Grey Channels Cause 23% Decline In Pakistan's IT industry Exports

Nasheed Malik stated that Pakistan’s technology exports totaled $190 mln in January, a 23% MoM decrease driven by declines of 20% & 35%, respectively, in computer& telecom services.

Grey Channels Cause 23% Decline In Pakistan's IT industry Exports

A conflict between the official and grey remittance channels caused Information Technology (IT) industry of Pakistan exports to decline by 23% month over month in January 2023.

According to Topline Securities Research Analyst Nasheed Malik, Pakistan’s technology exports totaled $190 million in January, a 23% MoM decrease driven by declines of 20% and 35%, respectively, in computer and telecom services.

Computer software exports and software consulting fell by 25% and 15% MoM, respectively, among computer services. Speaking to media, Alpha Beta Core CEO Khurram Schehzad said, “There are internal and external reasons for the downtrend in IT exports.” In addition to the current global economic crisis, IT service exporters are sending money through unofficial channels called Hawala and Hundi.

Schehzad believed that once the unofficial channels began broadcasting, it was difficult to shut them down. Despite the dollar rate’s dramatic increase, he continued, import restrictions meant that the current level did not accurately reflect the state of the economy.

Malik stated that “the significant MoM decline in exports of IT industry of Pakistan indicates a 10-15% gap in the inter-bank and grey market dollar rates for most of January.” However, since the difference in dollar rates had closed by the end of January, IT export revenues are anticipated to increase through the official banking channels.

Due to political and economic instability, Schehzad claimed that exporters were withholding their profits from other countries and that foreign businesses were reluctant to place orders with Pakistani businesses.

In the first seven months of the current fiscal year, IT exports were nearly flat at $1.5 billion, according to Topline Securities. Due to an 8% increase in telecom services, IT exports increased 2% YoY to $190 million in January 2023. Since May 2022, when they were $184 million, exports have been at their lowest level.

The amount was less than the $221 million average for the previous six months. After April 2022, Malik noted, there was a slowdown in export growth, with YoY growth averaging just 3% from May 2022 to January 2023, compared to an average 32% growth in the nine months prior, from August 2021 to April 2022. “The main cause of this slowdown is the decline in IT spending globally.”

In its most recent report, the technology research and consulting firm Gartner revised its growth projection for IT spending downward from an earlier 5.1% to 2.4% in 2023. According to the analyst, the IT ministry has set an export goal of $5 billion for FY23. The monthly average of $218 million for the current fiscal year suggests that Pakistan is likely to fall far short of its export goal.

According to JS Global ICT analyst Waqas Ghani Kukaswadia, due to macroeconomic difficulties in the US and Europe, IT service companies in the region were experiencing moderate growth in constant currency terms.

He noted that during the first seven months of fiscal year 2023, IT exports of Pakistan industry  increased by 2% YoY to $1.52 billion and that the modest growth was primarily attributable to computer services, which saw a 3% increase to $1.22 billion.

For January 2023, segment-level analysis shows that exports of telecom services fell by 35% MoM and increased by 8% YoY to $29.7 million, while exports of computer services fell by 20% MoM and barely increased YoY to $159.9 million.

In January 2023, the percentage of telecom and computer services exports was 16% and 84%, respectively, up from 15% and 85% in January 2022. Comparatively to 20% and 80% in 7MFY22, the shares of telecom and computer services in 7MFY23 were 19% and 81%, respectively. It was brought on by the 3% YoY increase in computer service exports in 7MFY23.

“Spending on software and IT services is anticipated to remain strong despite the global slowdown. Additionally, higher IT labour costs in developed markets due to inflation are probably going to result in more outsourcing, “Malik was expecting.