Pakistan’s IT exports witnessed staggering growth in the last couple of years, surpassing $2.6 billion in the previous financial year. Still, its share stands at less than 1 percent in the global IT export market, far below its potential.
According to a study published by the State Bank of Pakistan (SBP), Pakistan’s share in global exports of computer services remains small as it has increased from 0.17 percent in 2017 to only 0.3 percent in 2021.
In terms of export diversification, total IT exports are concentrated in a few markets, with USA’s share being more than 55 percent between FY13-FY22. Pakistan’s exports increased slightly by the last end of the last financial year from 10 to 12% in the UK, UAE, Singapore, Canada, and Ireland, which are the top five destinations.
However, analysis of Pakistan’s export markets and firm-wise exports point towards substantial room for improvement as far as global trade is concerned, stated a study published by SBP in its half-yearly report “The State of Pakistan’s Economy.”
There are various reasons behind export market concentration. Small IT firms do not have adequate means to explore international markets, especially non-traditional markets (i.e. markets other than the USA, UK, UAE) with which Pakistan does not have strong commercial or historical ties. Analysis of firm-wise data shows that 80 percent of firms export less than $0.1 million and more than 90 percent export less than $0.5 million per year.
Pakistan’s IT exports gained prominence in recent years which grew at a CAGR of 24.4 percent between FY17 and FY22.
IT exports – led by software and software-related exports – rose to $2.1 billion in FY22 from $0.89 billion in FY19 and $0.29 billion in FY13. As a result, IT exports are increasingly becoming one of the leading foreign exchange earning segments of the economy.
Pakistan mostly deals in software and software-related exports since the country’s hardware industry is not as developed as the software industry. The official statistics of Other Computer Services also currently include export proceeds ($265 million in FY22) from freelancing. Lastly, an additional $1.5 billion of IT (including software and software consultancy) and IT-enabled exports was estimated to be in the grey market in 2019, which as per current industry estimates, may have grown to $2.5 billion by FY22.
In terms of export classification, IT is part of the larger ICT sector in Pakistan, which stood at only $269 million in FY06. It took more than 10 years for the ICT exports to cross the $1 billion mark in FY18. However, the pace of growth accelerated sharply since then, with ICT exports crossing $2 billion by FY21 and $2.5 billion by FY22.
The share of ICT in total service exports increased from 7.2 percent in FY06 to 37.7 percent in FY22 which makes it the largest contributor to service exports. The growth is mainly led by Computer Services (IT exports), which contributed to 80.5 percent (or $2.1 billion) of Pakistan’s ICT services exports in FY22 with the rest of the inflows stemming from the Telecommunication Services category (including Call Centres) and a negligible share of Information Services segment.
Until govt stops interfering with useless freelancers registration and manipulating exchange rates real IT export will never flourish.