IT Had The Highest Exports in Services Sector in First 9 Months of FY 2019-20: SBP

Pakistan’s IT and telecom related services have continued to grow in exports making its share in the overall exports of the services sector stand at over $1 billion during nine months of the current financial year 2019-20.

According to the statistics updated by the State Bank of Pakistan, the share of the ICT sector in overall exports stands at 24 percent or $1.052 billion in overall export of $4.247 billion of the services sector from July to March.

The ICT sector is followed by the multiple sectors which are termed as Other Businesses by the central bank that stood at $1.024 billion. It was followed by Government Goods and Services with $896 million exports.

The IT services exports have increased over the past three years and continue to increase despite the fact that the business scenario has entered a recession phase globally due to the COVID-19 outbreak.

The sector has crossed the mark of $1 billion twice in the last months of FY 2018 and 2019 as export values stood at $1.19 billion and $1.065 billion respectively. This year, the industry achieved the milestone in three quarters of the current financial year.

Overall, the IT sector made an export of $1.052 billion during the period of July to March in FY20 as compared to the export’s value of $879 million recorded in the similar period of last financial year, showing a year-on-year growth of 20 percent or $173 million. The export values will increase further in the rest of the months of the current financial year reaching another all-time high.

Although the growth in IT exports has been termed lower-than-expected, it has picked up the pace during this financial year with tremendous growth witnessed in the remittances. Not only did the exports driven through incentives by the government increased, but the reporting practice of the IT sector to the banking channels also improved. Besides, the depreciation of rupee against the dollar also enhanced export values in the financial year 2019-20.

Pakistan’s IT export is mainly in the US market followed by European countries and then a few Middle East countries. Exports are largely concentrated in the fields of software consultancy, BPO/ call center, telecommunication services, software development, and mobile app development.

Future Outlook

The prevailing situation of business and economy is extremely challenging across the world. US and European countries being the major exporting market of the IT sector were hit hard by the COVID-19 outbreak showing no signs of respite.

The representative body of the IT industry, P@SHA carried out a survey report recently which revealed that companies are struggling with the loss of businesses, cancellation of orders, and delays in payments.

Globally, clients are halting projects, delaying the payments of already delivered ones, and considering completely dropping their contracts eventually. Product-based companies are also going to face late payments, reduction of accounts, and even unsubscriptions, the reports said.

The economic slowdown has taken its toll on the businesses and economies therefore the IT industry might not continue its growth in exports at the present pace.

Presently, the workforce demand has decreased nearly 35 percent demand which might cause massive layoffs of around 25 percent of professionals in the next couple of months in addition to pay cuts, and unpaid leaves, the report said.

The association received feedback from over 200 companies employing nearly 35,000 in the survey.

Recently, one of the IT giants Netsol Technologies notified its employees about a pay cut and reducing working hours including an indication of layoffs in the worst scenario.

In the present situation, if a big IT company is looking at painful austerity measures, it’s easy to imagine what will happen with IT startups or smaller businesses.

Alternate Business Strategy

A majority of the companies have already devised backup plans on various strategies for the future. Some of these are:

• Aggressive business development and seeking more opportunities.
• Retaining a certain percentage of salaries with a promise to return in 2021.
• Freeze hiring.
• Continuation of Work-From-Home to reduce office expenses.
• Reducing administrative expenses, cash benefits, etc.
• Cut on extra expenses i.e. bonuses, medical, over-time, etc.
• Postponing appraisal and bonus program.
• Bank loans and financial support from directors
• Laying off non-serious and unproductive employees only

The association cited a concern that the loss of human resources due to the present situation will affect the productivity of the IT companies and software houses as professionals are the biggest asset in this business.

However, these companies can retain their employees using the refinancing scheme recently introduced by the State Bank of Pakistan (SBP) to avail low-interest financing facilities from commercial banks for avoiding layoffs.

Viewpoints of IT Exporters

Noman Said, CEO SI Global, said that ICT, like other sectors, is facing challenges but it should cope up with solid strategies and development of new business through diversified products and services.

He pointed out that technology companies are expected to be gainers of the present situation instead of losers hence Pakistani companies should work on an out-of-box business plan to win business opportunities worldwide.

There are various fields of ICT in which Pakistani companies need to build their capacity and explore opportunities in different companies rather than a few market places, he added. This needs extra effort from the professionals in the near future for keeping themselves out of survival mode to a stable and developing phase.

Zeeshan Aftab, Co-Founder 10Pearls, said that not all IT companies are facing challenges these days but medium or small-sized entities are uncertain about the near future due to economic slowdown and lack of customer demand.

Explaining the situation of the business in the export market, he said the small clients of an IT company do not have money to spend at the moment, medium-sized clients have frozen their budgets but big-sized companies are spending and some are even making more investments on different projects.

IT companies in Pakistan should focus on generating revenue and avenues through innovative products and price-cut of the products to attract the customers who could be explored diligently, he added. In this way, not only can a company regardless of its size make a difference in exporting markets but it can do so in the local market as well.

For instance, various platforms of video-conferencing are being utilized these days for education and official meetings but these platforms could be more engaging and interactive rather than simply a video-call.

During the past three months, education and healthcare services are being provided online due to the preventive lockdown in many parts of the world but it is an opportunity towards a new way of doing business.

Yes, the demand for IT in the health and education sector is pent-up already but now applications of IT services will get a boost in these sectors at an accelerated pace, said Badar Khushnood, an office-bearer of P@SHA.

The core business of IT and software development is on the downturn these days, but companies can transform the nature of their business niche to offer IT-enabled services to different conventional sectors in the local and exporting market, he added.

E-commerce is gradually picking up in Pakistan but it needs to be expanded to every sector particularly in the prevailing situation when businesses cannot operate through point-of-sales, shops, and business center, said Badar Khushood, who is also co-founder Fishry E-commerce Platform and Head of E-commerce Committee at P@SHA.

This is the time to digitize the business at B2B to the retail level, and every product should be sold online keeping a mandatory social distance, he further said. Our businesses need to upgrade their system of e-commerce which is not limited to websites but also requires the development of proper systems that include logistics, payment systems, marketing of products, he added.

No doubt, the present situation portrays a crisis in the IT industry that is not going to end soon but there is a struggle for survival, a silver ling for genius minds as an opportunity is knocking at their door through diversification and transformation of the businesses.