POTENTIAL AND LIMITATIONS

THOSE WHO TALK OF CREATING IT AWARENESS SHOULD REALIZE THAT THE NEGLECTED EDUCATION SECTOR SHOULD HAVE TO BE TAKEN CARE OF FIRST.

SHAMSUL GHANI
(feedback@pgeconomist.com)
Apr 4 - 10, 20
11

A report by the then MD PSEB released in August 2006 focused on disparate methods of calculating IT export revenue by the State Bank and those employed by other regional economies for example India. The report also presented a comparison between the status of IT industries of the two countries. The statistics date back to the year 2005.

COMPARATIVE IT STATISTICS PAKISTAN AND INDIA (2005)

COUNTRY POPULATION ESTIMATED GLOBAL IT REVENUE IT GLOBAL EXPORT REVENUE IT DOMESTIC REVENUE IT PERSONNEL
Pakistan 160 million $2 billion *$0.6 billion $1.35 billion 75,000
India 1100 million $36 billion $23 billion $13 billion 965,250
Ratio 1:6.88 1:36 1:38.33 1: 9.63 1:12.87
*Based on alternative method; SBP method placed the earnings at $ 75 million

Where does our IT industry stand in comparison to India after around six years? According to a report by Anand Kumar, "the IT sector earned revenues of a mere $4 billion in 2000; 10 years later, its revenues have reached $62 billion. A company like Infosys employed 3,000 people then; today it has over 125,000 employees, and expanding rapidly. The IT sector provided 100,000 jobs in 2000, whereas today it has over two million employees." Although the Indian IT industry which attained in recent years growth levels as high as 30 to 35 percent, has slowed down to 10 percent at present, nevertheless the industry is projected to have in its fold 10 million employees by 2020 with a total revenue forecast of $225 billion. The revenues generated by their top companies during the last fiscal are as follows: TCS $7.1 billion, Infosys $5.3 billion, Wipro $4.8 billion, Cognizant $4.18 billion, HCL Technologies $2.88 billion, Genpact $1.2 billion, Tech Mahindra $1.1 billion, Mphasis $1.09 billion, and Mahindra Satyam $1.0 billion.

Despite the so-called boom in our IT and Telecom sector during the last 6 to 7 years, we have hardly been able to exploit real potential in all important sector of the economy. This is the sector that brings into limelight many social and economic aspects of an economy.

According to the SBP annual report, lower cost of labor, land and tariff exemption on IT exports give Pakistan a competitive edge over its competitors. Despite a narrow base, our IT professionals are equally even more brilliant than those of many leading countries. The below-the-potential growth of IT industry can be attributed to the following factors:

* Lack of horizontal industry-growth
* Weak global brand image
* Poor linkages with the capital markets
* Lack of private and public investment
* Poor literacy rate and shortage of proper human capital

Lack of horizontal industry-growth: Most of the IT and IT enabled services companies are located in three major cities of the country: Karachi, Islamabad, and Lahore. The limited outreach of IT can be linked to our low literacy rate, particularly in the rural and less developed urban areas. Private sector IT companies are essentially profit-oriented. They are averse to taking business risk by extending their outreach to the less developed areas. The responsibility, therefore, lies more on the shoulders of the public sector than the private sector to extend the outreach of IT.

Weak global brand image: The brand image, beside other factors, is developed by political and economical stability of a country. Both political and economic stabilities have been disturbed by the change in the governance system that took place in early 2008. Moreover, our brand image also suffers from the size of IT industry companies that fall under mid-to-medium size category. The overseas client companies make use of cheap outsourcing options usually look to large-sized, reputable IT service providing corporate bodies. Even in India, small and medium size companies are suffering on this account. According to Anand Kumar, "There have been a lot of mergers and acquisitions in the mid-sized IT sector over the last three years...Of course, the mid-segment in the IT industry has been lagging behind the larger players; while the latter have been growing at 20 to 25 percent this year, the medium-size players are expecting a growth of just about 10 to 15 percent.

Poor linkage with the capital market: We have around 65 food companies that are quoted on our stock exchange against just one company - Netsol Tech - that is quoted under 'software and computer services' category. Shall we ask our nation to eat less and think more? As already discussed above, it is the large corporate size that attracts the overseas clients looking for outsourcing their jobs. Although the government has given a number of incentives to IT companies to get them 'quoted', yet the problem seems to be bigger than that.

Lack of private and public investment: After the political transition that took place in early 2008, the foreign investment lines have choked and currency depreciation, to the extent of 40 percent, has increased the cost of doing business, which in turn has pushed even the domestic investment to sidelines. Outsized government-spending leading to unprecedented government borrowings from the State Bank and country's banking system totaling to Rs500 billion during the first three quarters of the current fiscal have crowded out private sector. The giant loss-making public sector organizations (Pepco, Railways, PIA, Pakistan Steel etc.) put an annual burden of Rs250 billion on government exchequer. In this situation, any worthwhile investment - leave aside the corporate-size investment - on IT either by the public or private sector is out of question. Any major breakthrough in IT industry, therefore, should not be expected.

Poor literacy rate and shortage of proper human capital: In addition to new investment of both domestic and foreign origins, we need a sustained generation of skilled and educated work force. Our human resource is both our weakness and strength. We have abundant young and intelligent workers, lacking in formal education at the same time. To expand the industry, we not only need sufficient skilled and educated labors but also a well-educated user base. This is the difference between the IT and Telecom. A cell phone can be conveniently made use of by someone with too little a knowledge of English or even by an illiterate. But, to operate a computer or to make use of internet, one has to be sufficiently educated. Those who talk of creating awareness with reference to IT should realize that the neglected education sector should have to be taken care of first. And, given the culture we are living in, it's is a big ask. We often boast of having a literacy rate of around 60 per cent. This is hogwash, the lie of the century. Those who can just write names can never be designated as literate. From the standard of today's world, only those adept at computer and internet use can rightfully be called literate ones. The only way out is to raise our real literacy rate on war footing.