Role of IT industry in Pakistan’s economy
By: Salim Ghauri
Pakistan is in a very exciting and decisive stage. Decisions taken now will have a far-reaching impact on our future. Politically things cant be any better to steer our economy in a new direction. The need of the moment is to invest in gradually moving Pakistan away from an industrial base to a service based economy. IT Industry is a service industry that can provide a significant boost to our economic growth in next ten years.
The IT industry can play a major role in bolstering the economy of Pakistan as demonstrated by countries like India, Philippines and Singapore. Unlike other industries the Information Technology industry does not require heavy machinery, elaborate infrastructure or sophisticated tools. It is mainly dependant on capable people. The Pakistani IT industry is beginning to come of age and is strongly emerging as a global IT destination. Over one hundred thousand people are officially employed in the IT sector of Pakistan and many more are informally employed. Unfortunately the IT sector has not been given the same industry status as textile and other industries, and this has impacted its development. Pakistan has a share of only 0.9 percent of the global IT industry that is worth $303.8 billion. If the government takes significant steps in facilitating and promoting the IT industry then it can have a profound effect on GDP as well as foreign direct investment.
In spite of all the challenges, including the energy crisis, political instability and lack of promotion, the IT industry has shown great character and grit in winning global recognition. There have been many success stories in the various IT domains, such as finance, healthcare, telecom and mobile applications. As per Pakistan Software Export Board (PSEB), Pakistan’s share of global IT sales is $2.8 billion, out of which $1.6 billion accounts for the country’s exports of software and IT enabled services. There are 1,500 registered IT firms in the country and over 10,000 IT graduates enter the market every year. Pakistan has mainly focused on higher end software products and solutions, whereas India and Philippines have grown in more basic IT enabled services, such as software and services outsourcing.
In spite of these statistics the IT industry of the country is still far behind countries like Singapore, India and Philippines that have adopted aggressive strategies for growth. Pakistan’s IT industry needs clear direction and strategy for growth. The industry needs to be given proper status in the country and requires facilitation in promoting entrepreneurial initiatives, research projects and patent laws.
Absence of online payment gateways is a major issue as there is virtually no payment gateway to process online money transfers and other transactions. Integration of merchant account features has become challenging, as most authentic and globally recognised online payment gateways do not offer their services in Pakistan due to regulatory issues with the State Bank of Pakistan. Pakistan is not an ‘uncovered’ territory for leading international payment gateways, like PayPal, and Pakistani companies are not allowed to open up their merchant accounts through these gateways. As a result local traders and businessmen in Pakistan open merchant accounts in other countries to acquire online transaction services. The anonymity due to opening an account in other regions has encouraged some Pakistani IT companies to indulge in fraudulent practices like fake online educational programmes. Thus this issue has not only affected the operations but also the credibility of IT companies in Pakistan.
Another major issue affecting the performance of Telecom and IT industry is the delay in launching of 3G services. It is a concern that Pakistan, with teledensity of up to 63 percent (over 100 million mobile users), is still uncertain about 3G, at a time when many nations in the world are considering 4G. Launch of 3G will lead to expansion in commerce, betterment of workplace dynamics, greater citizen access to mobile enabled healthcare and education services as well as steering the country towards becoming a more information based society. Such technology would allow rural businesses and consumers to be connected and be at par with global news, markets and standards. Mobile telecommunication has a large and significant impact upon economic growth, besides aiding social development. This can significantly increase foreign direct investment, an area where the telecom industry has been most attractive.
There is a significant opportunity to increase the number of IT universities, as the current employment in IT is far below that of countries like Philippines that has over 1.8 million people employed. The educational standards of IT institutions also need to be monitored in order to increase the proportion of highly capable software engineers in the market. Currently the IT companies are concentrated in the urban centers with Karachi, Lahore and Islamabad accounting for 35 percent, 33 percent and 26 percent, respectively. Promoting IT education and developing infrastructure in the rural areas can have a significant effect on the GDP as well as poverty alleviation.
The IT industry of India benefitted from the policies that were adopted in the early 1970’s. The ground work for the development of the IT industry in India was led by the Electronics Commission. With the support of the United Nations Development Programme (UNDP), the Electronics Commission formulated a strategy and master plan for regional computing centers, each to have a specific purpose and to serve as a hub for manpower development and increase the propagation of informatics in local economies. A key decision was to focus on intellectual capital and knowledge development. Today India has a 32.9 percent share of the global IT industry. The industry continues to be a net employment generator and added 230,000 jobs in 2012. The industry provides direct employment to about 2.8 million, indirectly employing 8.9 million people.
Philippines is another example, where promotion and development of IT services has a played a major role in strengthening its economy. The Business Process Outsourcing (BPO) industry in the Philippines has grown 46 percent, annually, since 2006, and is overtaking India. The growth of BPO is led by demand for lower labor costs, a highly skilled and educated work force, and high proficiency in spoken English. BPO in Pakistan can also take advantage of the 18 million Pakistanis (11 percent of the population) that have a command over the English language. However, BPO sector needs facilitation in areas such as licensing, whereas PTA’s licensing procedures are very rigid and prolonged.
The IT industry of Pakistan has immense potential. However, there is a need for significant development and promotion in order to compete with other developing countries. Issues regarding absence of payment gateways, research and development, delay in roll out of 3G technology, licensing and education have created difficulties as well as limited the growth of the Pakistani IT industry. With a clear direction and strategy, the IT industry can take optimum advantage of the growing middle class. The industry can also play a major role in poverty alleviation as has been demonstrated in countries like India. Growth in IT services will pave way for increasing foreign direct investment in Pakistan and this will have an impact on other industries in the country, as well.
The writer is CEO NetSol Technologies, former co-Chairman of the Federal Task Force on ICT, Honourary Consul of Australia for the province of Punjab, President American Business Forum and President The Indus Entrepreneurs Lahore Chapter