “potential” sector, given the numbers. Background discussions with stakeholders put the industry’s size at roughly $3 billion in 2018. Some $2.5 billion of that pie can be marked as exports – of which only a billion dollars is officially recorded as ICT exports. The remaining half a billion dollars is accounted for by the local market – that is, software purchases made by companies and institutions in Pakistan from local software houses.

If boosting software exports is the ultimate goal, local sales must pick up first. The local spending on IT, at $500 million or so, is abysmal, compared to economies like India adjusted for size. Specifically, the federal and provincial governments would need to purchase a lot more software and IT-enabled services from local software houses than they currently do.

The argument for the public sector becoming a major IT buyer, user and promoter has three pillars to stand on. One, service delivery would get a boost in terms of cost, quality and timeliness. Knowing that, some government departments have developed their own software platforms and solutions. That’s where the second point comes in: in-house development can result in time & cost overruns as well as limited scalability and interoperability with external environment.

Realizing that, many government departments do buy software solutions and services from the market. But often the local vendors and software houses are bypassed for big-name firms abroad. This is where the third point comes in: if the procurement involves more local firms, it will develop their capacities to take on bigger challenges. Over time, local software houses, many of which are SMEs and are well aware of local governance issues, will become more competitive at delivering services overseas.

The above may sound like a nod to Import Substitution – but there is a key difference here: the end-user is the government, not ordinary customers. The payoff to the government for its patronage will be in the long term, through higher forex inflows as local competitiveness increases to boost software exports five to ten years later.
That, however, is easier suggested than implemented. The government, even at the more-streamlined federal tier, is not a monolithic entity. Unless there is a centralized purchasing authority for the line departments’ individual software procurements, cabinet instructions to buy locally won’t fly. Besides, PPRA rules discourage buying from small companies with limited history – this discourages startups and their ingenuity.

Thankfully, the ruling party had, before the elections, announced to do something about this. The PTI’s Digital Policy had vowed to set up a statutory body called ‘Knowledge Economy Authority’. This centralized body was supposed to be the custodian of government’s digital initiatives. Authorized to handle all digital contracting on behalf of the government, it was promised that the Authority would spend $2 billion, over five years, on digital infrastructure, citizen services and e-government programs.

Many a slip between the cup and the lip! One hopes that the recently-constituted PM’s Task Force on IT & Telecom will take up this matter of digital contracting. Centralized bureaucracy would have the obvious pitfalls of having too much control and discretion. But it is perhaps a necessary evil in helping the local software houses, big and small, move up the value chain.