Adjusting Pakistan’s Tech Sector Priorities

In a series of recent statements, key government figures have expressed optimism about the future of Pakistan’s information technology (IT) exports. Former Information Technology Minister, Syed Aminul Haque, aimed for a substantial increase in Pakistan’s IT exports from the current $2.6 billion to an ambitious $15 billion over the next few years. The current caretaker minister, Dr. Umar Saif, shares a similar determination, aspiring to elevate the sector’s exports to a range of $10-20 billion.

These ambitious targets stem from the remarkable performance of Pakistan’s IT sector in recent years, boasting a compound annual growth rate (CAGR) of 30 percent. Over the past five years, the sector has witnessed an impressive growth of 178 percent, outpacing other local industries and even surpassing the textile sector in terms of growth.

The surge in IT exports can be attributed, in part, to the COVID-19 restrictions that led to a significant shift toward online, web-based operations. From $1.29 billion in 2019, IT exports climbed to $1.72 billion in 2020 and further to $2.45 billion in 2021. This surge not only boosted freelancing but also prompted the youth population to acquire IT-related skills, contributing to the sector’s expansion.

However, despite these positive trends, the current fiscal year has seen a stagnation in the IT sector. To meet the lofty goal of $10-20 billion in the next five years, the government must implement strategic measures, foster private sector innovation, and ensure a consistent approach.

The Ministry of IT and Telecommunications has approved a plan to achieve $10 billion in IT exports, backed by the caretaker prime minister. This plan involves around 200,000 under-training IT professionals generating $5 billion in export outputs, co-working facilities for 500,000 freelancers adding another $3 billion, and various initiatives like dollar retention accounts, venture capital for startups, favorable taxation policies, and active spectrum sharing.

While the caretaker Ministry of IT and Telecom has industry experience to execute this plan, consistency is key for successful implementation. The IT industry has faced challenges due to frequently changing taxation regimes, impacting investor confidence and prompting some companies to relocate.

Another hurdle is the restriction on the retention of export proceeds in foreign currency accounts, recently eased by the State Bank of Pakistan. Despite these adjustments, entities in the industry remain hesitant to repatriate 100 percent of their foreign earnings to Pakistan.

To foster a conducive business environment for foreign investors, the government must maintain consistency in taxation policies and banking regulations. Additionally, steps to enhance the IT ecosystem, such as fast internet access, incubation centers, and skill development programs, should complement these measures.

Political stability is crucial for nation branding and attracting foreign investment, particularly through initiatives like the Special Investment Facilitation Council. However, success requires a sound political environment and structural reforms for ease of doing business.

After creating an enabling environment, substantial investments in research and development (R&D) are essential to diversify the IT services base. Currently dominated by services, particularly software development, the industry needs to venture into producing cutting-edge technologies and tools.

Pakistan should leverage its diplomatic ties with the West and China for tech-based collaborations. Initiatives with China on AI-based services and products should be expedited. Collaboration between the private tech sector and the defense industry could innovate defense products and diversify exports, including eco-friendly electric vehicles and agricultural drones.

Rather than hasty plans, Pakistan must prioritize sustainable long-term growth. Addressing issues in the right order, including political stability, tax and banking reforms, and fostering a tech ecosystem with foreign direct investment in R&D, is crucial. With proper planning and execution, the IT industry could potentially fix the current account deficit and reshape Pakistan’s financial future.

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