Political Instability Highly Affecting Tech Exports Of Pakistan; Estimate Drops From $3B to $2.5B

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, apart from the mercy of our overseas brethren. But after that, the growth started to slow down. Pakistan’s exports of telecom, communication, and information services haven’t surpassed their March peak of $212.3 million in seven months. For comparison, the most prolonged period was in the first half of 2020 when exports were at their “highest-ever” level every three to four months.

As PTI supporters link the slowdown to the change in government and the ensuing political unrest, the issue assumes a political hue. On the other side, supporters of the ruling party view it as a weakness rather than a strength. Fortunately, depending on how you look at it, the data can either provide us with some context or, conversely, may confuse us even more. For instance, for the first time since Q3FY16 that the quarterly telecom exports decreased year over a year occurred Q1FY23. Pakistan’s sector profits from July to September totaled $633 million, which was less than the previous four quarters’ totals. That occurred in FY14 and FY15  the last time it did so.

In addition, when the PTI was expelled from power, the annual average growth rate for each month between April and October was only 9.56%. The same percentage in the same time frame in 2021 was 48.83 percent. Additionally, IT exports decreased year over year in September for the first time since May 2020. Only 21 months (out of 196) dating back to July 2006 hath this occurred. As a result, it does support some of the first camp’s claims.

However, are we 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 peaked in April 2021, a whole year before the vote of no confidence. Don’t get me wrong, there was still healthy growth afterward, but it was clearly on a downward trajectory, and, by this January had reached 15.71 percent.

It still doesn’t explain why, starting in April, four out of seven months (including the fall in September) saw an annual change in IT proceeds that was less than 10%. The most recent instances occurred between October 2016 and February 2017 – once more during the PML-N government.

It makes sense given the ruling party’s traditionally anti-export attitude. Additionally, consider the recent volatility in the currency markets. It makes sense that tech businesses would be cautious and possibly even hesitant to send the money home. It definitely couldn’t come at a worse time for the nation.

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 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).

Because businesses all around the world will continue to outsource smaller tasks, which is what we already do, any slowdown shouldn’t concern us. second, Pakistan is still starting from a low base of $2.6 billion, making double-digit growth very feasible. There is no justification for our growth to already be slowing off if India was able to boost IT services (excluding hardware) by 17 percent last year from a base of $150 billion or more.

What’s surprising is that major Pakistani players in IT services are still hiring, even if not as aggressively as last year. Many are 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 come out of its slumber and instill confidence in the market instead of continuing the same old shenanigans which brought us to an economic crisis in 2018.

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