Slowdown in IT spending, Impacts Pakistan’s Export markets
This marks a sharp deceleration in growth compared to the momentum seen in recent years. Recall, ICT exports stood at $2.6 billion in FY22, growing 24 percent year-on-year.
Amid the general slowdown in exports in the ongoing fiscal, how are Pakistan’s Information and Communication Technology (ICT) services exports doing? Well, there is a considerable cooling-off on that front, too, as slowdown in IT spending in Pakistan’s key export markets starts to have impact. As per the most recent data from the State Bank of Pakistan (SBP), these exports stood at $845 million in the Jul-Oct period of FY23, reflecting year-on-year growth of just 3 percent (or an addition of about $25 million).
This marks a sharp deceleration in growth compared to the momentum seen in recent years. Recall, ICT exports stood at $2.6 billion in FY22, growing 24 percent year-on-year (or an increase of half a billion dollars in absolute terms). Such was the mid-Covid jump in ICT exports that observers had branded even FY22 a slow year compared to FY21. From that angle, FY23 proceeds thus far seem really disappointing.
During 4MFY23, ICT exports had a 9 percent share in the country’s overall exports (merchandise plus services exports) of $9.8 billion. This share looks similar to the one posted in the same period of the last fiscal. (During entire FY22, ICT services exports’ share in total country exports was recorded at 7 percent, mainly due to proportionally-higher growth in merchandise exports than these digital exports).
Breaking down the ICT exports into their two main components, there are instances of both growth and decline in different areas, as the IT spending slowdown in overseas markets affects different segments and players differently. Freelancers, which have also been a key part of the growth run in digital exports in recent years, are likely to be affected more than large firms, which tend to have more long-term clients as well as bigger scale to absorb difficult times.
In the heavyweight ‘computer services’ segment, exports totaled $688 million, growing by 6 percent year-on-year. Within this segment, export proceeds from sales of i) computer software and ii) software consultancy services both showed promise, growing 14 percent year-on-year to $190 million and 10 percent year-on-year to $254 million, respectively. However, some of those gains were neutralized by the 3 percent drop in exports from ‘other computer services’ to $243 million.
In the ‘telecommunication services’ segment, exports were reported at $165 million in 4MFY23, showing a fall of 8 percent year-on-year. Within this segment, the core telecoms services (including long-distance and international (LDI) telephony proceeds) saw a large decline of 20 percent year-on-year to $95 million. On the positive side, the ‘call center’ exports jumped 17 percent year-on-year to $70 million in the analysis period. However, it wasn’t enough to recoup the fall in exports from the core telecom services.
Going forward, a lot depends on how IT spending fares in US and Europe, two of Pakistan’s main IT export markets, as economic weaknesses mount due to high inflation, rising cost of borrowing and falling investments. Gartner, the technological research and consulting firm, has recently argued that there will be higher IT spending in some areas and lower spending in others, depending on where firms can find more efficiencies through digital investments. Can the local IT players position themselves accordingly?
Originally published at Business Recorder