October Issue 2019
Is the IT Revolution here?
Much like the development sector, the Information Technology (IT) industry has a few select catch phrases one hears often these days. Intervention is perhaps the most popular. Disruption is next. IT-based interventions, disrupting inefficient and archaic models of business, leading to better models of governance… you get the idea.
As anyone who has spent time in the development sector will know, it’s all talk. We create opportunities. Build capacity. Enhance belief. Etc. Everything that can’t be quantified. Is Pakistan’s IT industry also all talk?
During the fiscal year 2018-19, Pakistan’s IT sector earned a total revenue of USD 4.1 billion. This figure was put forth recently by the Managing Director of Pakistan Software Export Board (PSEB), Mr. Syed Ali Abbas Hasani. IT-based exports brought in the major chunk of this amount, standing at USD 3 billion, and the remaining 1 billion, domestically generated revenue.
Does this sound like a lot?
Just to put things in perspective, India’s IT industry was valued at USD 181 billion in 2018. Of which exports were USD 137 billion, and domestic USD 44 billion.
As percentages etc. go, it’s about the same: 75 per cent exports, 25 per cent domestic. But there is actually no comparison. Ours is a caterpillar, theirs a behemoth. Thankfully, this piece isn’t about comparisons. It has more to do with introspection.
The big picture
“We have to realise that Pakistan’s entire exports are USD 20 odd billion, that makes IT one of the largest contributors after the textile industry,” says Dr Umar Saif, the former Chairman of the Punjab Information Technology Board and former Vice Chancellor of the Information Technology University in Lahore. “The entire economy has suffered because of no export-led growth in Pakistan – and this has to do with our security policy, and how safe international companies feel doing business in Pakistan, how easy it is for entrepreneurs to travel to Pakistan, how easy it is for international companies to start offices here and so on.”
Still, Dr Saif feels that Pakistan is knocking on the door when it comes to a technological revolution. “Nearly all of the ingredients necessary for this are already available. We have lots of tech-savvy young people, 150 million cell phone users, and some of the cheapest internet rates in the world. All these are vital ingredients for a technological revolution.” However, in the same breath, he points out two ingredients which, in his words, “haven’t properly arrived yet: digital financial inclusion and skilled manpower.”
“Digital financial inclusion is absolutely essential, it will allow the Amazons and the Flipkarts of Pakistan to appear on the scene and make their mark; this is almost a tipping point, once that happens, we will see a lot more action,” he explains. “And at the same time, our universities and colleges aren’t producing enough graduates to fuel the next growth in our IT industry.”
As we all know, the only comparison Pakistanis are interested in is with India, so Dr Saif makes a comparison to drive home the sheer lack of skilled manpower: “The largest Indian IT company employs 350,000 people whereas here, our largest is between 700 and 800 people.”
Not only does this lack of skilled manpower stunt the growth possibilities of local IT businesses, it also makes it difficult for international companies to come and open offices in Pakistan. “Some big name international companies have offices here, but they’re just sales offices,” says Dr Saif. “Across the border, it’s a totally different ball game.”
However, he believes that all is not lost. On the contrary. “There is momentum in the startup ecosystem right now, with a network of incubators, and a host of investable companies. Every two or three weeks you hear about a little company that is beginning to do well. To dream of ten 100-million-dollar companies and maybe one or two billion dollar ones is not beyond the realm of possibility.”
Recently, a couple of such companies made the headlines. Cheetay Logistics raised $7.8 million from US-based investors. Another company, AirLift, raised $2.2 million in August.
And there is also the freelancing industry of which Pakistan is either the third or the fourth largest contributor worldwide. “There is at least a billion dollars being generated there also,” says Dr Saif. “And it’s happening almost independently to what the government may or may not be doing, in effect being run from home.”
The fine print
In the last few years, startups have become quite the in thing. Companies like Careem, Bykea, Patari, have gained significant traction, but in terms of actual figures, does it amount to a lot?
“Although the data is quite sketchy when it comes to amounts raised and invested, things have indeed come a long way since 2012 when the startup scene began,” says Ahmed Khan, the founder of Daraz.pk and cheetay.pk. “Daraz is perhaps the biggest success story, having been wholly acquired by AliBaba, the world’s largest ecommerce company, and in terms of daily transactions, Careem has the highest in the country.”
But, do we have anything revolutionary, like Skype, back in the day, or Whatsapp?
The short answer is no, and the question to ask is, why not?
“That’s the million dollar question, isn’t it,” says Khan, introspectively. “The answer that we have come up with is that at the end of the day, it is about disposable income.”
He explains: “People will spend proportionate to what they earn. The people that have money, they have so much of it that they don’t want discounts, they have drivers who can not only drive them around hence removing the need for Careem or Uber, but can also run to Al-Fatah or Agha’s to get the groceries. At the other end of the spectrum, those who don’t have money, they just don’t have any. So whatever discounts anybody can offer them, unless it is significantly cheaper, they are not interested.”
Then there is the wealth band, not income range, which Credit Suisse used in its Global Wealth Report 2015. Defining middle class as having wealth between $50,000 and $500,000 (on Purchasing Power Parity basis) it calculates the size of our middle class at only 5.7 per cent of the population.
On how fast the middle class is growing Dr Hafiz Pasha analysed the Household Integrated Economic Survey 2016 to show the declining trend – from 43 per cent in 2001-02 to 38 per cent in 2015-06 (Business Recorder, October 2017). Incidentally, he also highlighted the wide inter-provincial differentials in the size of the middle class: Punjab 59 per cent, Sindh 22 per cent, Khyber Pakhtunkhwa 15 per cent and Balochistan 4 per cent.
The bottom line
According to a World Bank report, Pakistan is amongst the seven countries, which, in economic terms, constitute half of the unbanked population in the world. What this means, in realspeak, is that a vast majority of people in Pakistan don’t have bank accounts, and operate on cash. No bank account, no chance of using any digital finance applications, thereby pumping money into the online industry.
In turn, one could argue that there is always the option of cash-on-delivery. But here, what Khan said holds true, disposable incomes in Pakistan are low. And rampant inflation in the last two years have further reduced the spending capabilities of the common man.
As with most things, the progress of the IT industry in Pakistan continues to be tied with not only economic stability but prosperity as well. Education levels, tech-savviness and ease of doing business are also key points that will determine which way the Pakistani IT industry moves next.
Over the past decade or so the world has witnessed the ascendancy of innovative businesses that use technology-oriented solutions to solve everyday problems and cater to pre-existing markets in new and more efficient ways. What distinguishes these enterprises from the older and more established tech companies is how they are designed for rapid short-term growth, relying primarily on the internet to access large markets and scale quickly. Hence the term Startup, one that reflects the ease with which these low-cost businesses can be started and the speed with which they are designed to grow. They can range from car-hailing applications you can download on your mobile, online real estate and automobile agents, to companies whose online applications help you to improve your brain functions.
Whatever market a successful startup decides to target, it usually acts as a highly disruptive force, significantly altering the way businesses and consumers interact.
Take for example the online real estate portal Zameen.com. By allowing buyers to scout properties in their preferred location and price range without having to leave their home, while simultaneously allowing sellers to directly access a large market, Zameen.com effectively gets rid of the middleman known as the real estate agent. Both buyers and sellers are better off as they are rid of the commissions to be paid to real estate agents to help buy and sell property.
When one thinks of the major hotbeds for tech-based startups in Asia, Pakistan rarely comes to mind, with the Indian and Chinese tech scenes soaking up most of the limelight. Although Pakistan has yet to acquire the reputation, it does not lack for substance. As hiring among larger companies has plateaued, recent years have seen intrepid Pakistanis strike out on their own and capitalise on the rapid growth of online access in Pakistan. It would be no overstatement to claim that Pakistan is currently experiencing a boom in the startup arena; dozens have gone on to become major companies while more still have been newly conceived and are still in the elementary stages of their development.
Despite the abundance of startups in the local market, access to capital remains a significant obstacle. Foreign investors remain wary of investing in Pakistan due to its poor infrastructure and general instability, while locally investors prefer to park their cash in safer options such as real estate. However, given the tremendous potential for successful startups to create jobs and deliver services in a more cost-effective manner, the public sector has taken notice. The Government of Pakistan’s Planning Commission recently allocated Rs. 2.3 billion to a startup fund, hoping to give local startups the financing they need to properly launch their services.
With a more hospitable environment towards entreprenuership taking shape and an increasing number of young Pakistani’s willing to take the risks of launching their own firms, startups are poised to reshape the economic landscape of Pakistan in the years to come.
The writer is a journalist based in Lahore. He is the current managing editor of MIT Technology Review Pakistan, a bi-monthly science and technology magazine.