The IT sector can help Pakistan's economy, but several factors need to go in its favour

As a veteran reporter, I have been covering the IT sector along with other areas for a while. The one notable thing I have observed is that people are bullish on the sector's growth prospects.

The banking sector appears to be on the same path as well, but this seems to come on the back of fintech's potential, which is powered mainly by the IT sector — blurring the lines between the two.

The reasons why IT-telecom sector lagging behind explained

The IT sector has seen significant growth in recent years. IT-related exports went up from $1.4 billion in fiscal year 2019-20 to a record $2.1 billion the next year. Growth rate slowed in FY 2021-22 as exports clocked in at $2.7 billion, according to the Pakistan Software Houses Association for IT. The government had set a target of $3 billion for FY22.

However, many in the industry feel that the government has not played a huge role in this growth, and that it has come on back of Pakistan's robust demographic of young individuals who are tech savvy.

There is, however, a dire need for capital expenditure in this sector. Hence, there’s also a need for the government to spend on infrastructure in order to pave way for the growth momentum to continue. Connectivity is provided by the telecom sector that covers clusters with little role of the government.

Instead, these companies should also be pushed by the government to reach remote areas in order to be inclusive of people living there. This may boost tech growth.

For Pakistan’s start-ups, the ‘journey has just started’

Although internet connectivity, speed and performance in Pakistan are not at par with international standards, the country has still managed to see its IT sector prosper.

At the same time, investment in Pakistan's startups has also gone up significantly, with total valuation of these early-stage companies reaching $3.5 billion, according to the IT minister.

However, despite the investments, a major chunk of it remains parked in other countries that have positioned themselves as startup hubs over the years.

While policy-checks on financial flows may be a hurdle, it is Pakistan's volatile currency that does a lot more damage.

Pakistan to see its first digital wealth management company with launch of Mahaana

For instance, the rupee has depreciated nearly 20% since March alone.

If the investment had entered Pakistan’s banking system, it would have lost that much of its value by now, within a year.

This, of course, is too much for a foreign investor.

Unless the fundamentals of the economy improve, such as stability in exchange rate, all sectors will continue to struggle.

Moreover, IT service providers also depend on the growth outlook of other areas such as providing software to the textile, FMCGs etc.

When other sectors of an economy struggle, and traditional areas struggle, pressure is passed onto IT as well.

In a quick analysis of Pakistan’s IT sector, despite its growth potential and the government’s aggressive targets, it cannot help Pakistan alone.

There are fundamental problems in the economy, which experts such as Atif Mian and Miftah Ismail have pointed out repeatedly.

Investments and incentives have rarely gone into the right productive sectors that help lower a country's dependency on imports and increase exports.

For instance, the previous government tried to grow the economy through the construction sector, providing it with amnesty schemes, subsidies and cheap loan facilities.

However, all these incentives increased property prices, and demand for construction material that resulted in a higher import bill as well.

There have to be consistent policies with a long-term understanding of every sector – such as their dependency on imports. For instance, last year the government reduced tax and duties on cars but they had to revert within months as imports increased significantly.

While the auto industry is dependent on imports, the IT sector does not increase this bill.

And while the telecom sector may import equipment, these are largely one-time fixed costs.

The IT sector’s dynamics make it favourable for the country due to its demographics, but it needs proper nourishment and favourable, consistent policies.

The article does not necessarily reflect the opinion of Business Recorder or its owners