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Political uncertainty hits tech exports in Pakistan – Business

Earlier this year, Pakistan was closing in on technology services exports of $3 billion for FY22. The sitting IT minister even claimed we’d surpass it, and based on the growth trajectory then, there was little reason to doubt him. All hopes for dollar inflows were pinned to one sector basically, apart from the mercy of our overseas brethren.

But then, the growth started to taper off. After reaching a peak of $212.3 million in March, Pakistan’s telecom, communication and information services exports haven’t reached the same level again in seven months. To put it in context, previously, we were witnessing the “highest-ever” exports every 3-4 months, and the longest stretch was back in the first half of 2020.

The issue takes a political color as supporters of PTI blame the slowdown on the change in government and the resulting political uncertainty. On the other hand, sympathizers of the ruling party see it as a bug, instead of a feature. Luckily, that’s where the data can give us some context, or maybe confuse us even more, depending on how you look at it.

For example, Q1FY23 was the first time since Q3FY16 when the quarterly telecom exports declined year-on-year. During July-September, Pakistan’s proceeds from the sector stood at $633m — lower than the past four quarters. The last time something like that happened was during FY14 and FY15.

Pakistani players in IT services are still hiring and expanding their sales offices abroad, suggesting that the slowdown in export proceeds should be because of domestic instability

Furthermore, the average year-on-year growth per month between April and October — after the PTI was removed from the government — has been just 9.56 percent. In the same period of 2021, the corresponding figure was 48.83pc. Additionally, the outgoing September was the first time since May 2020 when IT exports fell year-on-year. Going all the way back to July 2006, there have been only 21 months (out of 196) when this has happened. So it does lend some credence to the claims of the first camp.

However, are we really saying that Pakistani tech companies, which are for-profit entities, suddenly stopped selling less just because there was a change in government? If we look at the month-wise year-on-year change in telecom exports, it actually peaked in April 2021, a whole year before the vote of no-confidence. Don’t get me wrong, there was still healthy growth afterwards, but it was clearly on a downward trajectory and, by this January, had reached 15.71pc.

It still doesn’t justify how April onwards, there have been four months (out of seven) where the year-on-year change in IT proceeds was less than 10pc, including the decline in September. That last happened between October 2016 and February 2017 — again during the government of PML-N.

Given the ruling party’s historical anti-export approach, it makes sense. Then add to it the currency market volatility we have seen over the past few months. It’s no wonder tech companies are cautious and are perhaps even hesitant in bringing the money back home. For the country, obviously, it couldn’t be any worse timing.

One could argue that the growth had to subside at one point, especially since the global economy has changed gears. After all, it was Covid-19 that gave a major boost to our (and others’) technology projects, thanks to higher digital spending by organizations. That high is now over as the world is heading towards a recession on the back of record-high inflation, as well as market corrections. Companies are naturally undertaking cost-cutting measures.

But that reasoning has a couple of problems. Firstly, Pakistan never played in the big league to feel too much impact. Unlike neighboring India, our companies weren’t really bidding for large contracts of $100 million or more. For example, our biggest IT exporter, Systems Ltd, will cross $100m in revenues for the first time in 2022 (of which roughly 20pc comes from the local market).

Therefore, any slowdown shouldn’t bother us as corporates around the world will continue to outsource smaller projects, which is what we do anyway. Secondly, Pakistan is still at a pretty low base of $2.6bn, where double-digit growth is well within reach. If India managed to increase its IT services (excluding hardware) by 17pc last year from a base of $150bn+, there is absolutely no reason why our growth should begin to taper already.

What’s surprising is that major Pakistani players in IT services are still hiring, even if not as aggressively as last year. Many are actually expanding their sales offices abroad. That’d suggest any slowdown in the export proceeds shouldn’t be because of a lack of business but perhaps a result of political uncertainty.

If that’s the case, the government should really come out of its slumber and instil confidence in the market instead of continuing the same old shenanigans which brought us to an economic crisis in 2018.

Published in Dawn, The Business and Finance Weekly, December 5th, 2022

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