While Pakistan’s telecom and IT-related services exports have done well in recent months, there is room for more growth. As per the latest SBP data, during the period Jul-Dec 2020, exports relating to “telecommunications, computer and information services” jumped 40 percent year-on-year to reach $958 million. This fetched the country about $275 million in incremental forex on this count. Not bad, but it could have been even more if exporters choose to bring back the bulk of their earnings to Pakistan.
Within the overall digital services exports, the purely IT-related exports stood at $753 million in 1HFY21 – a yearly growth of 44 percent. This may or may not be a sign of resilience of the digital side of things during the global pandemic, but the recent performance surely lends credence to the argument that the policymakers need to put on top of their list such “non-traditional” export sectors. IT exports stood at $1.1 billion in FY20, as per SBP data. Market sources say there is potential to triple this “official” number.
Also take into account that Pakistan also has sizable ICT-services imports. These imports jumped more than exports did, growing 57 percent year-on-year to reach $309 million in the first half of the fiscal. In the end, for the period under review, net ICT exports (exports less imports) came in at $650 million, up 33 percent year-on-year. That’s a decent incremental forex inflow of $162 million over same period last year.
The ICT-related imports – which are mostly related to software purchases, IT consultancy, and telecom services – are necessary for the digital economy and non-digital counterparts to avail latest IT services and upgrades and to remain connected with businesses abroad. This is thankfully recognized by the banking regulator. Back in August 2020, the SBP had allowed local firms to pay a maximum of $200,000 per annum against services availed from 62 foreign digital service providers, without SBP approval.
The current government’s IT-promotion strategy seems to revolve around setting up more software technology parks. Last month, it established a Special Technology Zone Authority (STZA) with much fanfare; the first large-scale zone is to be reportedly launched in Islamabad. However, there is skepticism on whether this is the right approach for a sector that doesn’t need much real estate to function or grow. (Read more: “On special technology zones,” published by BR Research January 12, 2021). IT is a skills-based industry, and Pakistan will do well to convince IT majors such as Microsoft, Google, or Apple to train people here.
The ruling party is in its third year but it has so far not acted on its pre-election Digital Policy. Among its key promises in the digital domain were to establish a Knowledge Economy Authority, which was to centralize all public-sector IT procurement to efficiently meet the government’s digital needs through private sector Pakistani firms. In addition, it had promised to spend $2 billion over five years on e-governance and citizen public services. There were also promises to set up five tech-based SEZs, three IT universities, providing IT scholarship to top 50,000 students, and launch teacher certification programs.
While IT exporters enjoy a number of fiscal incentives, more needs to be done. Reportedly, the federal government is considering to approve a policy that will help Pakistani firms, including IT companies, to make investments abroad without seeking regulatory approvals. This kind of freedom will assist serious software exporters in setting up foreign offices that are instrumental in building relationships and securing export orders, making strategic investments when opportunity strikes, and even raise capital overseas. This freedom to move money in and out, however, is just one aspect of helping IT exporters build scale.