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Pakistan Deaths
Pakistan Cases

Pakistan's informal exports of Information and Communications Technologies (ICT) are probably much higher than formal exports. Official ICT exports of Pakistan touched $ 1 billion for the first time ever in FY18, however as per industry experts estimates the total size of Pakistan's ICT exports is around $ 2.5 billion. Of these exports, registered firms using formal banking channels to collect export receipts account for around $ 1 billion. However, roughly $ 1 billion is attributed to Small and Medium Enterprises (SME) exports in the grey market and the remaining $ 0.5 billion is accounted for by freelancers in the Information Technology (IT) and IT-enabled services (ITES) space that serve international clients.
State Bank of Pakistan (SBP), in its first quarterly report "The State of Pakistan's Economy" for FY19, has added an special section titled "Performance of ICT Exports of Pakistan". This section analyzes in detail the dynamics of ICT exports, and highlights the challenges faced by the firms and individuals in increasing their share in the growing business process management (BPM) and micro-works global market.
According to the report, while the major stakeholders including Pakistan Software Export Board (PSEB), associations, and industry analysts provide different estimated figures pertaining to the undocumented exports, a common narrative prevails when it comes to reasons behind the under-representation of receipts in the official statistics.
First, the absence of PayPal is a major concern. PayPal is the most widely used payment method across the globe, and relatively more convenient, cheap and safe. Therefore, a number of ICT and Business Process Outsourcing (BPO) firms prefer to receive their revenues using money transfer organizations like Western Union, with some even preferring to have their revenues deposited in banks outside Pakistan to avoid the associated transfer costs. In the case of former, the export receipts reflect as workers' remittances, whereas in case of latter, these earnings remain unrecorded altogether, the report mentioned.
Secondly, the report said that anecdotal evidence also suggests that some firms and individuals themselves bypass proper documentation in order to either stay under the radar of tax authorities, or avoid the hassle of filling out SBP's Form 'R' (considered both cumbersome and redundant). Furthermore, most firms simply opt out of negligence and lack of awareness about the proper export procedures.
The SBP said that while Pakistanis have begun to figure prominently in electronic freelancing lately, it was the sharp increase in consultancy services provided by the country's ICT firms that has dominated the export trend over the last couple of years. As per the official statistics, computer services have generated most of the export ($726 million in FY18) momentum in recent years. However, while software exports have displayed a more-or-less stagnant export performance over the previous 5 years, a steady growth has been observed in the export of consultancy services.
As for the sector's composition, export revenues of only 30 percent of the total 3,228 ICT exporting entities came from computer software during FY18; the rest had either limited or no product orientation, as they generated revenues only from low value added services e.g. call centers. However, from FX generation perspective, this dominance of low value-added services is not favorable.
The breakdown of FY18 data suggests that the average receipts from software exports (across firms) were more than double the average receipts from other ICT exports. Therefore, it is not surprising to see that only 56 firms had exports of $ 2 million and above, as an overwhelming majority of firms could not even fetch $ 0.1 million receipts during the year.
Going forward, SBP stressed for focusing on skill building and improvement of payments infrastructure. In addition, significant improvement is needed before Pakistan can attract more business as the lack of technical and professional capacities works as a major growth barrier, making it hard for the BPO industry to compete in the international market.
The government is taking administrative measures through (Pakistan Software Export Board) PSEB to promote the sector's smooth progress and recently announced Digital Pakistan Policy provides multiple tax incentives to the industry and envisions a strong interplay between IT firms, cellular operators, and government institutions.
The SBP is also guiding banks on proper documentation of the proceeds of BPO outlets and working with the industry to sort out associated payment-related issues. It is vital that the government continues to work in this trajectory and embrace the idea of technology-centric Special Economic Zones (SEZs), where companies can take advantage of IT-ready plug and play clusters and operate under a one-window structure with the government, the report suggested.
Local universities that specialize in IT also need to focus more on the education quality, especially with respect to developing programming/coding skills in demand in the global market.
As far as cross border payment solutions are concerned, although exchange services of intermediaries such as Payoneer and Skrill are available for individuals and startups associated with the freelancing and BPO industry, little progress has been made in introducing the most widely used digital payment service of PayPal. As things stand, data privacy is one of the major hurdles in the way of PayPal to enter Pakistan. In past, PayPal had to cease or narrow down its operations in multiple countries by failing to satisfy the local regulatory authorities on the issue of data security.
Furthermore, as PayPal's funds transfer mechanisms work in a bidirectional fashion, there are concerns for countries with weak external buffers to risk excessive outward remittances of foreign exchange.

Copyright Business Recorder, 2019