Information and Communication Technology (ICT) exports: still strong?
The country’s exports of Information and Communication Technology (ICT) services continued the strong double-digit growth run in FY22, as per the latest data from the central bank. Standing at $2.6 billion, the ICT services exports showed a year-on-year growth of 24 percent last fiscal, and in the process provided an additional half a billion dollars to the country’s forex reserves relative to FY21.
The oft-repeated government target of $3 billion in exports was not met in FY22, however. For the ICT services exports fell well short of 46 percent annual growth seen during FY21. This was despite late-Covid surge in business investments and consumer spending in the North American, European and GCC markets, from where most of Pakistani IT exporters earn their digital revenues from. Still, the 24 percent annual growth rate, on top of a large base, was the second-highest growth rate over past many years.
In the bigger picture, ICT services exports’ growth outpaced annual growth in overall services exports of the country during FY22. The ICT services exports were equal to 7 percent of Pakistan’s overall goods and services exports of $39 billion in FY22 – maintaining the level achieved during FY21 despite strong growth run in the country’s overall export tally last fiscal.
Within the relevant pie of $2.6 billion during FY22, the major chunk belonged to ‘computer services,’ which are the core IT services that provide over four-fifth of the ICT services export receipts. These services grew by 26 percent year-on-year to reach $2.1 billion in FY22, providing 87 percent contribution to the $500 million+ incremental growth in overall ICT services exports during the fiscal.
Within the core IT sector exports, the bulk of incremental exports were on account of 43 percent annual growth in ‘software consultancy services,’ whose receipts rose to $795 million. This segment was followed by 35 percent yearly growth in ‘export of computer software,’ which reached $563 million. Meanwhile, ‘other computer services’ returned 7 percent growth over FY21 to provide earnings of $743 million.
In the ‘telecommunication services’ sector, which provided 19 percent of overall ICT services exports in FY22, the annual growth was also in healthy double-digits (15%), reaching $504 million for the fiscal. Within this sector, 39 percent annual growth was witnessed in ‘call center’ exports, which stood at $216 million in FY22. Meanwhile, the core telecoms services (including long-distance and international (LDI) telephony revenues of local operators) barely grew at 2 percent per annum, with rec
eipts of $289 million.
In the ongoing fiscal, IT exporters are set to face an uncertain external outlook. On the negative side, the inflation-taming central bank measures have started to take their toll in aggregate demand in overseas markets. This may have the effect of leading to a slowdown in IT-related spending in advanced markets, thereby potentially impacting Pakistan’s IT exports as well. Not all markets may be affected the same way, however.
On the positive side, IT exporters are sitting on excess cash/capital, which they could use to make strategic and tactical acquisitions in local and foreign markets to grow their business amid attractive valuations. Some of the leading players have already been doing that, with the intent to create capacity to service large-sized foreign clients and to diversify expertise, service portfolios and geographical markets.
While the impact of such moves will play out in medium to long run, it remains to be seen in the short term if the $3 billion export barrier can be broken in FY23. On paper, it looks like a certainty –only 15 percent growth is required over FY22 to cross the mark. Besides, attractive PKR-dollar conversion may incentivize IT exporters to remit more of export earnings to offices here at home. In reality, however, it may play out better or worse, in line with how Pakistan’s macroeconomic scorecard behaves and how it impacts the viability of businesses operating here. Let’s see what FY23 has in store!
Source: Business Recorder