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