Don't fall for the 'software sizzle'

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Growing enthusiasm around Pakistan's burgeoning software exports overlooks a fundamental truth about development: a country our size cannot leap into a service-based economy without first undergoing robust industrialisation. Yes, there is no doubt that software exports have grown remarkably, and the government's new forecast targets a stunning rise to $25 billion by 2029.

Yet even if several hundred thousand skilled freelancers are able to connect to global tech markets, this specialised group remains too small to uplift a country of over 240 million out of low-income status.

The underlying challenge is that the majority of Pakistan's population lacks the depth of education and literacy needed to sustain a mass services sector. While youth literacy in major cities is now over 90%, this gain in basic literacy is not strong enough to suddenly jumpstart a massive high-end services industry.

Our capacity to move up the value chain in software or digital services is still capped by low-quality education and incomplete infrastructure. And the few success stories we see in the software sector simply do not "trickle down" to the broader population.

The global history of industrialisation offers important lessons that policymakers here would do well to heed. Countries such as Britain and Germany did not transition directly from agrarian economies to modern services; they underwent centuries of factory-led growth, spurred by technological breakthroughs in machinery, textile production, and later in automobiles and electronics. Same was the case for nations like Japan and South Korea in Asia.

Some skeptics might point to the success of oil-rich states or small financial hubs, and wonder why Pakistan cannot emulate models like Saudi Arabia, Qatar, or Singapore. The short answer is demographics and geography. Saudi Arabia and Qatar sit on vast reserves of oil and gas. Singapore took a path that combined strategic geography and world-class seaports. None of these models directly translate to a country of Pakistan's size and complexity.

Even India, now an IT powerhouse, has not managed to lift the majority of its citizens out of poverty. Despite global fame for its tech hubs in Bengaluru and Hyderabad, a significant portion of the Indian populace continues to reside in rural areas with limited access to education and infrastructure. The trickle-down effect from the IT boom has not been nearly as transformational as many once hoped.

In contrast, Indonesia and Bangladesh charted a different course. Both decided to focus first on building industrial capacity, prioritising textiles, garments and light manufacturing. By doing so, they built a network of factories that employed large portions of the population - particularly women in Bangladesh - creating a basic but crucial rung on the economic ladder.

This, in turn, expanded a local consumer base ready to spend on education, health and better housing, generating demand and stimulating more diversified economic activities. Indonesia and Bangladesh have used industrialisation to anchor higher growth rates and raise living standards for a broad swath of citizens.

Pakistan has reason to be hopeful that it, too, can follow a similar trajectory. It now has a population composition where more new workers will be entering the workforce every year than dependents being added. And this workforce is now literate enough to work to do basic factory work.

Pakistan even has a lot of installed electricity which is a precondition for industrialisation and an agricultural base that could serve as the bedrock for agro-based industries. As those industries mature, they can begin producing more sophisticated goods and ultimately complement a rising IT sector.

With better governance, infrastructure and a deliberate focus on manufacturing, Pakistan can build a strong middle class that will not just sustain itself but also pave the way for the entire economy to graduate to more advanced, service-led activities. Industrialisation, in other words, is not the enemy of software exports. It is their most reliable foundation.