IT exports dive 23% over use of grey channels

Expert points out IT service exporters remitting money via unofficial channels

ISLAMABAD:

Exports of Pakistan’s information technology (IT) industry decreased by 23% month-on-month in January 2023 over a clash between the official and grey remittance channels.

Pakistan’s technology exports came in at $190 million in January, down 23% MoM due to 20% and 35% decline in computer and telecom services respectively, said Topline Securities Research Analyst Nasheed Malik.

Among computer services, export of computer software and software consultancy decreased by 25% and 15% MoM respectively.

“There are internal and external reasons for the downtrend in IT exports,” Alpha Beta Core CEO Khurram Schehzad remarked while talking to The Express Tribune. “Besides global recession, IT service exporters are remitting money through unofficial channels called Hawala and Hundi.”

Schehzad was of the view that it was difficult to block the unofficial channels once they started operation. Though the dollar rate had jumped massively, the current level was still not reflective of the prevailing economic conditions due to curbs on imports, he added.

“The substantial MoM decline in exports indicates a 10-15% gap in the inter-bank and grey market dollar rates for most of January,” Malik mentioned. However, IT export proceeds are expected to improve through the formal banking channels as the gap between dollar rates had shrunk by the end of January.

Exporters were also holding back their proceeds abroad while international companies were reluctant to give orders to Pakistani companies owing to political and economic instability, Schehzad said.

IT exports were almost flat at $1.5 billion in first seven months of current fiscal year, Topline Securities reported. IT exports in January 2023 rose 2% YoY to $190 million due to 8% increase in telecom services. Exports had been lowest since May 2022 when they stood at $184 million. The amount was lower than the six-month average of $221 million.

Export slowdown was being witnessed after April 2022, with YoY growth averaging 3% from May 2022 to January 2023, compared to average 32% growth in the prior nine months from August 2021 to April 2022, Malik pointed out. “This slowdown mainly reflects the global slump in IT spending.”

In its latest report, Gartner (technology research and consulting firm) has revised down growth forecast for IT spending to 2.4% in 2023 from the earlier 5.1%.

IT ministry has set export target of $5 billion for FY23, the analyst stated. “Current FY’s monthly average of $218 million indicates that Pakistan is likely to miss the export target by a big margin.” Due to macroeconomic challenges in the US and Europe, IT service companies in the region were showing moderate growth in constant currency terms, said JS Global ICT analyst Waqas Ghani Kukaswadia.

In seven months of fiscal year 2023, IT exports were up by 2% YoY to $1.52 billion, he said, adding that the slight growth came due to only 3% growth in computer services at $1.22 billion. Segment-wise breakdown for January 2023 indicates that export of telecom services declined by 35% MoM and rose by 8% YoY to $29.7 million while computer services dropped by 20% MoM and slightly increased YoY to $159.9 million.

The share of telecom and computer services exports in January 2023 stood at 16% and 84% respectively, compared to 15% and 85% in January 2022.

In 7MFY23, the share of telecom and computer services stood at 19% and 81% respectively, compared to 20% and 80% in 7MFY22. It was due to exports of computer services that rose 3% YoY in 7MFY23.

“Despite global slowdown, spending on software and IT services is expected to remain robust. Besides, inflation-driven higher IT labour cost in developed markets is likely to lead to more outsourcing,” Malik anticipated.

Published in The Express Tribune, February 22^nd, 2023.

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