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Despite problems the local IT industry, particularly software, can make a significant contribution to the country.

Apr 16 - 22, 2001

Wasn't it Einstein who said, "Get your facts right and then you can manipulate them as you like?" Indeed, facts, or for that matter figures, can be deceiving and that's also true for the comparatively enormous growth of the IT sector of Pakistan last year. The strong growth, besides jubilation, also poses many challenges for the nascent, yet globally acclaimed software sub-sector of the local IT industry.

Before highlighting the nature and severity of the emerging challenges it must be understood that software exports are viewed as the major indicator of the status of any national IT industry. The volume of software exports dictates the IT status of any country a country with high software exports value is usually seen as having a more advanced IT industry compared to one exporting lesser value of software.

A greater software export base indicates the international acceptance of quality, credibility, technical know-how, IT prowess, etc. It also means that the country is seen as a region of software products both in terms of quality and quantity. It not only helps in securing repeat orders but also the fresh ones for custom-made products which ensure uncompromising quality, top of the line consultancy and back-up services, and competitive prices. In short, the value that justifies the investment on software.

Despite the late start Pakistan has been successful to carve its name on the world IT map , thanks primarily to a handful of companies who have clinched world-class orders from many prestigious MNCs, governments, corporate sector and businesses. Their efforts are all the more appreciative in the context of Pakistan which reels from high illiteracy level, extremely low per capita telephone lines and even lesser internet users, low per capita income, diminishing purchasing power, and till recently narrow international internet access.

The fact that the volume of software exports from Pakistan has increased seven-fold, from $ 5 million four years ago to over $ 35 million recently at least according the official figures shows the resilience of local expertise, know-how and professionalism. It also proves that what good the government-led support and initiative can do to encourage an enterprising people who are hard working, innovative, quick learners, and sturdy craftsmen.

Yes, we have been able to scratch only the surface but at least a beginning, a promising beginning, has been made. Our major strengths include an immense human resource base willingly ready to be groomed into a professional force, competitive input costs and most of all the individual will to excel and succeed.

Troubling growth trends

Coming back to the premise of how could the enormous growth of the local IT sector be deceiving and a reason for concern, read the following statistics provided to PAGE by the former General Secretary of Pakistan Software Houses Association (PASHA), Khurram Rafi. Khurram said that though the financial size of IT sector including hardware & accessories, education & training, software development for both the local and export markets but excluding Internet Service Providers registered an otherwise enormous growth of 62 per cent in 2000 over 1999, the share of software declined.

According to figures compiled by Khurram, the financial size of IT sector, further divided in four sub-sectors hardware & accessories, training, software for domestic market as well as exports increased from $ 197 million in 1999 to $ 319 million in 2000. Sales of hardware & accessories and training/education registered much sharp increase of 53 per cent and 86 per cent respectively compared to a much lower overall increase of 29 per cent for the software. What really saved the software exports was a 48 per cent increase in the exports compared to a negligible 10 per cent increase of it for the domestic use.

In figure terms financial size of hardware & accessories, almost all imported, increased from $ 98 million to $ 150 million while spending on education/training increased from $ 70 million to $ 130 million. On the other hand value of software for the domestic market increased by a low 10 per cent from $ 10 million to $ 11 million while that for exports increased by 48 per cent from $ 19 million to $ 28 million.

The figures listed above does not include the contribution by the ISPs. However, the 'Telecom Status Report 2000' published by the Pakistan Telecommunication Authority, the market capitalisation of telecom sector listed on the stock exchanges of the country increased from Rs 133 billion in 1998-99 to 144 billion in 1999-2000. The financial size of the Telecom Industry of Pakistan [PTCL, cellular, payphone, telecom equipment production (CTI, TIP), and ISPs] registered a growth of 6.7 per cent from Rs 157.7 billion in 1998-99 to Rs 174.5 billion in 1999-2000. Though ISPs contributed almost Rs 8 billion they made a negligible contribution of less than 5 per cent. Similarly, ISPs contributed a total of Rs 486 million to the total turnover of Rs 71.6 billion to the turnover of the Telecom industry of Pakistan. This again meant that the ISPs contributed a negligible 0.67 per cent to the total which was less than even that contributed by Mobile (Rs 4 billion) and almost half of that by payphone (Rs 891 million).

So why the comparative sluggish growth of the software is a cause of concern. Firstly, it means that we are spending much more on IT training and educationproportionaly in a country where growth of software is slow and where only a small percentage of IT professionals of all levels certificate/diploma/degree holders are able to seek employment in their chosen field.

The situation is also alarming from another perspective if one compares the above figures representing the trends on the respective share of the four sub-sectors in the overall IT industry. While hardware/accessories registered a 53 per cent increase, its contribution to the total outlay dropped from 49 per cent to 47 per cent (from $ 98 million in total $ 197 million in 1999 to $ 150 million in the total $ 319 million in the year 2000). The similar has been the case with software domestic from 5 to 3.4 per cent and exports from 10 to 9 per cent. On the other hand the share of hardware/accessories registered a substantial increase of 5 per cent from 36 to 41. So what's so alarming. The decrease in sectoral share of hardware/accessories and software in comparison to a substantial rise in education/training means that there is an increase in consumption but a decrease in our software export output. This poses a secondary question that how we would be able to accommodate the IT manpower which is on the increase when our software markets- both domestic and exports on a relative decline.

Software base

Just how many software houses are there in Pakistan? Frankly, no one seems to know the exact numbers as software development remains a highly unregulated activity in the country. President of PASHA, Syed Hamza Matin told PAGE that 140 software houses are registered with the organisation while there are another 10 or 12 which are not a PASHA member. He also quoted Forbes magazine which put value of software exports from Pakistan at $ 120 million, a figure much higher than the official $ 35 million last year. Not surprisingly the government time and again has asked the software exporters to report the true earnings due to rampant misreporting, or rather under-reporting.

Khurram, however, said that there are over 775 software houses operating in the country at present. The number of software houses increased from 660 or so last year to over 775 at present depicting an 18 per cent increase. The number of software houses having 2-5 developers increased from 200 to 300; 6-12 developers decreased marginally from 250 to 245; 13-29 developers increased marginally from 150 to 155; 30-49 developers increased marginally from 40 to 45; and number of big software houses employing 50 or above developers increased from 20 to 30.

The software development is primarily concentrated around three major cities of the country. While Karachi houses the largest number of software houses its share in exports is less than 20 per cent compared to Lahore which despite housing only 11 per cent of software houses but contributes over 75 per cent to exports.

Despite being the financial, industrial and trade hub and the only port city, Karachi has failed to play its due role in software exports. There is another cause of concern: Despite the substantial overall increase, the relative share of Karachi as far as the number of software houses is concerned declined this year over the last year. Last year Karachi housed 79 per cent of the software houses followed by Lahore, 11 per cent; Islamabad, 8 per cent; and the rest of the country 2 per cent. Today Karachi houses 68 per cent of the software houses, a decline of 11 per cent while the shares of Lahore, Islamabad and the rest of the country have increased by 3 per cent to 14 per cent, 8 per cent to 11 per cent and 2 per cent to 7 per cent respectively.

So what does the loss indicate? It indicates that Karachi's loss has been everyone else's gain. It means that the increase in the number of software houses in other parts of the country came at the expense of Karachi. It means that investment is flowing outside Karachi. It shows investors' preference for any other city and region but Karachi. It also means that while the number of companies active in software exports has increased from 35 last year to 45 at present, Karachi is only playing second fiddle to all other cities and region in terms of software exports, Khurram added.

Domestic market and exports

The big software houses, those employing 50 or above developers and whose number has increased by 20 last year to 30 at present, contribute over 70 per cent to the overall software exports from Pakistan. They, however, enjoy a comparatively smaller share of the domestic market primarily due to the fact they chose to serve the hi-end export markets for inherent benefits. This is really a blessing in disguise for small and medium software houses to meet the domestic demand. This, so far at least, is a healthy trend as small and medium software houses can not afford to make inroads into international markets which requires substantial funds in marketing, sales, travelling, rental for foreign offices and staff hired.

This, however, also highlights the necessity to support the small and medium software houses reeling from limited finances by providing access to venture capital, soft loans to play a greater role in exports for the overall benefit of the national economy. With abundant professional know-how of the total 10,500 developers employed by all sizes of the software houses, the most, 4,000, are employed by companies having 13-29 developers the small and medium operations have the expertise to exploit the export potential for the overall benefit of the national economy. This makes all the more sense for the export-stagnant economy such as Pakistan.

The small and medium software houses deserve the much needed attention as they employ a far greater number of developers collectively than the big ones. Of the total 10,500 developers employed by the software industry last year a number which has since increased to 12,000 with the addition of software houses 500 were employed by companies having 2-5 developers; 2,300 were employed by companies having 6-12 developers; 4,000 were employed by companies having 13-29 developers; and 1,700 were employed by companies with 30-49 developers. The biggest software houses of 50 and above developers each employed a total of 2,000 core professionals, Khurram said.

Supporting the small and medium software houses is also important as they are the top retainer of domestic IT manpower and without whom an already bad employment situation in the sector would get even worse.

Human resources development and retention

Some 110,000 IT professionals are produced in the country each year, Khurram said. This includes some 62,000 certificate holders, 20,000 1-2 year diploma holders, 4,000 4-year degree holders, 15,000 2-year degree holders and 9,000 e-commerce and Java professionals. The above figure does not include some 30,000 employed persons, 25,000 of whom acquaint themselves with MS office and another 5,000 with networking. Less than 7 per cent or only 7,000 of these developers finds a job, an extremely low retention rate.

This is highly alarming indeed as we are spending a huge amount of money on per capita IT education that far surpasses than that say on doctors in the government medical colleges. The fact that medical education at the government colleges is subsidised offers no solace as an expense is an expense irrespective of whether it is paid by the government or from one's own sources.

According to Khurram, the total outlay on IT education/training is over Rs 7 billion annually. As only 7,000 of the IT professionals manage to find themselves a job it means that we as a nation are spending Rs one million on a single IT job each year, an extremely high expenditure compared to a medical professional which costs us a comparatively smaller amount of Rs 350,000 and that too over 5 years.

The extremely alarming retention rate of IT professionals in addition to an even more alarming per capita development costs poses many valid questions, more so, as it helps encourage brain drain, particularly those having the rare combination of expertise and experience. Of the 10,500 developers employed by the domestic software industry 1,000 last year, Khurram said, 1,000 had less than two years of hands-on experience, 2,500 had 2-3 years experience, while the rest had 3 or more years of experience. Experienced IT professionals are considered the major strength of any software industry and their brain drain, perceived or real as with the case with Pakistan, would mean weakening of the industry for two main reasons. Number one, the shortage not only slows down the software development. And number two, they are also imperative for training their junior partners.

The edge

Despite problems the local IT industry, particularly software, can make a significant contribution to the country. It's strength lies in the inroads already made in the hi-end international markets. It has abundance of energetic, enterprising and willing talent which if allowed to be developed to its true potential properly can help increase not only software exports but also the export of large human resources.

The declining rupee-dollar parity has its own advantages. It renders the software development costs competitive in the international markets. The dollar-based revenue and rupee-based inputs allows the domestic software industry to make a deeper penetration in the global market. It has the expertise to satisfy the needs of the most demanding of the foreign buyers as well as the price-conscious domestic market.

IT has become the most preferred passion of the Pakistanis. It should also become its top industry in terms of software development, both for domestic and foreign markets, and beyonds.