IT business migration to Dubai

Pakistanis, having systematically moved their capital overseas and invested $11 billion in properties in Dubai, there is now a flow of business investments from Pakistan into the emirate, notably in the IT sector.

A statement this week by the Dubai Chamber of Commerce stated that 3,968 Pakistani companies registered in the last six-month period, which is a 17% increase when compared with the figure of 3,395 in the same period (January-June) of 2023.

Overall, during the year 2023, a good 8,036 new Pakistani businesses were registered by the Dubai Chamber of Commerce, which was 71.2% higher in comparison to 2022. This means since 2022 there is an exponential flow of business from Pakistan to Dubai.

Pakistan distinguished itself as number two on the list of new non-Emirati companies joining the Dubai Chamber of Commerce in the first half of 2024.

In comparison to this, Indian investors with a far bigger and vibrant home economy topped the list of new non-Emirati companies joining the chamber during the first half of 2024, with 7,860 new companies, whereas, the UK has 1245, China 742 and Bangladesh 1,119 companies.

The findings highlight Dubai’s strong ability to attract direct investments from overseas.

Dubai’s appeal as the preferred destination for Pakistan’s software companies is irresistible. This destination provides a streamlined payment process, favourable business environment, reliable infrastructure and better enforcement of contracts among a number of other reasons. All of these factors, when benchmarked to international standards, are not available to our entrepreneurs in their home country.

The key appealing factors cited by Pakistan’s software companies are, notably:

1. The UAE is ranked highly, ninth out of 190, on enforcing contracts. It is also ranked the first on the metric of ‘getting reliable and affordable electricity’.

Foreign companies are wary of signing contracts solely with Pakistani entities incorporated in Pakistan due to concerns about legal enforceability of contracts and the perceived difficulty in pursuing legal recourse. The companies feel secure in signing contracts with entities incorporated in locations like Dubai because of the perceived ease of recourse in case of contract breaches.

2. On many occasions foreign clients need to visit the service providers in their home country. Because of security concerns, travel advisories against travel to Pakistan for many countries are negative. In case of Dubai, however, the clients feel at ease to travel for business meetings due to positive travel advisories from their country.

3. Experts believe incorporating an office in Dubai offers Pakistani software companies a strategic advantage, enabling them to leverage a global hub with required and reliable infrastructure and a proper legal framework.

4. The key advantage the Pakistan companies find by incorporating in Dubai is the seamless access to Stripe and PayPal, facilitating payment collection from the clients.

While Pakistan has struggled without success to attract a player like PayPal – despite repeated assurances from several ministers over the course of several years. Access to payments systems is one strong reason why firms look to incorporate their offices in Dubai.

5. The corporate tax in Dubai’s is 9%. Many believe that the simplicity of payment processing renders this tax insignificant.

6. Website integration between service providers and client’s system are challenging due to outdated APIs in Pakistan. These obstacles make it more practical to incorporate in Dubai, where receiving payments is streamlined. Meeting international security standards is crucial for processing credit card transactions on the website, a requirement not easily met in Pakistan.

In Dubai, they can effortlessly integrate the merchant account onto their website, enabling easy purchase transactions for international clients using their credit cards.

7. Many IT companies believe Pakistan’s financial system is too tightly regulated – Pakistan was ranked 119th when it came to ‘getting credit’ on the World Bank’s Ease of Doing Business Index and a poor 161st when it came to paying taxes. The worst score on the index is 190.

In comparison, the UAE does not have a single rank in three digits across all metrics on the World Bank’s Ease of Doing Business Index. A more favourable tax regime – income and corporate – has also attracted capital from all around the world.

8. Pakistan offers cumbersome sign-up formalities and extensive documentation requirements which make the process lengthy and tedious.

In the Pakistan vision 2025 and the digital policy of Pakistan 2018, prepared by Board of Investment (BOI) in 2018, the ICT industry’s size was targeted to reach $ 20 billion by 2025.

In reality, Pakistan’s Information and Communication Technology (ICT) recorded $2.283 billion exports during FY2024 (July-March) compared to $1.944 billion during the same period of last year, according to the Economic Survey 2023-24. This is way off from the target of $ 20 billion by 2025.

This is not surprising as targets in the country are fixed on unsubstantiated assumptions devoid of any meaningful road map or strategy nor the intention to achieve it.

What Dubai offers is simply a business enabling and a hassle-free environment with a better planned and a well-managed system, which is workable and provides professional investors comfort and ease of doing business. These small things make all the difference.

Pakistan, by not providing the above basics, is losing its talent, its domestic and foreign revenue and the chance to build a name in the IT sector.

In the present times when the conventional industry for local market supply and exports is under severe pressure to continue business and with investment moving overseas, letting go the IT sector to foreign pastures is a mistake.

Copyright Business Recorder, 2024