by Syed Ahmad
Pakistan’s exports have decreased from $24.58 billion in 2012-13 to $20.8 billion in 2015-16.
This is indicative of end of the era where the blue eyed industries especially textile sector could keep up with the growing needs of nation’s foreign exchange needs. The remittances back home have grown but these are also under threat of growing wave of international anti-immigrant sentiment and huge workforce layoffs in the Gulf.
Pakistan has no other way but to move forward from 2nd industrial age to knowledge economy. Today the world is focusing on services, IT industry being the top priority of the global economies. Our neighboring India does more than a $100 billion dollars of IT exports each year. Philippines standing at $25 billion dollars is nothing short of impressive. It is unfortunate that Pakistan, despite having a wealth of human capital to match that of above mentioned countries, has been stagnated by political instability, law & order and international perception issues.
Ministry of Commerce had already identified IT as priority sector for promotion of services exports (STDC) back in 2013. The IT sector has been the top growing industry in Pakistan and never posted a negative growth; yet, subsequent governments have failed to support the IT industry in a meaningful way.
Due to lack of actual export figures along with need to shift blame onto the industry, it has been finger pointed that IT industry keeps 75% of its revenues outside of the country while bringing only 25% into Pakistan. This narrative is especially promoted in the government circles to put the blame of under-performance squarely onto the IT exporters. This also promotes a sense of false relief that the target of growing exports figures by 400% in a year is very easy i.e. simply get the exporters to bring back the money to Pakistan.
It is important to dispel this rumor so all the stakeholders stop focusing on non-issues and short-term measures. It is time for meaningful long-term initiatives that can truly grow the industry to its true potential. i.e. $15 Billion by 2025. While India targets $175 Billion by 2020 (NASSCOM perspective 2020), it seems like a small target for Pakistan. It is pertinent to ask a fundamental question at this point. Why is it that we have no large scale IT company bigger than $100 million per annum revenue or more than 5000 head-count while India has numerous $1 Billion+ companies having headcount in six figures?
Let’s dispel the myth first. How much are IT companies parking abroad?
With 13 years of my own IT exports experience and knowing most of the companies at a personal level, I can safely challenge that the payroll cost of an average IT company is at least 50% of the revenues. Labor arbitrage is the only reason outsourcing is attractive. Any person who understands the IT services business can do the math. High infrastructure costs, bandwidth, bench time etc, make it 60% of total revenues, give or take. Add overheads, trainings, sales and you are talking about profit margins of anywhere between 5% (ITeS) to 25%. There are new IT companies which even operate at a loss in first couple of years.
How on earth can a company that has 20% profit margins, keep 75% of revenues abroad; when 80% of the costs need to be brought back to pay salaries, rent etc? Acknowledging the fact that bulk of the income has to be brought back to the country (whether reported as IT exports or counted as personal remittances) will bring the more difficult question in the limelight! How do we do what likes of India, Philippines and Ukraine are doing?
The difficult answer is:
- Government should solve visa issues (B1 & L1) for Pakistani passport holder IT workforce like India fights for its quota of H1B. This requires foreign policy prowess and trade/commerce priorities. As if the Pakistani passport status was already not bad enough, many successful Pakistani IT companies have reported 3 out of 4 visas of their employees to the US are rejected post Trump. If this is not addressed, we might see our IT exports declining for the first time in 15 years! Some recent posts from the most successful IT company CEOs indicate the same:
The visa issue is a two-way problem. Most of the customers including the likes of Microsoft, S&P Global, Google have Indians in their top management. Pakistani companies cannot easily acquire visas for senior American and Indian management of these companies. The travel advisory issued by the US state department is also not helpful in convincing the families of these folks to visit Pakistan.
- Government should run a PR campaign targeted towards US business community where 70% of Pakistani IT exports happen, and improve the perception of Pakistan as a safe place to do business. Bridge the gap between reality and perception. If you cannot sell the country as a destination, you cannot sell the companies that exist within.
Unfortunately, lack of strong foreign ministry can only mean the real issues presented above have no ownership in the government. Focus on entrepreneurship and freelancing is a red herring since all you have to do is events and social media marketing. It’s not what the IT exports industry in Pakistan needs to compete with the world. We need to solve real problems. Is there a government that can do that?
Syed Ahmed is the CEO of DPL and former Chairman of PASHA