Sluggish growth in Pakistan’s IT sector

Exports hit mere $2.6b, marking 15% increase from previous year

KARACHI:

The Pakistan IT sector, known for its immense potential, has experienced sluggish growth, falling short of expectations in the fiscal year 2023. Recent reports reveal that Pakistan’s IT exports reached a mere $2.6 billion, marking a 15% increase from the previous year. However, despite the slight growth, the rate has slowed down to its lowest level since FY2016, with export inflows remaining flat compared to the previous year.

Topline Securities, ICT analyst, Nasheed Malik, in his research report, highlighted that the growth rate of IT exports in FY2023 significantly falls short when compared to the Compound Annual Growth Rates (CAGR) of the past 5, 10, and 15 years, which stood at 19.5%, 12.5%, and 16.3%, respectively. Two key factors contributing to this slowdown are the retention of income abroad by tech companies and the global economic slowdown, which has impacted IT exports.

Experts in the field are voicing their concerns and suggestions to propel the IT sector forward. Speaking to The Express Tribune, Kapeel Kumar, an ICT expert, stated, “Pakistan can do better in terms of IT exports.” He stressed the importance of attracting more foreign investment, developing skilled IT professionals, and promoting the IT sector to international buyers.

To tackle the issue of dwindling foreign investment in the IT sector, experts propose that the government should offer tax breaks and incentives. Collaborations with universities and colleges to develop more IT training programmes would also help in nurturing skilled IT professionals for the industry. Additionally, promoting the IT sector at international trade shows and conferences and facilitating connections between Pakistani IT companies and potential buyers through chambers of commerce and business organisations could enhance global visibility, suggested Kumar.

Moreover, the development of IT parks and incubation centres and improved IT infrastructure will foster a more conducive environment for IT companies in Pakistan. Experts believe that with the right policies and investment, the IT sector can become a major driver of economic growth in the country.

An interesting point to note is that the reported IT export figures only account for the amount sent back to Pakistan by tech companies and freelancers, excluding income retained abroad. This trend is attributed to declining business confidence and exchange rate volatility, said Malik.

The global slowdown in IT spending has also impacted Pakistan’s IT exports. Worldwide IT spending saw a significant decline, slowing down to 2.7% in 2022, down from 10.2% in 2021, as reported by Gartner Research.

Comparing Pakistan’s IT exports with other Asian countries, Pakistan has been struggling to keep up. In the first nine months of FY23, IT exports in countries like Korea, Sri Lanka, Bangladesh, China, and the Philippines experienced either a YoY decline or modest growth compared to the strong growth they witnessed in FY22. India, on the other hand, stood as an exception, achieving a positive growth of 20% in 9MFY23, thanks to its pivot towards new services verticals and the emergence of smaller IT companies.

According to Waqas Ghani Kukaswadia, an ICT analyst associated with JS Global, the lacklustre performance of Pakistan’s IT exports can be attributed to a combination of factors, including the global slowdown in IT investments and the preference of local companies to retain earnings abroad due to greater earning potential.

Despite the challenges, there are some positive signs within the sector. Computer services for FY23 remained steady at $2.1 billion, while telecom services declined by 3% YoY to $490 million. Notably, computer services’ share in IT exports has increased significantly from 40.4% in FY14 to 81.0% in FY23. This points to a potential area of growth for the industry.

Looking ahead, Gartner Research predicts a global increase in software spending by 13.5% to 14.0% in 2023 and 2024. This projection bodes well for the IT sector, with Systems Limited (SYS) being highlighted as a top pick.

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

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