Looking at 2003
By SYED M. ASLAM
Jan 20 - 26, 2003
The global economic slowdown delivered a nasty blow to the comparatively nascent industry of Pakistan from which it is still struggling to recover. It not only resulted in the closure of a number of software houses but also down sizing in many others costing thousands of IT professionals their jobs. It took the biggest toll on the morale on the IT savvy younger generation, which viewed IT as the ultimate equalizer and harbinger of opportunities.
Will 2003 be benign to the software exports-lead IT industry of Pakistan compared to its predecessor which not only deprived it of whatever growth opportunity there was? Despite challenges, there are signs that 2003 would be a better year for the Pakistani IT industry.
There are also indications that the expected, and the much needed recovery would come mainly from the financial sector — particularly commercial banks both local and foreign. The financial sector, thus, will be the primary catalyst to fuel the expected recovery this year, with little help from the expected industrial automation from January 1, 2005 less than two years away. The date signifies the beginning of the global free trade era when trade between the 144 member nations of the WTO would no more be dictated by quotas and tariffs restrictions.
Before we proceed any further let us look at a number of developments last year that would encourage electronic commerce and electronic banking in particular and local IT industry in general. The promulgation of Electronic Transactions Ordinance 2002 by President Pervez Musharraf on September 11 last year was meant to encourage e-commerce in the country. Introducing the new law was necessary to provide legal recognition of electronic documents, records, information, communications and transactions. The introduction of the new law was also necessary to encourage electronic transactions to enhance the base of the modes of payment which at present is primarily restricted to in cash, cheque and pay order. If electronic commerce is to be encouraged it has to be governed by laws such as this ordinance, without which Pakistani industry and trade would have been denied access to international channels and thus global isolation.
Developing the e-culture and introducing enablers such as the law mentioned above was the step in the right direction. E-commerce offers many inherent benefits — it enhances trade efficiencies by eliminating the delays, helps cut the documentation costs by allowing trade partners to exchange transaction data digitally and reduces errors to increase productivity and efficiency. Most importantly, it removes geographical barriers to have a real-time online access to international markets at affordable costs. It will also abolish the global isolation, the local businesses are operating in, which is limiting the productivity of all sectors of the economy be it agriculture, industrial or else.
Similarly, the Pakistan Software Export Board announced in late August last year that it was establishing 20 new software houses in Lahore. The project, named GEMS 2002, was aimed at facilitating and developing 100 IT graduates both fresh and experienced. The PSEB had selected 20 software companies of five directors each for one year patronization including the entire infrastructure and technical support at the Software Technology Park at Lahore. The project aims to materialize on the ideas and potentials of young IT professionals to develop products such as games, network pools, system utilities, etc. that would be marketed by the PSEB. The Board would also provide the entire logistic support and infrastructure to operate these software houses and during the patronizing period the PSEB will share 20% of the profit. Once these software houses would be developed into independent companies, they will be free to establish their own set-up anywhere they like. The revenue retained by the PSEB will be used to launch the next phase of the project to set up additional 200 companies in Lahore as well as Karachi, Islamabad and Peshawar. The project was expected to generate exports of over $ 5 million this year.
Another development, also in August last year, was related to setting up model e-districts in two cities — Sialkot in Punjab and Karachi in Sindh. The Ministry of Science and Technology directed the provincial governments to speed up works to set up model e-districts in each of these two cities. Punjab has selected Sialkot and Sindh has selected Karachi to make the cities a fully automated e-district. We don't know about the developments in Sialkot but as far as Karachi is concerned the ambitious plan has failed to benefit Karachi even minutely as the first IT Park in the biggest city of the country, Lahore and Islamabad both has two such IT Parks each and even Peshawar has one, but still to get the bandwidth connectivity from the PTCL five months after it was announced to be open in August. For all practical purposes, Karachi's first such facility, National IT Park, remains unoperational for absence of the most important bandwidth facility. Some 100,000 square feet of office space spread over five floors lies unused except 4,000 square feet rented by a single company. The pathetic situation of the first IT Park of Karachi would be discussed later.
Another development last year was aimed at providing the mass access to distant IT education. The Virtual University Ordinance 2002 promulgated by President was aimed at providing education and training in information technology, business management and emerging sciences through satellite, television and Internet. The Virtual University will provide life-long learning, deliver courses and provide educational facilities to a large segment of the population at its designated campuses as well as place of work and residences of the students.
Talking to PAGE, the Chairman of Asia Pacific Council for Trade Facilitation and E-Business (AFACT) for 2002-03, Javed A. Naushahi, said that financial sector in Pakistan, like its counterparts in other parts of the world, is and will play the leading role to develop e-culture in the country. "It is not only the pre-requisite but also the springboard and banking sector will become the catalyst for the development of e-culture in the country.
Highlighting the importance of financial sector in the development of the e-commerce he said the GDP of any economy basically comprises three main elements — Agriculture, Manufacturing and Services. "Trends show that economies where services contribute over 60 per cent to the GDP enjoy a high per capita income of over $ 20,000. The premier example is the United States where services sector contribute over one-third to the GDP compared to agriculture, which despite its incredible share contribute just 2 per cent while the remaining share comes from manufacturing and other sectors. Services sector, thus, has served as the catalyst for e-commerce everywhere.
Furthermore, Information and Telecommunication Technology (ICT) contributed heavily to the economic prowess of the developed world where it is the single biggest contributor to the GDP of as much as 37 per cent. The ICT can play a similar role in Pakistan as the share of the services sector in its GDP remains low — services sector is contributing only a little more than 5 per cent in the GDP only about 3 per cent comes from the Information and Communication Technologies (ICTs) sector and 2.5 per cent from the financial services sector.
Javed said that despite easy availability of human resources and increasingly tech-savvy banking sector the growth of e-culture remains limited primarily because the state-owned Pakistan Telecommunication company still keeps a voice-base system. "It is imperative for the PTCL to make investment in latest data services system without which e-commerce activities could not be facilitated. The PTCL should view the expense as a profit as trends worldwide show that revenues of the telecommunications operators from data services are increasing far more substantially than revenues from voice service. In addition, it would help the economy by pushing the share of ICT in the overall GDP of the country."
While PTCL infrastructure keeps leaning heavily on the voice service trends show drastic shift in the revenue of telecom operators across the world which now tilts heavily in favour of data service. Acceptable global standard now dictate that 70 per cent of the total revenue of a telecom company should come from voice while the remaining 30 per cent should come from data service. However, less than 5 per cent of PTCL's total revenue is coming from the data service while the remaining is coming from voice service, both local and international.
Developing the electronic business environment would also help document the economy to abolish heavy pilferages in the tax system. As mentioned in a previous article a study conducted by Pakistan Institute of Developmental Economics show that electronic documentation would help widen the tax-net by Rs 42 billion and would also help save Rs 18 billion in costs due to increased competitiveness from efficiency gains in the manufacturing sector, logistics, financial, information and various other sectors of the economy. With complete automation, still years away the financial sector-lead IT growth expected this year would be a test case for the e-business in Pakistan.
THE ROLE OF THE FINANCIAL SECTOR
So what kind of a leading role the financial sector play in creating the demand-side IT in the country this year. The local banks, particularly the big commercial ones, will play a much bigger role than the multinational banks for the simple reason that the latter are already fully automated. This means that the bulk of work for the local IT industry, including software, would come from the local banks who have ambitious automation plans this year. The plans are driven by realization on the part of the local banks that automation offers unique benefits to improve their services and image as well as cutting the costs which only automation offers. For instance, banking transactions at the ATMs costs much less than similar transactions at a branch. That explains the ambitious plans by the local banks to invest in the ATMs this year, a beneficiary of which will be the local IT industry.
The expected growth in the demand-side IT this year will be fueled by growing demand for quality and easily accessible banking services by the account holders. The local banks have realized that they can no longer remain indifferent to growing demand for quality services the main feature of which is access to real-time on-line banking, be it keeping track of one's accounts and other services. This requires automation at central and branch levels which will provide substantial works to the local IT industry.
Though the bulk of IT works from the financial sector will come from the local banks, the foreign banks would also contribute to it because they do require surround systems for their core systems. The local IT industry not only have the expertise to develop these systems but what gives it an edge is that it offers competitive prices.
The automation drive by the leading local banks to install ATMs and to provide online banking services, like the one introduced recently by the state-owned Habib Bank, is expected to give a boost to the local IT industry even if in bits and pieces. The induction of ATMs and online banking services by the Habib Bank and similar plans by other local banks will require automation of a large network of individual branches across the country which will need an efficient infrastructure. All of this means, job for the local IT industry.
The plans to induct latest technology to facilitate real-time online full banking services from anywhere and at any time by the local banks would change the face of banking here in Pakistan. Electronic banking does exist in Pakistan but its use at present is restricted to big companies and multinationals, however, the move to induct of latest technology by the local banks would help it go into the mainstream where an otherwise ordinary account holder can benefit from it.
The banking sector in Pakistan is thus heading towards a complete automation and central bank, the State Bank of Pakistan (SBP), is leading by example. It has initiated real-time online gross settlements between the banks. In addition, soon it will also be facilitate all treasury deals of the banks online and real-time to monitor the cash position of any branch of any bank at any given time. This would not only bring the much needed discipline in the banking sector but will also encourage speedy automation in the banking sector which in turn will serve as a fuel for the growth of the local IT industry.
CREDIT AND DEBIT CARDS
Credit cards, like ATMs, are also one of the pre-requisite for complete automation in the banking industry. They encourage creation of credit and in turn help the economy indirectly. At present, the credit card penetration in Pakistan is extremely low — the total number of credit cards in Pakistan does not exceed 400,000.
Recently, multinational ABN Amro Bank, introduced the first ever debit card through Orix Leasing which allows cashless transaction. Many other banks, both local and foreign, have plans. Unlike credit cards the debit cards are expected to be far more popular to enjoy a much wider market due mainly to a much greater acceptance at the retail outlets and the convenience associated with cashless shopping. Like the ATMs, the debit and credit cards credit will act as can an enabler to give a boost to the local IT industry.
KARACHI: A VICTIM OF NEGLECT
The establishment of the first IT Park in the city was announced by the then Managing Director of Pakistan Software Export Board, Suhail Shahid, at a function on August 13 last year. It still remains unoperational after the passage of five months as the PTCL has not yet provided the bandwidth.
According to the chief executive of the park, S. Khurshed Shah, the entire dedicated area of 100,000 on five top floors of the Caesars Tower, now renamed National IT Park, lie vacant. "The singular exception is a client occupying 4,000 square feet of space. Not only the dedicated area remains vacant but an additional non-dedicated area of 220,000 on other floors of the building also remain vacant because the premises have no bandwidth facility. Around 40 multinational and local companies were interested to establish their offices at the park but absence of the most vital bandwidth service at the park drove them away."
Khurshed said that the owner had furnished all the relevant guarantees, including cash in August but the PSEB issued the cheque of Rs 3.378 million to the Optical Fibre Construction department of the PTCL on December 31. "Despite assurances from the top PSEB officials that bandwidth would be provided in two weeks we are still given the routine runaround to make an already bad situation even worse."
Turning Karachi into a model IT district thus remains a far-fetched dream playing havoc to the morale of a city which houses 70 per cent or about 480 companies registered with the PSEB. The centrally-located and newly-built park remains completely vacant as without the bandwidth even the affordable rental rate of Rs 22 per square feet, and ownership rate of Rs 1,500 per square feet, have discouraged the IT entrepreneurs to rent or own an office in the building.