Amidst the general economic anxieties these days, the country’s Information and Communications Technology (ICT) industry seems to be in a good spirit. Analysis of relevant datasets for the latest quarter – July to September 2021 – shows considerable improvements on several fronts. Most significant of them is the continued and welcome expansion in the country’s ICT exports.
As per data from the SBP, during the Jul-Sep quarter, Pakistan’s ICT exports totaled $635 million, a growth of 43 percent year-on-year. Within that, ‘computer services’ exports clocked $491 million, a growth of 41 percent, on the back of strong growth in proceeds for computer software, software consultancy and other IT services. The ‘telecommunication services’ exports reached $143 million, at 49 percent growth, thanks to higher fees for both call centers and international telephony businesses.
Meanwhile, the investment front continues to disappoint. Net FDI (FDI inflows minus outflows) came in a meager $24 million in the Jul-Sep quarter, as per latest SBP data. One can sound optimistic about it, considering that figure is a considerable improvement over the negative $13 million in net FDI received in same period last year. However, the lackluster mega spectrum auction in September 2021 rendered the telecom sector punching below its potential weight vis-à-vis foreign investment.
Thankfully, the IT sector FDI came to the rescue, channeling $64 million in the quarter. That is a six-fold increase over inflows attracted by the digital sector in the same period last year. As pointed out earlier in this space, 2021 has turned out to be remarkable year vis-à-vis foreign investment for local tech-based startups that are aiming to scale up their operations. Different estimates show that so far the foreign tech investment commitments have easily surpassed the quarter billion-dollar mark.
In the mobile handset arena, there is apparent deceleration in imports of finished units. As per data from the PBS, mobile phone imports had reached $495 million in the Jul-Sep quarter, showing a marginal growth of 0.4 percent over same period last year. Interestingly, data from the PTA show that locally-assembled mobile phones had reached 16.15 million units in the Jan-Sep period this year (up from 13 mn units produced in all of 2020), easily beating commercially-imported volume of 9 million handsets in the same period.
There is a shift underway in favor of local assembly, with imported phones (finished goods) witnessing a decline and imported CKD/SKD units increasing in volume, as the latter are used up in local assembly. While local assembly has been big on 2G phones, it is critical to assemble more and more smartphones locally, to lower import bill and help Pakistan become export-competitive in this domain. Encouragingly, about 42 percent of local assembly this year has been of smartphones, up from 15 percent last year, PTA’s data show. Let’s see how the local market responds to these smartphones.
The last quarter also saw mobile broadband subscriptions (3G and 4G) crossing the 100 million milestone, with Sep-end subscriptions at almost 105 million, an increase of 5 million since June 2021. About half of the subscription growth was provided by Jazz, a quarter by Zong and a fifth by Telenor. As of September end, mobile broadband market share stood at 39 percent for Jazz (40.9 mn subs), 27 percent for Zong (28.7 mn subs), 22 percent for Telenor Pakistan (23.3 mn subs) and 10 percent for Ufone (10.5 mn subs).
Leading mobile network operators also did well financially in the Jul-Sep quarter. For instance, Jazz topline reached Rs57 billion, showing a strong 13 percent yearly growth on the back of aggressive expansion in data customers. Topline also improved by a similar rate of growth at Telenor Pakistan, which recorded revenues of Rs26 billion in the quarter under review. The revenues at the telecom giant, PTCL Group, grew by over 5 percent year-on-year to reach nearly Rs35 billion in the quarter. Going forward, rising power and fuel costs are going to test the profitability of the sector.