FOCUSING DOMESTIC MARKET
Aug 9 - 15, 2010
The following is an extract from Bearing Point Report, September, 2005:
"Today, Pakistan stands at the threshold of historic opportunities and challenges. The process of globalisation fueled by the revolutions in the IT and communication industries, and complemented by the catalytic role of the WTO, seems to have created a truly global market. The vast opportunities offered as a result are that the size of the market, the key determinant of economic development, has almost increased infinitely for every country, whereas the challenges are that the competition has increased by almost the same measure. Fortunately, at this critical juncture, Pakistan is favorably placed and poised with a strong economy projected to grow over 7 per cent with macroeconomic stability and robust fundamentals. The country has a large growing foreign exchange reserve, stable currency, controlled inflation and increasing tax revenues. With stress on good governance, accountability and transparency, it looks set for second-generation reforms."
Where do we stand after five years? We have lost all opportunities and are left with the challenges to grapple with. The foreign exchange reserve level has been maintained, albeit through an emergency IMF funds injection of $8.7 billion (out of the agreed $11.2 billion). The stable currency of 2005 stands depreciated by 43 per cent. The inflation, after touching a high mark of 30 per cent and then subsiding for a short period, is now set to take off once again. The State Bank having in its primitive kit of the outdated tools of inflation control is set to smother the economy through a policy rate that shows us as people from some other planet. The governor-less governance of State Bank is having a destabilizing effect on the economy. And on government level, good governance, accountability and transparency stand crowded out by other pursuits of hedonistic dimensions.
All optimistic estimates about the IT industry growth have been belied by incompetence. The world nations that were eyeing Pakistan's IT market for mutual growth have shifted their focus to somewhere else. The FDI in IT has shown a sizeable negative growth during FY-10.
FDI IN IT (MILLION $)
FOREIGN DIRECT INVESTMENT IN IT INDUSTRY FY-09 FY-10 FDI for Software Development 19.1 9.2 FDI for Hardware Development 1.5 2.6 FDI for Information Technology Services 42.1 (90.9) Total FDI in IT Industry 62.7 (79.1)
In early 2008, the then Managing Director of Pakistan Software Export Board (PSEB) appeared quite upbeat about the IT sector's growth and future potential. Those were the times when Pakistan was being seen as one of the major industry players. Government policies had been instrumental in attracting foreign investors to the booming industry. The incentives of hundred per cent equity ownership and profit repatriation option coupled with the generous tax exemptions on foreign investment and software export income had been the mainstay of those policies. The IT was being quoted as a $2.5 billion industry with huge potential to expand. There were more than 1,000 IT companies in operation with more than 100 carrying ISO certification. The industry had on its role around 110,000 IT professionals including expatriates from developed countries. The expansion plans envisaged an industry size of $11 billion by the year 2011 and an IT professional force of more than 250,000. Ambitious plans to increase the software export to $5 billion by 2010-11 were on the anvil. The next two and a half years, however, triggered dismal economic downtrends that were the results of global economic upheaval as well as domestic political turmoil. The $5 billion software export plans could not see the light of day.
INFORMATION SERVICES EXP/IMP (million $)
Comp/Info Services FY-05 FY-06 FY-07 FY-08 FY-09 FY-10 Export 47 72 104 154 184 188 Import 27 44 90 129 122 168
The IT industry in Pakistan still has tremendous growth potential. To survive in the fast-pace growth scenario, we will have to be extra competitive by developing human capital in line with the international standards and by swiftly switching over to the changing technologies. Our past status of one of the major industry players is under threat from the changing market conditions and industry's insatiable appetite for new investment. The recent economic changes on the global front and the ensuing recessionary pressures have upset a number of future growth forecasts - Pak IT industry being no exception. Besides resorting to realistic policy formulation, we will have to revise our future targets especially those set in the heat of boom of yesteryears.
To effectively meet the threats of globalisation and multi-faceted competition, we need a broad based expansion of IT industry. New investment of both domestic and foreign origins and a sustained generation of skilled and educated manpower are needed. The drying FDI pipeline warrants a shift in focus to domestic market. Apart from enhancing managerial and user base, the IT industry like telecom industry needs to be more innovative and dynamic. This can be achieved through the development of synergies with other sectors for example education, finance, energy and agriculture.
Telecom sector has already turned its focus to the financial and other sectors by creating mutually profitable partnerships to develop products that not only ensure saving on consumer time but also promise economic rewards to the partners. IT industry too needs to broaden its sphere of operations to generate more IT-enabled services through creation of synergies with other important sectors of economy and shift of focus to domestic market.