India-Pakistan: Home advantage the key

IT sector yet to get the boost it deserves

KARACHI: Pakistan’s Information Technology (IT) sector has been in the limelight for the past few years. Besides featuring in various surveys, it has also received a fair amount of coverage from major technology blogs and websites.

In 2013, a mobile survey blog, Ansr.io, compiled data about the key market trends and predicted that Pakistan’s digital economy was set for a takeoff. The World Startup Report, a Silicon Valley-based organisation that builds community-driven entrepreneurial guides for every part of the world, termed the country the next hot destination for entrepreneurs and venture capitalists.

“Pakistan will grow; the only uncertainty is the speed at which it does,” the 2014-report concluded, noting “now is a very interesting time” for both entrepreneurs and investors to bet their money on start-ups in the world’s sixth largest population base.

Home to one of the world’s most talented IT workforces, the country is among top earning nations on major outsourcing platforms, such as Elance.com, oDesk.com and Freelancer.com, closely following the likes of India and the US.

However, despite all the positivity and optimism surrounding its IT industry, the country hasn’t produce a single company that could join the Billion-Dollar Start-up Club – companies that are valued by venture capitalists at $1 billion or more as described by The Wall Street Journal.

In fact, the overall size of Pakistan’s IT industry is estimated to be $2 billion, according to the website of the Pakistan Software Houses Association (P@SHA), the IT sector’s representative body. The number, however, is largely believed to be old and underreported for it covers only 500 plus members of P@SHA.

So why doesn’t Pakistan have big IT companies?

Reasons for lag

Lack of access to capital is the single largest hurdle facing Pakistani start-ups, according to Khurram Zafar,  executive director of the Lums Center for Entrepreneurship. This is despite the government allowing seven years as tax holiday to venture capital funds, 100% ownership of equity to foreigners investing in IT companies and full repatriation of profits to IT companies.



Zafar, who has been trying to convince local investors to pump money into technology companies, says the “time is ripe for investment in Pakistan’s start-up ecosystem”.

However, there a lot of other factors hampering the growth of Pakistan’s IT sector.

Lack of home advantage is one of the main reasons why Pakistan does not have large IT companies, says Afaque Riaz Ahmed, founder and president of Karachi Institute of Technology and Entrepreneurship (KITE).

India has over a dozen IT companies valued at $1 billion or more because they generate up to 80% of their revenues locally, said Riaz, adding the same is the case with the US. “If you look at home, PakWheels.com is the best platform for car sales and an exceptionally well-managed company,” he said. “But it received a valuation of only $10 million, what does it tell you?”

In order to have big IT companies, Riaz says the country needs a massive middle class and distributed wealth because “these games” run on scales.

Riaz, who spent 13 years in the Silicon Valley working for leading tech firms and launching a few start-ups, says impediments to launching and running a venture in Pakistan are so many that entrepreneurs exhaust fighting these issues.

“Even at KITE, up to 80% of our time is spent dealing with non-teaching matters,” Riaz said referring basic infrastructure, regulatory framework and government bureaucracy. “You can’t have big technology firms unless core infrastructure is in place,” he added.

Non-performance of Universal Services Fund and Information and Communications Technology and Research and Development (ICT and R&D) Fund, according to Riaz, is another hindrance to the growth IT sector.

The aforesaid funds, which are meant to be used for research in ICT and development of infrastructure in rural areas had over Rs70 billion in reserves until recently but hardly used for any new projects.

“There are lot of areas where we need to improve if we want to have big technology companies,” Riaz said. “We need to educate our workforce and consumer base on mass level, deploy electronic payment solutions, ensure access to capital and ensure cost-effective and deep internet access.”

The writer is a staff correspondent

Published in The Express Tribune, October 19^th, 2015.

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