This has been an eventful year in many ways. A lot has happened on the national political scene. The political temperature is steadily rising as elections approach. Several incidents in the security environment are shaping our internal politics and international relations. On the business front, as well, we are continuing to see ups and downs. The manufacturing sector continues to be buffeted by energy shocks. High inflation continues to push more and more people below the poverty threshold.
Challenges on the economic front
We have continued to witness serious challenges on the economic front. The State Bank of Pakistan’s report on Non Performing Loans (NPLs) suggests an abnormal surge of more than 24 percent, from Rs494 billion to Rs629 billion during last one year. Exports of five major products of textile, member of billion-dollar club, were down by 30 per cent by November 2011, since the start of new fiscal. Real investment has declined for the third consecutive year to FY11 besides extremely low savings in the country. The SBP figures reveal that the investment rate has stood down from average of 19.1 per cent during FY01-06 to 13.3 per cent in the latest financial year. Factors behind low investment scene include slow down in global economy, which was not only affecting foreign direct investment in the economy but also limiting domestic businesses from expanding in the face of low external demand; deteriorating security situation in the country; lack of support from public sector investment since PSDP as a percentage of GDP declined sharply; the serious energy shortages wherein businesses were finding it difficult to fully utilise existing production capacities; serious institutional weaknesses; poor governance structure and finally the high cost of capital in recent years. The Large Scale Manufacturing sector has witnessed steep declines due to power and gas shortages.
Pakistan is presently passing through a worst energy crisis; demand exceeds supply and “load shedding” is in place all over the country. This shortage has disrupted the industry, commerce and daily lives of people. Demand for natural gas and oil is taking frog leaps, burdening the economy more. With impressive plans, and unimpressive pace, the government has been contemplating three gas import pipelines, Gwadar port as energy hub and LNG import to meet energy shortage.
Textile industry
Pakistan’s economic growth is heavily reliant on its textile industry contributing over $10 billion annually in terms of foreign exchange by consuming total cotton crop of the country. During the last fiscal year, the textile industry exports have contributed $14 billion in country’s total exports of $25 billion. However, it is also true that textile industry is losing 30 per cent of the production due to prevailing energy shortage. Installation of Captive Power Plants (CPPs) by the spinning industry has also failed to deliver desired results, as availability of gas as a cheap fuel for these CPPs is becoming a question mark with every passing day. The textile industry was already denied Sui gas for over 100 days during the last fiscal. It is also for the first time in the history that the SNGPL has cut the supply to the textile industry during summers this year. The situation has worsened this winter.
Out of the box solution
An out of the box solution has become an urgent need of the hour to deal with unprecedented energy shortage in the country, creating a deep dent in national economy since November 2007. Chances of meeting energy shortage in near future are dismal, at least for another seven years. This is therefore the right time to re-evaluate the potential of various segments of economy in order to reshuffle the priorities in a highly emergent situation like this. The government policymakers should consider diversification of the economic model and start thinking beyond traditional economic areas like the textile industry. An extraordinary dependence on textile and agriculture since independence is compromising country’s competitive edge fast, which is compounded by the prevailing energy crisis. Unfortunately, all the trade policies are entirely focused on textile industry, which is highly power-intensive and the present energy shortage has resulted in massive unemployment.
The IT industry
In this situation the IT industry stands out as a beacon of hope, given its resilience in the face of the economic challenges. Unlike India, Pakistan’s IT sector consists of a web of small firms and many of the entrepreneurs started from very low levels to make entry in the business. The industry revenues are exceeding $2 billion a year and are projected to reach $11 billion by 2016, according to the Pakistan Software Houses Association. Many firms are seeing their sales grow at an annual rate of over 30 per cent. This target can be achieved much earlier than 2016 provided the government is supportive of the growth of IT industry.
The Pakistan Software Export Board (PSEB) has recently been quoted in the press as estimating that Pakistan is producing around 25,000 IT professionals every year to meet growing requirement of domestic and international markets. Out of total number of such professionals, approximately 50 per cent enter the job market, according to the data. At present, an estimated 150,000 IT professionals are available in Pakistan against around 3 million IT engineers in India. However, the current pool of IT experts and engineers available in the country is not sufficient to meet the domestic requirements. To achieve targeted results, the government needs to take several steps to increase the number of IT experts and engineers with a focus on the growth of skilled human resource pool for the country’s IT industry. The best way to achieve growth in IT sector of Pakistan is to emulate the Indian example of investing in IT human resource.
A shift in government focus towards the IT industry may ease down pressure on the economic growth of the country. The IT industry is not as energy-intensive as the textile is. The IT firms in Pakistan have not closed their operations even for a single day due to power shortfall as the computer machines are not as power intensive as the spinning looms are.
The Indian comparison
India’s software and services exports have been rising rapidly. The annual growth rate is around 45 per cent in IT services and nearly 55 per cent in IT-enabled services (ITES), such as call centres, Business Process Outsourcing (BPO) and other administrative support operations. Together they have grown to 25 per cent per annum. This is helped by a large pool of English speaking workers, nearly 3 million engineers and the growing tribe of tech-savvy entrepreneurs in the country. The Information Technology industry currently accounts for 7 per cent of India’s GDP. Software service exports in India increased from $0.50 million in 1990 to $5.9 billion in 2000-01 to 23.6 billion dollars in 2005-06 recording a 34 per cent growth with a compound annual growth of over 25 per cent per annum until 2010. The impact of software and IT enabled service exports of around $60 billion on the economy is likely to be profound. One manifestation is that India notched up a current account surplus in 2001-02 for the first time in 24 years.
Having a strong IT industry is possible with concerted efforts on the part of the government, and host of other factors like private initiatives, emergence of software technology parks, clustering and public private partnerships. India formulated the national vision to promote software industry in the early 1980s and took its IT industry exports to $60 billion in 20 years. Pakistan’s IT industry has a potential higher than Indian IT industry and can earn more foreign exchange in next 20 years provided the required focus of the government is there.
(The writer is President American Business Forum, Chairman and CEO NetSol Technologies, Honourary Consul of Australia for the province of Punjab, Pakistan and former Co-Chairman of Federal Government’s Task Force on Information & Communication Technologies)
