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February 19, 2020

IT for economic growth

Opinion

February 19, 2020

Pakistan’s IT exports have underperformed by a factor of at least 20, standing at only $1 billion whereas Indian IT exports are over $130 billion while in the Philippines they are at $26 billion. Artificial Intelligence alone has been predicted by McKinsey Global to have a market of $14 trillion by 2025.

The prime minister of Pakistan chaired a historic meeting on February 7 to discuss what immediate steps need to be taken so that Pakistan can use IT as an engine of growth, and tap into the huge youth bulge, the 120 million below the age of 25 years. In my capacity as the co-chairman of the Prime Minister’s Task Force on IT/Telecom, I – with Secretary Ministry of IT/Telecom Shoaib Siddiqui – pointed out several key issues to the prime minister that can change the economic landscape of Pakistan if addressed with a sense of urgency by him personally.

The first of these is a Policy Directive, needed immediately from the prime minister, that the government will aggressively support a ‘Made in Pakistan’ policy. While the current government policies discourage the public from consuming imported goods and services, and prefer locally made products, government department themselves prefer to procure from international vendors and import IT products and services. As a result, our IT industry remains stifled while huge contracts are outsourced. This results in our IT industry not developing the track record needed to win international projects.

In contrast, other countries are following a protectionist approach towards their local companies, providing them preference in government procurement. We therefore need to: (a) discourage government organizations from importing IT/ITeS services that can be produced locally; (b) discourage government organizations from competing with the private sector in business; (c) encourage the IT/ITeS SME sector by providing them incentives and opportunities; and (d) increase government spending on IT/ITeS to create a healthy eco-system for a knowledge economy.

These measures will strengthen local IT companies and help them develop and mature their IT products and services by providing them strong references, profile and delivery capabilities. For this to happen, an immediate directive is needed from the government to all government departments that locally produced IT products and services should be preferred over importing the same. For those IT projects where local capability is not available, the products may be obtained through local companies partnering with foreign vendors, provided that substantial elements of technology transfer are involved to build local capabilities.

Moreover, IT project tender requirements should not be designed to disqualify local companies from the bidding process. In order to build up smaller companies, at least 30 percent of all IT-related projects/services should be procured from SMEs. Such steps will cost the government nothing, as they are only policy measures, but they will give a huge boost to the local IT industry. Digital transformation of all government records including those in ministries, FBR, land records, excise, police records etc should be carried out in order to curb corruption and make the government more efficient.

Another major issue hindering Pakistan IT/ITeS growth has been the image of Pakistan, lack of proper marketing as a tech destination, market access issues of IT companies (visas) and country risk perception. The majority of IT companies in Pakistan are small and medium enterprises (SMEs) which cannot afford to travel internationally to understand the international corporate/business culture and to market their products. Globally, it is a norm for countries to incentivize in their local companies to help in their marketing/sales efforts and position their technology industry as an attractive destination for the world.

In Pakistan, we still work on outdated models of subsidizing trade delegations and conferences managed by TDAP/PSEB. The PM’s Task Force on Knowledge Economy has developed a project for an Export Marketing Fund to assist SMEs in marketing their products internationally. It can directly impact IT exports growth to $10 billion. The project will help position Pakistan as an attractive emerging IT outsourcing location in the world.

Another important initiative of the knowledge economy task force taken up in close collaboration with the PM’s Task Force on IT/Telecom is the Special Technology Zones project. This aims to develop IT-sector based technology clusters in the federal and provincial capitals of Pakistan. This project will resolve a multitude of industry issues and will primarily be done with the industry’s own investment. The Special Technology Zones initiative aims to increase exports of the IT/ITeS industry to $10 billion and create 500,000 new jobs. It will create a cluster-based eco-system for the IT/ITeS sector to promote faster exports growth, innovation and job creation. Five Special Technology Zones will be created in the major cities of Pakistan.

Another important issue to be urgently addressed is that of telecom infrastructure, particularly the spread of optic fibre cables across cities. Pakistan’s optic fibre penetration is the lowest among most comparable countries, such as Malaysia, India, Thailand, etc. There are two major hurdles. In the cities, private enterprises need to invest in telecom infrastructure but they are hindered because getting ‘Right of Way’ (RoW) permissions from the government are expensive and cumbersome. The necessary policy needed has already been prepared and it needs to be urgently approved by the Cabinet and implemented. The Universal Service Fund established by me when I was federal minister of science back in 2002 can provide the funding needed by telecom companies to spread fibre in rural areas.

An important aspect that needs immediate attention is the availability of the Radio Spectrum. Access to wireless internet can provide economic benefits to millions of users all over the country. Wireless internet providers are ready to invest, but they need more Radio Spectrum, a limited natural resource which is unnecessarily ‘hoarded’ by the Pakistan Telecommunications Authority. The government needs to order the PTA to release more spectrum to the wireless internet providers so that their capacity to provide internet to the public increases by at least 50 percent. Along with this, we need to have a clear 5G roll-out plan since this new technology with huge potential benefits is round the corner, and we must not be caught napping.

Finally, there is the issue of huge taxes on ICT products. This is resulting in massive smuggling and duty-free imports of computers and accessories by millions of individuals each year through Ali Baba and postal services, resulting in billions of rupees lost in revenue to the government. Due to certain vested interests, the FBR has made no attempt to stop this illegal duty free import of goods, and rationalise the official taxation structure.

About 82 countries (including Vietnam, India, Malaysia, Philippines, etc) have signed the WTO’s IT Agreement (ITA) leading to abolishing of import tariffs on IT products. We need to sign the WTO IT agreement within this month as the matter has been delayed by years due to lethargy by government departments.

The writer is the formerchairman of the HEC, andpresident of the Network of Academies of Science of OIC Countries (NASIC).

Email: [email protected]