Pakistan's Multi-Billion Dollar IT Industry
By Riaz Haq
CA
Pakistan's information technology industry is quite young. It is in very early stages of development compared to the much older and bigger Indian IT industry, which has a significant headstart of at least a decade over Pakistan. During the lost decade of the 1990s under Bhutto and Sharif governments, Pakistani economy stagnated and its IT industry did not make any headway. However, the industry has grown at 40% CAGR during the 2001-2007, and it is estimated at $2.8 billion as of last year, with about half of it coming from exports. This pales in comparison to over $5 billion revenue a year reported by India's Tata Consulting alone.
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%."
According to a report by the Pakistan Software Export Board (PSEB), the top five companies that have contributed the most to the IT sector are Netsol Technologies(NASDAQ: NTWK), Ovex Technologies, TRG Private Ltd, Systems Private Ltd, and Elixir Technologies.
The revenue per employee for the top Indian IT firms of Wipro, Infosys and TCS ranges between $40,000 and $50,000 per employee per year...about $20 t0 $25 per hour per employee, according to Gartner. The Indian revenue per employee is quite competitive relative to the US firms IBM Global Services, EDS, ans Accenture whose revenue per employee exceeds $150,000 per year, about $75 per hour. In comparison, the average figure of $28000 per employee per year (or $14 an hour) is extremely competitive for Pakistan's IT industry average. Probably the higher-end firms make more while others make less.
Pakistani universities produce almost 1.2 million skilled graduates annually. The Musharraf government announced a $1 billion spending plan over the next decade to build 6 additional state-of-the-art science and engineering universities. If the current government follows through on it, then the scheme would be overseen by the Higher Education Commission for completion in a few years time.
About 10,000 of the current 1.2 million graduates are engineers with four-year degrees. In addition, Pakistan also produces at least 25,000 polytechnic inst graduates with three year diplomas (according to recent news in the Nation newspaper) who have less than 4 years of college.
A number of reports inflate the number of engineering graduates in India, as these numbers includes both 4 years and 2-3 years degrees. While it is claimed that India graduates over 200, 000 engineers a year, a Duke study concluded that half of these are two- or three-year degrees.
So, for apples to apples comparison, the number of India's engineering graduates is closer to the US's 70,000 engineering grads. And of course, the quality of US graduates is much, much higher because they graduate from some of the best schools in the world. Other than about 5000 grads from IITs , the rest of Indian grads are from second and third tier schools that bear no comparison to engineering schools in the developed world in terms of quality. The cost advantage that India offers will still favor a continuing growth based on outsourcing of business and engineering services from the developed world.
Currently, Pakistan is struggling with a powerful insurgency and a stagnant economy that is taking a heavy toll on the nation. If, however, the political and military leadership succeed in creating a semblance of peace and stability in the nation of 170 million, then there can be an expectation of a bright future ahead for the IT industry in particular, and an innovation-based knowledge economy in general. www.riazhaq.com
