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Boosting services exports under works
Do you know that Singapore earned $291 billion through services exports in 2022?
The United Arab Emirates (UAE) and Turkiye followed with their earnings of $155bn and $90bn, respectively, according to a World Bank report. Pakistan can learn a lot from these three nations and from China and India — the two Asian giants. Combined, the five countries boast an 18 per cent share in global services exports.
We all know that Singapore has one of the best education systems, and Singapore and the UAE are the preferred destinations for top professionals and top companies worldwide. Meanwhile, China, India and Turkiye have made remarkable progress in education and skill enhancement since the beginning of this century.
If Pakistan also wants to boost its services exports, it will have to follow the same course — invest more in education and skill enhancement and become an acceptable destination for foreign investment in the services sector. However, even before that, the menace of extremism and terrorism will have to be eradicated.
The present hybrid regime has started working on the second part of the agenda, and understandably so. The framing of the budget for the next fiscal year, starting in July, will show evidence of whether or not it is also seriously working on the first part of the agenda.
Faced with an alarming trade deficit of $1.9bn, the govt aims to increase ICT exports from $2.6bn to $15bn in five years
It wouldn’t be easy to do in the current tough economic environment. Nevertheless, it needs to be done at once. There is no other way.
Merchandise exports may take time to grow enough in volume to significantly impact the trade deficit because of the ongoing energy price hikes and the resultant increase in the costs of all inputs. This is too difficult to contain in a single year. Faster chances of dramatic growth lie in the Information and Communication Technology (ICT) sector.
During the first eight months of this fiscal year (July 2023-Feb 2024), services exports fetched $5.1bn, and services imports consumed $7bn. The trade deficit, thus, came to $1.9bn.
Such a large deficit is unsustainable, particularly at a time when Pakistan is experiencing one of the worst forex crises of its history. In the last full fiscal year, our services exports and imports stood at $7.6bn and $8.6bn, respectively, and the trade deficit was much smaller, $968 million.
Containing this deficit is doable only via massive growth in the export of services, particularly in the ICT segment and not through containing imports of services since that can hurt not only the economy but also the growth of the services sector and services exports.
The central bank needs to push financial institutions harder towards venture capital and find innovative ways to support viable technology startups
ICT services are the largest segment of our overall services exports. It roughly accounts for 40pc of the total export proceeds of all services. The caretaker government had devised a plan to boost ICT exports from $2.6bn in the last fiscal year to $15bn in five years.
Generally known as information technology (IT) and IT-enabled services (ITeS), the growth potential of this segment of services is enormous. We have a youth bulge in our demography — tens of thousands of young men and women can fluently speak English, and many of them are keenly interested in IT and ITeS and willing to work online during odd hours.
The current government should not allow the hard work of the caretaker government to go to waste and must ensure that workable parts of that plan are implemented sooner rather than later.
However, that same plan, or a modified version of it, may only work if all stakeholders are taken on board before and during its implementation and bureaucratic hindrances are not allowed to spoil it.
Towards the end of March, the civil-military-run Special Investment Facilitation Council (SIFC) finally approved a plan to construct Pakistan’s largest IT park in the G-10 area of Islamabad.
This IT hub, planned to be spread over 3.3 acres of land, would work under a public-private partnership and facilitate an estimated 6000 freelancers, according to media reports — a good idea. But what about the previous grand IT parks that were planned to be set up in Karachi?
Have they started working? How are they benefiting from our IT exports, and what facilitating role is the federal or provincial government playing in their progress and performance?
There were two key elements of the ICT growth strategy of the caretaker government: First, to open more opportunities for girls and women in digital companies and online work platforms, and second, to encourage greater collaboration between large firms and small and medium enterprises.
If sincere efforts are made to achieve these two strategic shifts in our IT and ITeS export strategies, the results could be surprisingly grand. However, both the federal and provincial governments need to work in close coordination and ensure the participation of the right stakeholders in the implementation programmes. Can we expect that? It is possible, but given the track record of both our political parties, it seems a bit too difficult.
Shortage of funds has long impeded the growth of technology startups, and they either look for foreign funding or close shop if initial funding dries up while local banks look the other way. This must come to a stop now.
The central bank needs to push banks harder towards venture capital and find some innovative ways to finance viable technology startups. Similarly, the Federal Board of Revenue (FBR) and the Pakistan Software Houses Association should sit together to find out how best to tax IT and ITeS companies. Indeed, some potentially good small companies leave the business early allegedly due to harassment by FBR staff.
Published in Dawn, The Business and Finance Weekly, April 15th, 2024
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