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BR Research

Interview with Naseer A. Akhtar, President & CEO, InfoTech Group

“Government’s IT spending should be at least $4-5 billion” Naseer A. Akhtar is the President and CEO of...
Published November 15, 2021
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“Government’s IT spending should be at least $4-5 billion”

Naseer A. Akhtar is the President and CEO of InfoTech Group. He has previously served as Chairman of [email protected] (Pakistan Software Houses Association). Setting the corporate direction and strategy for all lines of business, he focuses on customers, strategy and innovation. He has been responsible for multimillion-dollar revenue-generating products in major industries like e-Government, Banking, Capital Markets, Utilities, and Smart Grids. He has a Bachelor’s degree in Mathematics & Physics from the Government College Lahore.

BR Research recently interviewed the InfoTech President & CEO to understand the forces shaping the country’s IT landscape. Selected excerpts are produced below:

BR Research: Having witnessed firsthand the evolution of Pakistan’s IT industry over the past decades, how would you characterize the current state of the industry?

Naseer A. Akhtar: The IT industry has been constantly evolving. Lately there has been a lot of hype, which is probably due to acceleration of IT adoption on the demand-side during the Covid-19 era. The local IT market is linked up with the international IT market, where the size of the latter has jumped from $3.2 trillion in 2018 to $5 trillion in 2020. Globally, there is a supply-demand gap and every country is now looking to ramp up the growth of digital interactions among their citizens and businesses.

Having said that, Pakistan’s IT industry has never been able to accomplish as much as it should have, in order to capture the global opportunity. The governments and industry have always been gung-ho about discussing the IT’s hidden potential, but not much planning, or investment has gone into capturing the potential.

BRR: What explains the recent substantial growth in IT exports?

NAA: The current overflow that Pakistan’s IT industry is getting from export market is mostly because of risk-mitigation measures and capacity-related issues which foreign firms have faced during the pandemic. Remote work has also played its part, where foreign firms are able to set up local IT workers in Pakistan instead of moving them abroad. It needs to be seen if this trend sustains.

BRR: IT is mostly knowledge work. Some observers claim that there is an acute skills shortage in the IT industry, which hampers Pakistan’s ability to level up its IT exports in line with potential. Do you agree or disagree with that statement? Please elaborate your argument.

NAA: Although there is no scientific research on this issue, but generally the consensus is that Pakistan’s annual output of IT and engineering graduates is about 25,000 to 30,000. However, out of that number, barely 20 percent are deemed employable and placed in export-oriented services. The remaining graduates are not put through rigorous on-the-job training by the industry, and it takes about two to three years to get them somewhat productive. Barring five or six good universities, the quality of IT and engineering graduates produced in the country’s colleges and universities is not up to par. And nobody, including the HEC, seems worried about it.

Part of the challenge in training human resource is that domestic industry does not have a lot of consumption of IT services, as a result of which there is not much talent or experience that is reusable for exports. The figure for domestic consumption of IT services – including hardware, software licensing, services, communication, etc. – is close to $1.5 billion, which is shamefully low for an economy of this size. The big culprit is the public sector, whose spending on IT is almost negligible. The public sector IT spending has not changed much in the past 20 to 25 years – and as a result of not being automated, the government departments, public sector enterprises and utilities continue to lose money and lack transparency.

The rule of thumb is that the size of your domestic IT market is your capacity to export – and the industry is doing that. But asking for more than that is something that cannot be done by the industry even if there are more export orders. There is no shortage of work globally, but availability of skilled human resource is a problem for us domestically.

BRR: How can the IT firms improve their efforts on human resource capacity building, especially for export markets?

NAA: There is a need to invest more on training the human resource, particularly the 80 percent graduates that are not fully employable. It can be done in a short amount of time via re-skilling them through boot camps, whose popularity worldwide is spreading like wildfire. The cost of boot camps, which take about 12 weeks, is a bit high, but the resource you get at the end is immediately employable with highly-specific skill sets. The program costs $18,000-20,000 in the US – but the cost can be brought down to $5,000-6000 per person in Pakistan. An IT firm can invest that sum on a resource and 12 weeks later they can be in a position to use that person to bill $25,000 a year. The ROI is immediate.

BRR: Many countries that have led in IT services development did it partly on the back of their governments using public sector procurement as a means to grow local industry’s capacity. Earlier you also mentioned about the woeful level of public IT spending. Question is, why is the public sector in Pakistan not spending more on IT?

NAA: This question should actually be answered by our governments themselves. All I can say is that 80 percent of a government’s time in Pakistan is consumed by their need to stay in power and manage political crises than attending to critical issues impacting the economy. Our economic issues will never be solved unless we improve our productivity. And we can improve our productivity by enabling and skilling people, connecting them with others, and giving them tasks to do.

The government’s IT spending should be at least $4-5 billion, for their own process automation and digital consumption – currently, the figure is less than a billion dollars. As an example, in the power sector, there is no way you can catch up with the mighty and growing circular debt unless you automate processes, billings, recoveries, etc. To plug those holes that cost Rs300-400 billion every year, you need an investment of $1.5-2 billion in automation.

BRR: Is more public-sector IT spending the answer when some government departments end up setting up their own IT companies instead of outsourcing to the local IT firms?

NAA: This is a serious issue and it hurts the capacity-building of local IT firms. In a few places, my firm has competed with major Pakistani public sector entities for digitization contracts. New shops are constantly being opened within the government to do these kind of things. Government needs to realize that it’s not their job to do business, their job is to oversee and regulate.

BRR: What are your thoughts on the government’s recently-established Special Technology Zones Authority (STZA), which has offered a number of fiscal incentives to technology firms?

NAA: My fear is that in a few years’ time, it will be another white elephant, sitting there doing nothing. When this entity was being established, I had expressed my concerns, through the forum of [email protected] and also elsewhere, as to why the government was going for land development and real estate when IT is a virtual activity and you can register IT firms wherever they are based. And in the new situation, after our experience during Covid-19, IT firms can live with more than 80 percent of their employees working from home. We don’t need those buildings and gated communities.

As for tax incentives, let me tell you that in some years, by the time those brick-and-mortar structures are finished by this authority, there will not be a need for fiscal incentives at all to attract IT companies. The world is now moving towards minimum corporate income tax, as a result of which IT companies will be more interested in facilitation in foreign destinations than tax incentives alone.

BRR: Pivoting to your firm, what are the main product lines at InfoTech and which sectors and regions are you mainly operating in?

NAA: Our firm’s primary character is that of a system integrator, which includes all the core pillars of technology, starting from infrastructure to middleware, applications to development, and integration. We are now increasingly shifting towards products and platforms that are based on cloud computing and subscription-based models. While we have developed our own products, we also deploy and optimize products and applications of third-parties. From February-March next year, we will be rolling out some really fantastic things which we have been working on for some time.

We are primarily present in the Middle East, Central Asia, Africa, and to some extent, in the Asia-Pacific as well. Our major focus area is financial sector and capital markets, which is where the bulk of our revenues come from, domestic as well as international. The second-largest vertical that is emerging for us is our GovTech platform, which covers the entire technology stacks which governments are using to create digital governance.

Under GovTech, we have solutions for tax and revenue systems, filing systems, registrations, licensing, record management, identification databases, etc. While we see huge potential in GovTech abroad, we don’t see much interest in Pakistani government departments as they want to maintain control and hierarchies.

BRR: What portion of InfoTech annual revenue is derived from exports? What has been the trend in exports over past five years?

NAA: Right now, 70 percent of our revenues come from within Pakistan and 30 percent of our revenues are derived from exports. We are trying to flip this ratio in the favor of exports over the next three to five years. Our export orientation is mostly explained by our motivation to tap the overseas market even more, but part of it is also due to the fact that we do not see much growth happening in the domestic market.

BRR: What are the main challenges that you have faced in expanding your export revenues?

NAA: To overcome the issues related to the country’s brand equity, we had to set up offices abroad in London, Singapore and the Middle East, and we have been getting export orders since. However, a major challenge that we currently face is to have references abroad – the ability to showcase our expertise in certain areas. While we have achieved strong reference-ability in financial sector and capital markets abroad due to our overseas projects, it is somewhat difficult to penetrate the GovTech market abroad because potential customers ask what projects you have done in your home country.

All the major IT firms that you see in US or China were first supported by their own government’s IT contracts in domestic market, which helped them to become global enterprises. This kind of realization needs to be there in Pakistani government, because it will help with the country’s exports later on.

BRR: Unlike a few other prominent IT firms in Pakistan, InfoTech is not listed at the PSX. Is there an IPO on the horizon, somewhere down the line?

NAA: The capital market community has been chasing us for the past seven, eight years. We have not had any issues in areas of funding or governance or performance. We have grown to this point organically, from within our own resources. Now we feel that the capital that is required for further growth may not be available organically.

Currently, we are thinking on two options. One is private equity, where we have received outside interest for a private equity placement in three to four verticals. And the other is an IPO, an option which we have begun to explore.

© Copyright Business Recorder, 2021

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Interview with Naseer A. Akhtar, President & CEO, InfoTech Group

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