Pakistan IT industry to rebound after 3 years of turmoil: study

[ameer219]

Pakistan IT industry to rebound after 3 years of turmoil: study

Sunday, November 21, 2010

By Khurram Bari Khan

KARACHI: Pakistan’s Information Technology (IT) industry is set to rebound this year after suffering three years of global recession and political uncertainty in the country, the first-ever study of the local IT market reveals.

The IT industry is projected to have fully recovered the decline experienced during the recession and will return back to its 2006 level, the government-funded survey, conducted by a global research firm, Technomics, stated.

In 2006, the global and local revenue of Pakistani IT industry stood at around $800 million and $200 million, respectively, which fell to a little above $300 million and $100 million in 2007, the survey said.
Many companies slipped their revenue targets and projections in 2007, it added. “On the whole, the domestic revenue and spending declined by 40 percent between 2006 and 2007 while exports were hit by up to 60 percent.”

According to the survey projections, the turnaround started in end-2008, took firm roots by 2009 and a number of companies are likely to show remarkable growth by the end of 2010.“Despite the painful reality that figures reflect, the industry, largely, did quite well to weather the storm and in certain sectors even continued to grow bigger,” it said.

Dilating on the dynamics of the industry, the survey said that around 40 percent of the companies develop and customise their own proprietary platforms. The 75 companies surveyed employ around 7500 full time staff for an average firm size of approximately 131 people, it added.

“As part of diversification in the industry, there is a stark trend away from the United States and towards new and emerging markets such as Africa, the Middle East, and Asia Pacific,” said the survey.

The revenue of Pakistan’s software and Business Process Outsourcing (BPO) industry, it said, continues to remain dependant on a small number of high growth sectors, namely, telecommunications, finance and accounting. These three sectors account for three-fourth of the industry’s total global revenue impact, it said.

According to the survey, mobile applications, gaming, and animation form an emerging new area with considerable promise to become a key driver for the industry in the years to come.

The survey is an attempt by Pakistan Software Export Board (PSEB) to document software and Business Process Outsourcing (BPO) industries in the country. Before Technomics, the survey used to be conducted by Pakistan Software House Association.

The absence of credible and reliable industry data remains one of the key challenges for the policy makers. “This not only hampers the use of evidence-based policy practices, but also limit the ability to improve upon the policy and programme design once a policy regime has been put into place,” the survey added.

Pakistan IT industry to rebound after 3 years of turmoil: study

Hope our IT industry can reach to India's IT industry level. They should be a role model for us..

 

[TechLahore]

The numbers are vastly underreported and completely nonsensical. There was no 50% drop between '06 and 2007 as is being implied here. The base numbers are also wrong. Crap report.

Please see PSEB's study from '07/'08 which was published when Yusuf Hussain was MD.

 

[Hasnain2009]

The numbers are vastly underreported and completely nonsensical. There was no 50% drop between '06 and 2007 as is being implied here. The base numbers are also wrong. Crap report.

Please see PSEB's study from '07/'08 which was published when Yusuf Hussain was MD.

So currently what is the size of IT industry in pakistan?? local business/IT exports?

 

[Ganguly]

Once the security situation improves, surely IT industry in Pakistan will rebound. But as IT is mainly a knowledge industry, and large companies prefer to outsource work only to vendors having proper experience, it would be hard work for Pakistani IT companies to overcome it.

 

[GentlemanObserver]

Once the security situation improves, surely IT industry in Pakistan will rebound. But as IT is mainly a knowledge industry, and large companies prefer to outsource work only to vendors having proper experience, it would be hard work for Pakistani IT companies to overcome it.

Pakistan has proper experience. NUST students are already working on a Project for USB 3.0 "Design and Verification of Low-Power, High-Speed IP Suite for Universal Serial Bus (USB 3.0)"

Group for Research in Reconfigurable Architectures for Security in Communication in CEFAR

 

[RiazHaq]

The numbers are vastly underreported and completely nonsensical. There was no 50% drop between '06 and 2007 as is being implied here. The base numbers are also wrong. Crap report.

Please see PSEB's study from '07/'08 which was published when Yusuf Hussain was MD.

I agree!

Here's some data on Pakistan's IT industry:

"The State Bank of Pakistan for 2007-08 reports the export figures of software and Information Technology-enabled services to be US$169 million which shows a consistent annual growth. State Bank of Pakistan adopted BPM 5 reporting system to report the IT exports revenue, which restricted the export figures to US$169 million only in 2007-08. In India, the Reserve Bank of India follows the BPM 6 (also called MSITS) Reporting System, which raises its exports to billions of US dollars. BPM 6 includes sales to multinationals, earning of overseas offices & salaries of non-immigrant overseas workers to export revenue. Using the MSITS Reporting System, Pakistan IT Industry exports are estimated at US$ 1.4 billion while the industry size is estimated at US$ 2.8 billion. It is significant to note that Pakistan IT exports growth in each of the last few years has been more than 40%."

Haq's Musings: Pakistan's $2.8 billion IT Industry

 

[ashok321]

So BPM 5 and BPM6 has so much difference, so much so that numbers swell 20 folds?

 

[PeacefulIndian]

I agree!

Here's some data on Pakistan's IT industry:

"The State Bank of Pakistan for 2007-08 reports the export figures of software and Information Technology-enabled services to be US$169 million which shows a consistent annual growth. State Bank of Pakistan adopted BPM 5 reporting system to report the IT exports revenue, which restricted the export figures to US$169 million only in 2007-08. In India, the Reserve Bank of India follows the BPM 6 (also called MSITS) Reporting System, which raises its exports to billions of US dollars. BPM 6 includes sales to multinationals, earning of overseas offices & salaries of non-immigrant overseas workers to export revenue. Using the MSITS Reporting System, Pakistan IT Industry exports are estimated at US$ 1.4 billion while the industry size is estimated at US$ 2.8 billion. It is significant to note that Pakistan IT exports growth in each of the last few years has been more than 40%."

Haq's Musings: Pakistan's $2.8 billion IT Industry

So BPM 6 gives you 20 times the size of BPM 5. I have basic knowledge of both as part of my work. In context of exports & size - the only major difference is realignment of exports & service. Some categories of services in BPM 5 have to be included as exports in BPM 6 - that's it. It does not increase the net size - it just realigns the factors contributing to the size with net effect on size being ZERO (at least in the context we are talking about).

Go read this conversion chart from IMF. There are no factors that support your claims.

http://www.imf.org/external/pubs/ft/bop/2007/pdf/matrix.pdf

BTW, IMF plans to implement BPM 6 as standard reporting system by 2015.

Besides, this is Pakistan IT industry's own assessment with nobody else approving it. This is going to end up the same way as your fudged GDP figures last year.

 

[ajtr]

An IT and cellular rebound —Muhammad Aftab​

Pakistan was slow to take to the IT industry because of forex shortages to import equipment and scarcity of skilled manpower, in the 1970s. But, then it started picking up, and continues to grow

An IT rebound and cellular spike, projected in 2011, will attract considerable foreign direct investment (FDI) and domestic investment, industry surveys show. It will also mean better service and more jobs, something Pakistan direly needs

Both the IT industry and cellular telephones are coming out of a three-year trough that was impacted by the global financial squeeze.

At the same time, investment in the telecom sector, by now, totals $ 11 billion, according to the Pakistan Telecom Authority (PTA), the industry regulator. “Another wave of FDI is expected after the launch of 3G services by Pakistan,” PTA also projects. Already, the United Arab Republic is the top investor in the telecom sector.

The just completed survey by Technomics, the global research organisation says, “Pakistan’s IT industry is set to rebound this year, after suffering three years of global recession and political uncertainty.” In its first ever study of the Pakistani market, Technomics says that on the back of the global slowdown “many companies slipped their revenue targets and projections in 2007”.

On the whole, domestic revenue and spending was down 40 percent, between 2006 and 2007, as exports were also hit by up to 60 percent.

But, the turnaround that started in 2008 took firm roots in 2009. “A number of companies are likely to show remarkable growth by the end of 2010,” Technomics says.

The survey, funded by Pakistan Software Export Board (PSEB), government of Pakistan, was meant to gather information and document software and business process outsourcing (BPO) industries in Pakistan. The previous industry surveys were conducted by Pakistan Software House Association (PSHA).

The slowdown and impact of the global crisis is fully reflected in IT revenues in Pakistan. IT’s global revenue, the survey says, had totalled $ 800 million in 2006, while the domestic revenue was $ 200 million. The global revenue declined to $ 300 million, and domestic revenue to $ 100 million, in 2007.

By the end of 2010, the IT industry has fully overcome the decline, recovered from the recession, and return to its 2006 output and performance levels.

But there has been a silver lining. Despite the painful reality, that figures reflect, the industry, largely, did quite well to weather the storm. And, in certain sectors, even continued to grow bigger.

Pakistan was slow to take to the IT industry because of forex shortages to import equipment and scarcity of skilled manpower, in the 1970s. But, then it started picking up, and continues to grow. Technomics survey says that nearly 40 percent of the IT companies in Pakistan develop and customise their own proprietary platforms. Seventy-five companies that were surveyed employed around 7,500 full time staff for an average of 131 persons. The industry has been diversifying away from the US now towards new emerging markets like Africa, the Middle East and Asia-Pacific.

Who are the buyers of IT services? While the scope and clientele of IT products is expanding, the business, at present, is concentrated in some very high growth segments.

These include telecoms, finance-banking and accounting. The three high-growth key sectors account for 75 percent of the IT industry’s total global revenue resources. But IT is already moving into several applications, including sophisticated record keeping, and wholesale and retail businesses. Mobile applications, gaming and animation constitute an emerging new area with considerable promise to become a key driver for IT in the years to come.”

Besides the Technomics survey of IT, PTA has also unveiled information for the telecommunication sector. In its just unveiled annual report for 2009-10, PTA says that FDI during the year was $ 1.13 billion or $ 508 million less than it was in 2008-09. “Cellular mobile share in the total stake was 80 percent as $ 908 million was spent on infrastructure expansion in all regions of Pakistan.” PTA reports, “Over $ 6.3 billion was invested in five years, which created millions of job opportunities in Pakistan.” As the telecom sector is heading towards maturity, investment is slowing down. The number of cellular users is rising, as the market still has a large un-served segment of the population.

Telecoms attracted over $ 6.3 billion in FDI in the last five years alone, which is “an encouraging response by investors towards Pakistan’s telecom sector policies,” PTA says. The UAE, Norway and the US were the major sources of FDI in those five years. These investments included $ 2 billion plus from the UAE or 32 percent in the total FDI in telecoms. The US’s share was $ 890 million and Norway’s was $ 639 million.

What are the market size and the future telecom potential? PTA estimates that the actual number of cellular phone subscribers is “far less than 100.1 million”. Cellular phone penetration is 60.4 percent and the growth in 2009-10 was 5.1 percent. The industry estimates that the actual number of active mobile phone users ranges between 60 to 65 million. The “actual-and-active” number and the people having more than one SIM distorts the revenue estimates like ARPU (average revenue per user) if the total industry revenue is divided and diluted by 100.1 million SIM holders, rather than 60-65 million active users.

ARPU declines when penetration level rises, a worldwide phenomenon that is true of Pakistan, too. The cellular industry ARPU in Pakistan, in the first quarter of 2010, was $ 2.14 per person per month, which rose to $ 2.45 per month in the second quarter, but declined further to $ 2.0 in the third quarter, according to industry data.

This will lead to aggressive competition among cellular operators. Will more of it lead to better and varied services, a boon for subscribers and millions of new subscribers for the investors?

The writer is an Islamabad-based journalist and former Director General of APP




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