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IT P R O V I D E R S

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Bringing Pakistan’s Technology Sector to the Forefront The country produces +20,000 IT graduates each year, it offers a domestic market of over 200 million, and has churned over 700 tech start-ups since 2010 of which close to 70% are functional even today.

IT FUTURE

OVERVIEW

PAKISTAN

SUCCESS STORY

Pakistan’s tech industry is shaping up. The country produces +20,000 IT graduates each year, it offers a domestic market of over 200 million, and has churned over 700 tech startups since 2010 of which close to 70% are functional even today.

Several college graduates and young entrepreneurs are dreaming of the next billiondollar idea. This conception is not far-fetched. With latest technology and access to faster internet, the tech industry is producing services and products, across sectors, that are increasingly more dynamic and revolutionary. The industry’s access to seed, private equity and venture capital funds is also improving. Patari, an online streaming application and a household name for music lovers, made headlines when it secured $200k in seed money in 2017. In 2015, Eatoye, an online food delivery service, was acquired by one of the world’s largest food portals, FoodPanda and continues to expand across Pakistan. More recently, Airlift nabbed $12 million in Pakistan’s largest Series A funding – a company’s first significant round of venture capital financing – ever for a startup in all of South Asia. It is a ride-hailing startup which connects passengers with buses on a fixed-rate, operating in Pakistan’s largest cities. Above are all part of the local economy and form an important element of the tech ecosystem. here is another major component of this sector which caters to the international market (through software development and business process outsourcing) and is deeply embedded into the global value chain. However, most Pakistani firms provide low value products and services. Despite this, IT exports reached the billion-dollar mark in 2017-18, with software exports comprising $700 million.

SKILLED

WORKFORCE Official statistics confirm that at least 10,000 IT graduates enter Pakistan’s workforce each year

At the same time Pakistan also ranks much better in cost than most lower-middle-income countries group. The average annual cost of a software engineer in Pakistan is one fifth of the cost in USA and Europe. However, of the total graduates, just under a thousand graduates are products of Tier 1 universities and of these around half meet the skills requirement for specialized input needed by the industry. The tech industry relies on skills broadly of two kinds – technical/ specialized skills to develop and design IT products and skills to develop innovative business models and marketing strategies. One without the other will continue to constrain Pakistan’s access to a market for high value products. Developing good business models and creative products is only possible if the firms are supported by a strong educational/ training system. At the moment very few universities focus on subjects like entrepreneurship, computer design or branding which can help entrepreneurs when they start on their own and enable them to add value to their products.

HAVING THE RIGHT

ECOSYSTEM

The country hasn’t yet created an ecosystem where an entrepreneur is born, raised, and educated in Pakistan and will go onto register his or her company in Pakistan and make it big. Young Pakistani entrepreneurs struggle to develop their ideas. At the same time, they are unaware of how to operate in the local market and how to attract foreign investors. Pakistan has a thriving freelance industry. Globally it is ranked 4th in terms of number of freelancers engaged in software development and technology.

Does this really demonstrate success for this sector, or does it indicate the industry’s failure to absorb the large number of graduates and provide them with gainful employment? Access to funding is a significant bottleneck. There is only $0.06 per capita of venture capital money in Pakistan per year, while Bangladesh has $0.07, Nigeria $0.18 and India $3.72. In 2017, only nine Pakistani startups received venture capital funding compared to 34 in Nigeria, 38 in the UAE and approximately 790 in India. Overall, Pakistan’s tech startups raised under $30 million in 2018 compared to countries such as Indonesia (excluding unicorns) raised over $274 million in 2018. The issue is two-fold: regulations make it cumbersome to set up a fund inside Pakistan; regulations make it hard to get money out of the country. Foreign payments are heavily regulated and offered at unfavorable exchange rates. Pakistani startups prefer to route foreign funding using alternative means (such as register the company abroad) or keep the funds overseas. Lack of recognized international payment gateways especially impacts smaller businesses as larger players rely on banking channels for their transactions. Absence of recognized payment gateways such as PayPal also make it difficult for new clients to trust young entrepreneurs, whether individuals or companies.

WHAT MORE

CAN BE DONE? Pakistan may have been slow to catch on but there is now wide recognition of the significance of this sector for the country’s economy. The government is carrying out initiatives and rolling out policies that are highly supportive of the ICT space in Pakistan. It has proposed a regulatory structure, though yet to be implemented, that intends to boost both the outward-looking and domestic ICT industry by providing an enabling environment. Pakistan has now launched a Digital Pakistan initiative, aimed at giving a comprehensive cover to government’s multidimensional objectives, such as job creation, ending corruption and supporting and promoting the economy. Start-up incubators and accelerators are also springing across Pakistan run by both the public and private sector to support development of spinoffs and improve access to financial and technical resources. At least 20 incubators have been established in collaboration with Plan9 – a PITB run technology incubator. So far, it has created 1400 jobs and made an investment worth $5.8 million, with over 180 startups now graduated. Initiatives have also been taken to ease tax regulations to encourage investment in this sector and make entry simpler for startups. The government also approved licenses for Pakistan’s first Private Equity and Venture Capitals funds. There has also been an agreement with South Korea to create a technology park in Islamabad. However, to fully realize the potential of this sector, Pakistan needs to remove the core obstacles that limit growth. Despite all the positive reform efforts, an overarching IT policy is still missing. Pointing out that Pakistan needs to advance on all these dimensions is neither news nor helpful development advice unless it is accompanied by a time-bound action-oriented plan that delineates responsibilities. The Digital Policy recently announced must be supplemented with a plan of action, with short to medium to long term plans on how the core set of objectives can be achieved with assignment of responsibilities across various stakeholders.