Export of services, inward FDI flows: IT sector’s share likely to expand

KARACHI: The share of the IT sector in attracting foreign direct investment and service exports is likely to increase in the coming months as the caretaker government has announced to enhance the retention rate of Dollar-based bank accounts from 35 percent to 50 percent.

The country earned foreign exchange amounted to $ 2.6 billion through IT exports during the last fiscal year (FY23) and the country can double it by giving more facilities to the IT sector, experts said.

According to the State Bank of Pakistan, IT exports have increased by 5 percent year-on-year to reach $449 million during July to August 2023. On the other hand, FDI inflows dropped by 43 percent to reach $6.3 million in the first two months of the current financial year (FY24) from $11.2 million inflows reported in the same period of the last financial year.

IT companies are reluctant to bring the entire portion of their proceeds into the country due to declining business confidence and volatility of the exchange rate in the local interbank and open markets. According to an estimate, the IT sector can fetch an additional up to $2 billion on account of IT exports and investment, with the major companies providing IT and IT-enabled services in offshore offices.

A leading IT exporter, Noman Ahmed, said the facility of enhanced retention of Dollar-based bank accounts will give liberty to IT exporters to expand their offshore business in foreign markets by making investments in big projects single-handedly or through joint ventures with different foreign companies.

Also, this facility will give room to IT companies to enhance the capacity of their infrastructure whether it is related to payment of advanced software or

purchasing cutting-edge hardware.

He said that the handsome export receipts and investment inflows are likely only if the country retains its policies including the retention allowance of 50 percent on foreign exchange bank accounts on a long-term basis regardless of the transition of political regime from one to another.

IT is one of the key sectors focused by the Special Investment Facility Council (SIFC), which has the capacity to generate quick and desirable results for the economy including the narrowing down the current account deficit and stability of the Rupee against Dollar, Noman added.

He also said that the IT sector will also provide employment opportunities for thousands of skilled youth provided the government and other stakeholders including IT companies join hands to train the in-demand workforce on a war footing basis.

Noman urged the IT companies to use this facility for foreign exchange accounts and enhance their contribution to the economy in terms of IT exports and investment. Also, he urged the government to fulfil the rest of the demands of the IT industry for better and sooner dividends, including the launch of digital banking of outward remittances.

It may be mentioned here that worldwide IT spending is projected to total $4.7 trillion in 2023, an increase of 4.3 percent from 2022, according to the latest forecast by Gartner, Inc.

Copyright Business Recorder, 2023