On boosting services exports

Pakistan’s services sector, which dominates the GDP, doesn’t do so well when it comes to exports. The SBP, in its latest annual report, has labeled the services sector as one with “limited export potential”. Question is, why are services, which are booming at home, cannot be sold overseas in greater numbers?

This is not to say all services are exportable, as many non-transferable services have to be consumed locally. But many others are transferable. These include business process outsourcing (BPO), consultancy services, education services, healthcare, hospitality, financial services, information technology, logistics handling, telecom services, transportation (air, overland, and marine), travel and entertainment, besides government-to-government services.

Pakistan’s services exports have been declining since hitting a peak of $6.7 billion in FY13. Receipts in FY17, about $5.55 billion, were lower than what came in during FY11. This export sluggishness has led to the services deficit – services exports less services imports – dishing out a whole percentage point of GDP every year. Looking at past five-year averages, Pakistan’s services export pie has been dominated by government services (39%), transport (21%), and telecom & IT (15%).

Meanwhile, exports of financial services and travel have been languishing at 2 percent and 5 percent in the mix, respectively. Share of government services has been on the decline, as CSF inflows have crawled to a halt. The shortfall needs to be picked up by other sectors. But is there anybody out there who will stand up?

Just as manufacturing goods, services exports also need to get the triangle of cost, quality, and delivery time right in order to build a competitive advantage. The SBP has cited in the report an A.T. Kearney’s Services Location Index (2016), where Pakistan fares better regionally on labour and operational costs, even better than China, India, the Philippines and Vietnam, while needing work in other areas.

While the location is financially attractive, Pakistan needs to upgrade its people’s productivity to become competitive in the services space. Perhaps the greatest promise still lies in the IT arena. Several universities now offer IT education. But how many have created tech labs that developed breakthrough software and applications? Very few! The need is to link up with the industries and to have more interactions with regional and western academia to look out for groundbreaking research and ideas.

Ready availability and affordability of ICT hardware is another area to boost productivity. The government is advised to ratify the WTO’s Information Technology Agreement, which eliminates import tariffs on most ICT equipment. Affordable ICT hardware would be a boon for Pakistani students, entrepreneurs, professionals, businesses, and artists. Of course, that alone will not create sufficient conditions, but will make things a bit easier.

The SBP report also highlights the BPO sector as another exporting opportunity, and one agrees. The problem, as rightly pointed out, is that the incoming BPO business, which is concentrated in low-value-added outsourcing like call centers, doesn’t match the potential and ambition of some hundreds of thousands of educated, English-speaking young Pakistanis. It isn’t like there is dearth of professional for high-end services like consulting, data mining, and financial, medical and legal back-office works.

To boost services exports, Pakistan needs a focused approach. Focusing on IT & BPO sectors can align the external demand with local talent. A long-term plan is needed.

The government needs to prioritize development of specific IT and BPO clusters within the country through incentives like tax breaks, special zones, intellectual property rights’ protection, etc. To promote the plan, the diplomatic missions must liaise with local private sector to pitch the business opportunities in Pakistan. This is certainly an area where provinces should compete with each other to attract both bright professionals and overseas interest.