IT exports through banking channels crossed the mark of $1 billion for the first time in the history of Pakistan, reaching a new milestone.
According to the data updated by State Bank of Pakistan, exports of IT and IT-related services increased to $1.067 billion in the financial year 2017-18, as compared to $939 million recorded in the financial year 2016-17, showing a double-digit growth of 13%.
This is the second consecutive time the IT industry attained an all-time high record. The country also achieved the highest value of IT remittances in the previous financial year 2016-17.
The value of IT exports is considered as three times more than the remittances reported by the central bank, which means the overall number crossed the mark of $3 billion in the outgoing financial year. The discrepancy of the exports receipt of IT sector is due to the fact the export income is reflected in various other sectors such as financial, automobile, and health sectors.
Besides, a handsome amount of exports earning driven by freelancers is landed under overseas remittances, which causes a misreporting of export numbers. There are various local companies of various sizes functioning through Dubai and other countries while their services and products are delivered in Pakistan. The earnings are sent under overseas remittances by companies and workers, hence the real number of exports are not determined properly.
Factors Behind Exports Growth
Export of IT and IT-enabled services grew mainly due to the increasing demand of Pakistan’s products and services in the exporting countries, which have been improving gradually in the last couple of months.
The business of big companies has improved as many foreign clients are visiting Pakistan due to the better security image, said Barkan Saeed Chairman Pakistan Association of Software Houses ([email protected]).
Besides, the depreciation of the Rupee against the Dollar is one of the two major reasons which reflected the growth in export numbers.
Pakistan’s exports to IT and IT-enabled services are mainly concentrated (by 60 percent) to the US market, followed by European countries with 38 percent share, with exports to Middle Eastern countries following.
Pakistan’s IT industry is mainly “outsourcing industry” where services are provided to companies abroad. A majority of the revenue comes from software exports and services.
The Breakup of IT Industry Exports of Services and Products
|Heads of IT Exports||Financial Year 2017-18||Financial Year 2016-17|
|Call Center||$104.468 million||$82.859 million|
|Telecommunication Services||$231.882 million||$282.911 million|
|Hardware Consultancy||$4.171 million||$3.442 million|
|Software Consultancy||$287.716 million||$227.260 million|
|Computer Repair/Maintenance||$1.761 million||$ 0.737 million|
|Export of Computer Software||$319.547 million||$264.065 million|
|News Agency Services||$1.023 million||$1.011 million|
|Information Services||$2.277 million||$0.539 million|
|Other Computer Services||$113.685 million||$76.366 million|
Source: State Bank of Pakistan
Issues and Challenges
The central bank, along with industry stakeholders, has been working on the issue of reporting export earnings. The industry is also now reporting more and more with the right codes, however a lot of work still needs to be done in this direction, said Chairman [email protected]
Many freelancers drawing nearly $1 billion earnings bring money into their personal accounts in Pakistan. If the State Bank can resolve this issue, our real export figures can go to $2 billion easily, he further said.
Other challenges include a visa issue from the USA for Pakistani entrepreneurs, solving which can further increase Pakistan’s exports of IT and IT-ES manifold.
Besides, high taxation is also a major problem for the industry, which pushes up the cost of doing business for freelancers and smaller companies along with poor ease of doing business.
Government’s Incentives for IT Sector
Government realizes that it has an important role in providing a conducive environment for the growth of the IT industry through infrastructure and HR development. The government has the vision to enhance the exports of this sector to $5 billion per annum by 2020, which is not an impossible target.
The government has approved the following incentives for the IT sector, aimed its increasing exports.
- Zero income tax on IT exports till June 2025.
- 5% cash reward on IT exports, similar to rewards for other sectors such as textile, leather and sports.
- 5% Sales tax of on ITeS within the federal areas.
- Setting up Special Economic Zones (SEZ’s) for the tech sector to be defined by the BOI and MoITT.
- Access to financing from commercial banks at preferential rates.
9-Year Exports of IT Industry At Glance
|Financial Year||Exports Value||Yearly Growth|
|2014-15||$ 821.510||0.60 %|
|2013-14||$ 816.616||1.70 %|
|2012-13||$ 802.924||74.4 %|
|2011-12||$ 460.251||3.87 %|
|2010-11||$ 443.063||-0.05 %|
|2009-10||$ 443.326||16.6 %|
With the announcement of an incentive package by the previous government, the stakeholders of IT industry believe that the industry will expectedly grow its productivity and footprint manifold at a domestic and international level.
The government has already started working on improving ease of doing business for the IT industry which will impact positively on the sentiments of the business community. The central bank is also working on the issue of reporting IT remittances through streamlining codes of services to improve exports values and to realize the true potential of the industry.
A number of IT parks are being developed in the country along with the continuous expansion of broadband services in different cities to make the ecosystem attractive and lucrative for IT companies, entrepreneurs, and starter-ups.
The expansion of broadband services countrywide has been helpful in increasing IT exports in the freelancers’ space as now many freelancers from all over Pakistan are now able to provide services.
Instead of expanding its business in the outsourcing business, Pakistani IT companies need to shift their focus on product development and marketing in order to go towards areas of product or intellectual property development for accelerated growth in exports income.
Hopefully, Pakistani companies with offshore offices as well as revenues and investments parked in different countries abroad will reap the benefits of incentives and business opportunities in Pakistan at a time when foreign companies are looking to make investments in Pakistan with the development of China Pakistan Economic Corridor (CPEC).