CIO Pakistan: Another year, another meltdown

The economic meltdown is a direct result of the debt crises in the European Union and the United States


Salim Ghauri August 22, 2011

Another global economic meltdown, in line with the US dotcom bubble burst in 2000 and the global financial crisis that broke out in 2008, has hit the snag. Stock markets across the globe are falling like ninepins one after another.

This time around, the economic meltdown is a direct result of the debt crises in the European Union and the United States, coupled with the unprecedented US credit rating downgrade, followed by the rising fears of double-dip recession in major developed economies.

The Pakistan economy, in general, and its Information Technology (IT) industry in particular, is threatened by all these global factors, relying mainly on export trade. It is worth noting that Pakistan IT industry was equally affected by earlier US dotcom bubble burst in 2000 and the global financial crisis of 2008. This is high time for the government to take actions to avoid a recurrence of such dismal developments and work on emergency plans to help tide the ICT entrepreneurs over their difficulties.

No doubt, the world economy is likely to enter a long period of adjustment. This phase can only be overcome through radical restructuring and reorganization that modify both economic parameters and structures. To cope with this, the government should accelerate work to adjust domestic industrial structure by placing more emphasis on domestic demand and reducing reliance on exports as the country’s sole growth engine.

Also, this challenging situation carries an opportunity to grow for the companies having proper planning and future vision. More cost cutting measures in the West would result in transferring of business to low cost countries like Pakistan. It means more job creation in Asia’s emerging markets, but still confronted by prime challenge of slow market recovery comparing with the previous ones, coupled with variations in customer circumstances and local market conditions.

I still remember that Pakistan IT industry was hit hard by both previous setbacks. Many IT firms were left with no option but to lay-off heavily. Some of them even closed or limited their operations. The IT industry kept on stressing to the government to expedite public sector automation plan as a stimulus package and save industry as well as jobs of young IT graduates. No doubt, the government responded positively and initiated many public sector projects, both in the central, as well as at the provincial levels. Also, the federal government constituted a Task Force on Information and Communication Technologies under the aegis of Pakistan Software Export Board (PSEB) with a mandate of formulating a comprehensive IT policy for next decade. This Task Force, which was co-chaired by the author, completed its task in the given time as well as framework.

Pakistan’s IT sector is largely consisted of small firms comparing with India where the industry is dominated by large, world-scale firms. Also, the comparatively low barriers to enter business have made Pakistan’s IT industry cost-effective, attracting major customers on all important global destinations. High taxation on foreign firms working in India in the field of software development has already opened markets for Pakistan.

Pakistan IT Industry revenues are exceeding $2 billion a year and future projections suggest that the industry revenues would reach $11 billion by 2016, as top five IT firms including NetSol are seeing their sales growth at an annual rate of over 30%. According to a report by the Pakistan Software Export Board (PSEB), the top five companies that have contributed the most to the IT sector are Netsol Technologies(NASDAQ: NTWK), Ovex Technologies, TRG Private Ltd, Systems Private Ltd and Elixir Technologies.

Human resource development is a challenging area for not only growth of IT industry but also to face the gruesome global economic situation, prevailing across the EU and the US at present. Press reports suggest that over a million skilled graduates are produced by the Pakistani colleges and universities annually. In terms of enrollment, the 2005 Pakistan Education Census reported 43,801 students enrolled in 4-year engineering institutions, another 37,635 students in 3-year colleges offering Information Technology degrees, and 69,719 studying in three-year polytechnic institutes. 53% of the students out of the total 1.16 million enrolled in colleges are girls, according to the 2005 Census. But still this number is low in terms of competing worldwide on IT front.

Also, there were plans by the previous government of spending over $1 billion annually to build 6 additional state-of-the-art science and engineering universities until 2016. A strict follow up of the plan by the present government is strongly needed to let the IT industry of Pakistan lead the country’s exports from the front.

The present government is taking interest in streamlining the growth of IT industry in Pakistan. The Federal Cabinet has already approved National IT Policy in August 2000, according to which Government will act as enabler to produce an IT based future economy. There are a number of important features in this policy like human resource development, IT infrastructure development, efficiency and transparency in Government, improve services to citizens, stimulate the domestic economy and increase exports, etc.

It is worth noting that Pakistan IT industry is preferred worldwide on two counts: quality of the product and delivery of the product within the prescribed timeframe. Further, the intelligence, hard work and commitment on the part of young IT professionals, besides the low cost of doing business has also won the confidence of many international customers preferring outsourcing manpower within Pakistan.

Pakistan’s IT industry is also of firm opinion that both political and military leadership of the country would be successful in overcoming the law and order situation as well as the security challenges that are presently hampering IT growth in the country.

On the whole, the future of IT in Pakistan is very bright. There is an urgent need of passage of the National IT Policy by the Parliament to ensure financial, infrastructural and human capital support to the industry. It becomes more urgent under the prevailing international circumstances, as Pakistan IT industry possesses great potential to meet the demands of international customers who want to leverage technology to reduce the cost of their operations.

The writer is Chairman and CEO NetSol Technologies, Honorary Consul of Australia for the province of Punjab, Pakistan and former Co-Chairman of Federal Government’s Task Force on Information & Communication Technologies


This post was originally published on the CIO Pakistan website here.

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