Contributing knowledge based economic growth in Pakistan
Aug 13 - 19, 2007
The term Information Technology (IT) is no more a strange word in our lives. It is one of the few areas which are becoming vital for the growth and development of every country. There is also a large body of microeconomic evidence that examines the impact of IT on the individual firms and industries that are making investments in all sectors. A consensus is also building that suggests that IT is having a substantial impact on the productivity and performance of the companies. More and more awareness about significance of IT among corporate people will strengthen the industry in particular.
In terms of IT production, the industries that provide IT goods and services, particularly computers and semiconductors, are experiencing fundamental technological progress that is driving down the relative prices of these goods and allowing them to greatly expand their production. Economists often measure this type of technological progress as multiple factor productivity growth, which represents the ability to produce an increasing amount of output from the same inputs.
Both the technological progress in the production of IT and the capital deepening from the use of IT have contributed to the development of the economy as a whole. The economic impact of IT has been a subject of a great deal of debate. For economists, it is useful to identify how IT is likely to impact the economy, because IT (defined as computer and communications technology and its applications) is likely to have a substantial impact on the economy's growth in coming decades. The reason for this is the use of IT by nearly all industries in the economy's base, thus IT becomes a universal input to nearly all other outputs. If IT costs decline, they can create substantial economic gains for many of the industries that use IT, because money spent on IT can be invested in other inputs and improvements in production or services. Furthermore, because business relies upon IT to do a wide range of tasks and to create competitive advantage, by facilitating these tasks for end users, important gains are achieved that are difficult to measure in a classic input-output framework. In addition, IT, seen in a larger context, should have even wider impacts on the economy, because new channels of communications, such as the Internet, cellular television, and broadband applications, will provide business with new channels to reach customers and suppliers.
IT SECTOR IN PAKISTAN
It was essentially nineties when IT industry in Pakistan was effectively emerged. During the 90s, private sector in Pakistan invested heavily in IT. It was the time when global IT started showing its potential in contrast to that there was a blink initiative in Pakistan on software development
It would be appropriate here to group investor who formed companies in nineties in IT sector in Pakistan into two categories, one as mature and other as trendy investor. Mature investors entered the industry with the clarity of mind to stay in the business, worked immensely hard, hired expensive specialized persons, did excellent marking both with in Pakistan and abroad and were able to develop good quality software. Software and IT related services saw a bombastic boom during that period worldwide, American and European companies started outsourcing software development and other related IT services to underdeveloped countries. Due to this, software revolution came in South Asian region specifically where hundreds of software houses emerged overnight. Whereas other category in Pakistan, the trendy investor were basically the kids of elite class of Pakistan; they did enter into the industry but were never interested in the rules of business. Like clothes, watches, and shoes, few businesses also fall under fashion like development of software house and/or a wind power project etc.
For some reasons, expectations from IT sector in Pakistan have been unnecessarily overmuch since its inception though this sector was ignored in earlier years by almost everyone. After so many years, IT industry in Pakistan is still in its infancy and is struggling to catch up with the regional and global industry. Most of the software houses are basically one-man shows. Although, there are a few medium to large size players who are a part of Pakistan business houses. The software industry is currently employing over 10,000 professionals. Whereas industry is also facing a serious shortage of quality technical and marketing professionals caused by the massive brain drain of high-level professionals and IT trainers.
We are in the last quarter of this decade; we have over 10 years of data, information and experience in this sector. Initially things went well, on one hand, there were companies which got assignments from USA and Europe as well, delivered their products according to the requirements/specifications in time with quality after sales service on the other hand there were handfuls of companies which either couldn't complete their projects in time and/or had numerous bugs which clearly showed lack of quality control procedures, if delivered somehow. This is a business of goodwill, establishing goodwill is hard but to maintain it is even tougher. Every industry and business travels on good to bad phase pendulum. Most of those serious entrepreneurs are now in much better position; they have achieved or near in achieving their pay back period. Now fresh investment is flowing into this sector, developers are putting efforts to explore and capture their share of market but getting fresh business and building goodwill takes time.
Over a decade, Pakistan companies and business community have pumped millions of dollars into IT investments, covering procurement of computer hardware, software, and telecommunications equipment from worldwide. Clearly we can observe by looking at the impressive growth numbers of Pakistan's economy in general and IT sector's in particular. Business community in Pakistan is investing in their IT department, presumably in the hope of improving their performance, liquidity, profitability and quality of professional and personal life. We also witness the steady adoption of IT which is becoming the source of development of software industry and thereafter unprecedented decline in the prices of computer related equipment. The piracy of software is yet another big issue which can be addressed later, though hampering software industry of Pakistan.
Pakistani software developers and companies are considered better than Indian as far as the quality is concerned. It is widely believed that Pakistani software developers are of much better quality but lack presentation. Few seasonal and selfish investors in past badly distorted Pakistan's image worldwide by backing out their commitment. But if we go into detail, we find various success stories within Pakistan on software development. This is also not fully correct that India has noticeable edge against Pakistan in software development; the mater of the fact is that India is mainly getting major junk of outsourcing assignment for call centers.
ROLE OF GOVERNMENT OF PAKISTAN
With the passage of time, Government of Pakistan has also realized the importance of IT and has launched IT policy in order to compete with the technologically developed and developing countries. The strong economic performance of the Pakistani economy and apparent success of some IT-related firms of Pakistan, the industry experts are arguing that IT industry is changing rapidly by providing solutions to the businesses which afterward provides them to operate effectively and efficiently.
As in many other areas; Pakistani government showed its stereotype laziness thus nation faces traditional red tapism, IT sector is no exception. Pakistan has great potential in IT sector but unfortunately it is not being utilized properly and weirdly wasting time without realizing the fact that there are long queues outside business providers offices for capturing fresh business. As it is said, time and quality are two basic ingredients of every business. Pakistan has lagged behind other regional countries in exploiting IT as a catalyst for economic progress. However, it is felt that the explosive growth of the Internet and the continuous wave of E-Commerce still provide immense possibilities for Pakistan to exploit their potential and use these for accelerating its economic revival.
Time is changing continuously, millions of people in Pakistan use internet, computers and software either developed by non-Pakistani companies or pirated. One of the best things happening in IT sector is the awareness among people about the need and requirement of IT which in turns transforms this awareness into business for the industry. Due to this trend in society, economist expects to get few billion rupees from the export of software and IT related services. In the last few years a lot has been done to enhance the IT sector in Pakistan mostly by private sector. The Government of Pakistan has, over the last few years, also granted numerous incentives to technology companies wishing to do business in Pakistan. A combination of decade plus tax holidays, zero duties on computer imports, notional sales tax, government incentives for venture capital and a variety of programs for subsidizing technical education, have been initialed in order to boost the IT industry. Government is also providing relief to companies by decreasing bandwidth prices and making arrangements for more easy access to internet but above all the most critical aspect is the opportunity to strengthen the software industry in the private sector. Government has recognized that IT industry is one of the most important sectors in days ahead but the right size of the sector has not yet been determined. It wouldn't be wrong to say that time is running out and our policy makers are yet failed to tackle the challenges facing this industry.
ECONOMIC IMPACT OF IT SECTOR
Fundamental step in understanding the economic impact of IT is to successfully quantify and measure IT in a way that is consistent with both economic theory and the available data. As we know, methodology to measure economic development in such sector is a production function that directly relates output to various production inputs, e.g., human resource, training of human resource, investment made, investment pay off, bankruptcy, procurement of patent software, and hardware and other IT related raw material etc.
According to the statistics provided by the Pakistan Software Export Board's (PSEB), it is consistently exceeding the expectations for the last two years. Having said this, one has to analysis the output IT sector is providing against the input they are requiring. There is a massive increase of 56% in exports in 2005-06 as compared to the exports of 2004-05 of US$ 46.35 million. IT exports in 2005-06, as reported by the State Bank of Pakistan, was US$ 72.21 million, though with minimal margin but exceeded the target of US$ 72 million. As per the analyses of the PSEB, export target for the fiscal year 2006-07 was US$108 million; in next few weeks we would be better able to evaluate this year's performance after the compilation of actual numbers. It is also said that size of Pakistan's software industry only is around US$2 billion, keeping in mind that this is calculated according to the formula provided by WTO whereas over US$1.4 billion was spent in 2005-06 by private and public sector. Compared to India, Pakistan's IT sector is relatively small, but recent robust growth in this sector provides liberty to the economists to take optimistic view of the future prospects of said sector in Pakistan. It is interesting to note that exports account for 11% of the total revenues of the IT sector in Pakistan. Therefore, by this, one can easily judge the importance of this sector in the development of the economy. As of now Pakistan has over 1000 software houses formally registered with PSEB out of which more than 100 companies are ISO certified, and over 60 foreign companies are operating in Pakistan. PSEB has also proposed a four-year draft strategic plan to the Government of Pakistan and it is expected that the size of IT industry will be around US$ 10 billion by 2010.
IT goods are also becoming an increasingly important type of consumption good in Pakistan and are becoming a profitable and attractive sector day by day. For consumers, purchases of personal computers, personal digital assistants, and wireless telephony are clearly important aspects of the IT revolution. Likewise, government is trying to support and provide assistance to the market players. Undoubtedly this sector is a multi faceted sector, where it further provides a lot of ancillary investment opportunities which in turns contribute in the development of the economy.
Industry sources are estimating that Pakistan's software industry is growing at a massive pace of more than 50% p.a. In order to further increase the revenues and cash proceeds from export of software and other related IT services following steps can be taken both by the investor and government collectively and individually depending upon the requirement;
Development of packaged and customized software
Quality training and development of specialized human resources
Utilization of available educated human resources pool and also to retain them as well
Computerization of public sector and private sector organizations
Reorganization and growth of communications infrastructure
Development of call centers and training of staff
Formal and authentic documentation by Government related to IT sector
Consumer awareness through IT and the Internet
Effective promotion and networking in international markets
Reputation for timely delivery and quality of services and products and also provide after sales support and maintenance services
Ability to provide needed referrals and guarantees to foreign buyers
Collaboration with international software houses
Provide concession packages to attract major foreign IT related companies for investment in Pakistan
Risk taking and forward looking managerial attitude
Provide strong financial base by giving subsidies and support in obtaining financing from the banks
Continuous induction of new value added technology products and services
At least one fully operational technology city in Pakistan
Holding road shows, exhibitions, international conferences and seminars on IT on regular intervals worldwide
It is widely believed that Government can play only the role of a facilitator in this sector otherwise it would create complications if it starts acting as regulator for the sector. One also must be aware of the fact that the change in the IT domain is of continuous and hyper nature. This means that any meaningful decisions for the IT industry in Pakistan are to be implemented immediately. Any significant IT initiative in Pakistan can only be effective if experts from the private sector are given authority in drafting policy which off course will be discussed and approved by the Government. One does not often listen any serious root cause analyses of any failure even most of concerned people are sometime so hostile that they are hardly willing to listen any of their fault. Its becoming customary to blame others mostly to those people who can't defend themselves for one reason or another (e.g. establishment, secret hand etc...) If we are really serious in our economic development and growth then we have to take several measures including accountability of the poor performers, especially accountability of those people, organization and departments which are directly responsible for the hampering of the interest of Pakistan.
It would be much more appropriate to declare financial emergency in all the emerging sectors of economy. Bold, unconventional and strategically correct decisions are required. Leaders with vision and administrative competence are the need of the day. A consensus has now built that IT sector indeed has a major role in the recent revival of the Pakistan's economy. Economic growth is consistent and will further strengthen if policy makers take market players of IT sector on board as well. One must remember that concrete focus on IT development would not only bring huge foreign exchange for Pakistan but would also become the most attractive sector for foreign investor to invest in Pakistan. Last but not the elast, our policy makers should decide once for all how they want to see IT sector of Pakistan going forward, either they want to build this sector to challenge the world in software and technology development or merely a adopters of technology developed by other countries.