ICT: need for invigoration rather than a chokehold

Internet blockages, disruptions in IT infrastructure can pose challenges for sector

KARACHI:

Uncertainty about the economy has increased post-elections. The volatility in the KSE-100 index of Pakistan Stock Exchange (PSX) after delay in formation of the new government in the centre and provinces and the slowdown in internet services are likely to further erode business and investor confidence.

Although a coalition setup is likely to govern Pakistan, the first priority must be to steady the economy and reduce political uncertainty. Curtailing the latter is the key to improving economic conditions and regaining the lost business and investor confidence. This will be a momentous challenge for the new government, particularly as it tackles several of them on different fronts.

Exports of information and communication technology (ICT) services have played a crucial role in boosting overall exports of the country in recent years. Unfortunately, internet blockages and disruptions in the IT infrastructure can pose challenges for the sector that can spill over to the entire economy.

In recent years, exports of ICT services from Pakistan have increased significantly. This increase in ICT exports has outperformed the export of goods, with the former increasing 9% year-on-year in the first six months of FY24 compared to 5% growth in the latter.

Exports of computer services have increased by more than 300% in the last seven years, from $530 million in 2016 to $2.1 billion in 2022.

Comparatively, semi-milled rice, which is often hailed as the most important export item, had an export value of $1.7 billion in 2022, according to statistics provided by ITC’s Trademap.org. Exports of rice have decreased from $2.3 billion in 2008.

Furthermore, exports of computer services from Pakistan are now similar to those of Malaysia and Norway, which reported more than three times the exports from Pakistan in 2016.

However, the top exporters of computer services are Ireland and India, reporting values of $204 billion and $96 billion, respectively. This speaks volumes about the potential of the sector.

The freelancing industry is a major contributor to the export of ICT services. According to a recent report of Ignite-National Technology Fund, published in October 2023, Pakistan is the third largest contributor to the global freelance industry, following India and Bangladesh.

Read: Internet watchdog reports nation-scale disruption of social media

Approximately 0.5 million freelancers are present in Pakistan. About 40% of the freelancers are in software development and technology, constituting about 6% of the total freelancers globally in this segment. Many of the countries contributing a significant amount to the freelance industry are English-speaking nations. Freelancers earned an average hourly rate of $28 globally and generated $400 million in Pakistan.

Although freelancing provides opportunities for individuals to earn revenue in dollars and bring much-needed foreign exchange, there are significant challenges associated with freelancing. The lack of infrastructure, disruption in internet services and the need to adapt to the ever-evolving technological developments in the IT sector as well as complementary industries increase the challenges for freelancers.

Also, the freelancing industry is provided with tax incentives from the government to encourage more participation of individuals and widen their scope.

However, as freelancers tend to be easier to hire and less expensive than full-time employees, several established companies consider freelancers as more efficient alternatives to the full-time employees. The incentives provided in terms of tax breaks to the employees make freelancing more lucrative for both the firms and the workers.

Therefore, such arrangements may lead to a higher proportion of freelancers than full-time employees but result in lower tax generation for the government.

This raises red flags as short-term tasks are given precedence by highly skilled workers rather than long-term engagements. Hence, it is imperative to ensure that freelancing is not considered an alternative to full-time employment in the more established IT firms, particularly the firms focusing on projects where the latter can generate long-term benefits and consequently more dollar revenues for the economy.

On the other hand, Bangladesh provides cash rebates on export proceeds, while India provides opportunities to deduct expenditures related to their work from their income. It is crucial to undertake a cost-benefit analysis that determines potential rent-seeking activities just as it is for any industrial policy regardless of the sector.

With that, it is critical to pursue digitalisation of the economy such that it improves the functioning of the government. For example, the Pakistan Single Window helps improve trade-related functions.

Paperless cross-border trade procedures and processes can help reduce the documentation cost and time involved in participating in international trading activities, not only increasing export activities but also improving the productivity of international traders.

The right mix of skilled workers and access to technology can help boost productivity in various sectors of the economy due to the spillover effects of a more innovative ICT sector. Improving the capacity and capabilities of the ICT sector will not only generate greater export revenue for the country but also improve the quality of the government infrastructure and functions.

In essence, the future of the economy depends on the development of the ICT sector as it plays a key role in not only generating dollar revenue but can also increase the vital complementary resources across sectors to improve their productivity levels.

Internet blockages, slowdowns and poor access to the infrastructure reduce the potential of the ICT sector as it increases the challenges for various stakeholders. It is imperative to facilitate the sector by ensuring that all its stakeholders are not only provided with better infrastructure but also uninterrupted services.
The writer is the Assistant Professor of Economics and Research Fellow at CBER, Institute of Business Administration, Karachi

 

Published in The Express Tribune, February 26^th, 2024.

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