Pakistan’s caretaker government is pushing a plan to turn the IT sector into a bigger source of revenue.
KARACHI — Pakistan is pushing an ambitious plan to transform its fledgling IT sector into a core export industry, hoping to save its economy from default and replicate the rise of archrival India.
Industry insiders, however, say the country will have to overcome significant challenges to achieve its goal of fostering an industry worth somewhere between $10 billion and $18 billion — including a habit of shutting off the internet to curb unrest and dissent.
The caretaker government is laying the groundwork while the nation heads for a general election, now due Feb. 8, although there is talk of a possible delay. The push to expand IT-related exports is part of a wider initiative — spearheaded by the civil-military Special Investment Facilitation Council — to overhaul the Pakistani economy and overcome a chronic fiscal deficit furnished with heavy borrowing. The powerful military establishment is also striving to transform agriculture and improve food security.
With the information technology sector posting annual growth of over 25% in the last seven years and surpassing all other service exports in fiscal 2022, the administration is eager to make the most of it.
“There was a realization in the government that this is something that can be capitalized upon,” Javaid Iqbal, the chief commercial officer at the Special Technology Zones Authority, told Nikkei Asia. “We have a 160-million-youth bulge that needs to be included in our economic prowess. With very little focus on manufacturing or other sectors, the knowledge economy is our best bet.”
He added that Pakistan benefits from some of the world’s cheapest mobile and broadband internet coverage, as well as past government programs to hand out laptops to students.
In November, the interim IT and telecommunications minister, Umar Saif, unveiled the country’s first-ever IT export strategy, aiming to reach $15 billion in six years, from the current $2.6 billion. The strategy report and other government statements have also given the $10 billion to $18 billion range.
The government, with the help of private stakeholders, identified five segments in the global IT market that show potential for Pakistan. Key among them are software development and outsourcing services, which already contribute nearly 75% of the IT industry’s revenue. Other fields include cybersecurity, health and learning services, and technologies such as augmented reality and virtual reality.
Saif, a former academic who took charge in August when the caretaker government was installed, was also behind the launch of Pakistan’s first space policy in December, opening the market to private companies offering satellite communication services. As minister, he has hatched plans for infrastructure upgrades and training of tech talent and sought ways to make it easier for IT professionals to do business.
On Tuesday, he announced a new startup fund that will invest up to 2 billion rupees a year in domestic ventures.
But with inflation at nearly 30% and currency devaluation digging into real wages, coupled with huge global demand for IT skills, retaining human resources is not easy.
Pakistan’s economic crisis has accelerated the departure of tech professionals, who previously enjoyed steep pay raises when venture capital companies poured millions of dollars into local tech startups, following the expansionary fiscal policies then-Prime Minister Imran Khan introduced to accelerate post-pandemic growth.
Online freelance marketplaces connecting workers to gigs are also seeing unprecedented traffic from Pakistan. In November, the country ranked second globally in visits to Fiverr, and third on Upwork, according to the web analytics firm Semrush.
Some online freelancers have gone on to form their own companies and received venture capital funding, hiring relatively affordable local talent to sell digital services to international clients. Fraz Saleem, who runs the Karachi-based startup Webx Ecommerce, is one. He told Nikkei that talent retention is the industry’s biggest hurdle.
Saleem said the talent exodus is a problem because the Pakistani diaspora tends to send remittances but dithers when it comes to investing back in the home country. “There is a difference in how the Indian diaspora has contributed to the Indian economy by investing and forming industry linkages [with Indian IT firms] and how, on the other hand, Pakistani expats tend to keep their assets abroad due to sociopolitical and economic instability,” he said.
Pakistani tech workers also complain about the government’s frequent internet shutdowns, which are used to tamp down dissent and unrest but damage investor confidence and incur losses to businesses. In May, the Pakistan Software Export Association estimated that the three days of internet shutdown during riots following Khan’s arrest last year cost the IT sector 10 billion Pakistani rupees ($35.5 million) in losses.
Another issue for IT businesses is the absence so far of online payment gateways like Paypal and Stripe in Pakistan, though the government says it is in talks with the two companies. One Karachi-based virtual assistant for foreign clients, Hina Sami, uses other payment systems but they charge higher commissions. And she is unable to sell a course on training to become a virtual assistant on the platform Squarespace since it requires a Paypal or Stripe account for receiving payments.
“I want to help other people, especially women, on how to earn from home as a virtual assistant, but I can’t,” she said.
Despite the limitations, Iqbal from the special zones authority estimated that Pakistan’s IT exports could be much higher than the $2.6 billion coming in through banking channels.
Pakistani exporters usually bring minimal proceeds into the country due to strict capital controls that force them to surrender dollars to the central bank and receive payments in rupees.
IT Minister Saif announced in December that Pakistan’s monthly export proceeds jumped by 14% after the government allowed IT exporters to retain 50% of their remittances in dollars, instead of the previous 35% limit.