UNWAVERING FDI GROWTH IN IT INDUSTRY
Dec 29 - Jan 04, 2009
Falling rupee value, rising inflation and recession have seriously affected computer sales in Pakistan. A report indicated that the computers are mainly limited to factories, companies and offices because common man can not afford to buy his own computer. Even now big companies have postponed their programme to getting upgraded systems due to ever increasing prices.
Information Technology is changing the world with every passing day which in turn transforming our life style. Very few areas of investment have as much growth potential and economic reward as IT. Information has become the key word of success and future prosperity.
The IT industry is emerging as one of the most promising sectors of Pakistan’s economy, bringing in substantial revenues, foreign direct investment and creating new job opportunities for the youth.
The IT sector is attractive for FDI for the business of the software houses is expanding. The numbers of qualitative software producing firms are increasing in the country since the beginning of this year as the association has given membership to 20 software houses. The membership of association has reached 400 software houses and registered 1,200 with PSEB.
State Bank reported that the Foreign Direct Investment in Information Technology sector reached to $35 million, a modest 11 percent growth in the first quarter of the current fiscal year as against last fiscal.
The investment in software development recorded $9 million, with a growth of 165 percent in the first quarter. Investment in hardware development and IT services recorded negative growth of 70 percent and 5 percent, to $0.1 million and $26.7 million respectively.
In the overall communication sector, the FDI declined by 25 percent to $269 million as compared with $397 million in the last year. However, this sector posted the highest investment inflow amongst 35 potential sectors of the country. The postal and courier services attracted $1.2 million in the first quarter of 2008-09. Some Japanese investors are also planning to invest $100 million in Karachi IT Park.
Many companies have obtained domestic as well as international business contracts and venture capital funds from foreign investors. A Pakistani IT company has recently gained a venture capital fund valuing $6.75 million from Enex Group SA, Luxembourg.
The sector has registered 50 percent annual growth in exports during the last five consecutive years. IT exports of Pakistan stand at $175 million exceeded by $13 million of the target of $162 million set for 2007-08. In FY07, the IT exports were $116 million while the target was $108 million. The target was fixed at $250 million for 2008-09.
As compared to Pakistan, Indian information technology and IT-enabled services industry is seeking double in size by 2012. The industry’s revenues will increase from Rs2.46 trillion last year to Rs5.3 trillion ($132 billion) in next 4 years. Two trillion rupees of that will come from the domestic market, which is growing at an average annual rate of 18.4 percent, outpacing overall industry growth of 16.5 percent.
Indian economy is growing annually by nearly 9 percent and is spurring domestic IT spending as companies upgrade technologies to stay competitive and consumers log onto the Internet on personal computers and mobile devices.
Last year, India’s overall IT and IT-enabled services industry logged 22.4 percent growth in revenue to 2.46 trillion rupees of which the domestic market contributed 900 billion rupees.
Internet was introduced in mid 90’s in Pakistan, and since then it has been on a tremendous growth because of incentives provided by the Government of Pakistan to promote computer related fields, such as computer education and internet service provision.
There were approximately 1.5 million personal computers in use in the country in 2000. The demand of Internet in the country has been on a growth since its introduction. There were few ISPs in 90s and now there are more than 30 operational just in the city of Lahore and total 70 all over the country. There are more than 3.5 million Internet users in Pakistan and the number is growing at a tremendous rate. There were only 29 cities with Internet facility in August 2000, which has expanded to around 3008 cities by December 2007.
NATIONAL IT PARK
In June this year, PSEB issued Letter of Intent to an international consortium, comprising of TelcoNet, Axor Group Inc Canada and Technopolis Plc, Finland for the establishment of Pakistan’s first state-of-the-art National IT Park at Chak Shahazad, Islamabad which is to be developed on Built Operate and Transfer model on 14.90 acres. The construction work on this IT Park is likely to start in January 2009 and expected to be completed by January 2011. The nine billion rupees park will provide 1.5 million sq ft offices space to local and international IT companies. This park will house over 10,000 IT professionals.
There is a big scope of exporting IT services. Lack of a proper communications system and non-utilization of modern skills and equipment in the field of information technology is the biggest challenge being faced by the Muslim world.
Dependency on foreign communications network and lack of achievement in modern technology and advanced scientific knowledge did not allow them to make a breakthrough in the global arena. Therefore, Pakistan can develop IT sector for them to exchange knowledge to benefit each other.
Pakistan government should focus on investments in information technology for training youth in order to ensure an ‘IT Pakistan of Tomorrow’ as the country has a comparative demographic advantage compared to the rest of the world. It will also help in achieving a substantial increase in export of IT and other items.
As against India, Pakistani government in the Federal budget 2008-09 has announced no relief that was much needed by the computer industry. The previous regime levied 15 percent GST on the computers that badly hampered the growth of the industry due to which the computer hardware prices escalated and showed a continuous decrease in the imports every year.
As a result of increasing prices of personal computers and computer equipments, all over the country students have become reluctant to opt for computer subject. Under these circumstances, investment in this sector would squeeze in future.
To boost the sector further on long term basis, IT education should be introduced from primary school level and research in IT education institutions should be encouraged. The R&D that so far has not been given due importance is the urgent requirement for the industry. To improve IT infrastructure, reliable bandwidth of sufficient capacity should be provided to address current broad band access quality issues.
However, the next 2 years may be difficult for the IT industry in view of the global recession.