In a remarkable turn of events, Pakistan's Information Technology (IT) sector has witnessed a substantial 10% month-on-month (MoM) increase in exports for the month of August 2023, totaling an impressive $235 million. This surge comes in the face of persistent challenges plaguing the industry, hinting at a potential revival.

Federal Minister for Information Technology & Telecommunication, Dr Umar Saif, has set ambitious targets, vowing to elevate Pakistan's ICT exports from $2.62 billion to a staggering $10-20 billion. His predecessor, Syed Aminul Haque, had similarly aimed to boost IT exports to $15 billion, yet the sector has struggled to achieve significant growth in recent years.

Challenges confronting IT sector

The IT sector has grappled with various impediments, including foreign exchange constraints that have forced several factories, including newly established smartphone assembly plants, to shutter.

Additionally, the government's practice of levying fees in dollars for spectrum allocation to IT companies has raised concerns in the current economic climate. High taxes continue to weigh heavily on IT companies, inhibiting their growth potential.

Experts in the IT sector emphasize the urgent need for substantial investment, underpinned by sustainable policies and the resolution of prevailing issues, particularly high taxation.

Segment-wise export growth

In August 2023, the IT export surge was propelled by a 12% MoM increase in telecom services exports and a 9% MoM increase in computer services exports.

The August 2023 figures have eclipsed the 12-month average of $218 million. A report from Topline Securities attributes the MoM improvement to a higher number of working days compared to July 2023.

Notably, an increase in clearing days affected the realization of proceeds from IT exports, although the proceeds per day remained flat MoM in August 2023.

Among computer services, hardware and software consultancy exports stood out with a remarkable 21% and 18% MoM increase, respectively, in August 2023. Services exports (excluding IT) of Pakistan also experienced a 14% MoM increase, partly due to the aforementioned factors.

Year-on-Year (YoY) Growth

On a YoY basis, IT exports for August 2023 increased by 3% to reach $235 million. This growth was driven by an 11% YoY increase in telecom and a 1% YoY increase in computer services.

The IT minister revealed that IT companies are holding approximately $1-2 billion outside Pakistan. In the first two months of FY24 (2MFY24), IT exports increased by 5% YoY to reach $449 million.

The growth in IT exports aligns with the global increase in IT spending, with worldwide IT spending projected to reach $4.7 trillion in 2023, according to Gartner Inc. Software and IT services spending are expected to increase by 13.7% and 8.8%, respectively, in 2023, driven by increased utilization, reallocation of spending, and vendor price increases.

Net IT Exports (Exports-Imports) for August 2023 increased by 7% MoM and by 3% YoY to $204 million. In 2MFY24, net IT exports increased by 4% YoY to $394 million, showcasing resilience in the sector.

Prospects for software segment

The software segment is poised for double-digit growth in 2023, offering opportunities for companies like Systems Limited (SYS), which is considered a top pick in the IT sector.

In August 2023, telecom services exports increased by 12% MoM and by 11% YoY to reach $46 million, while computer services exports increased by 9% MoM and by 1% YoY to $189 million. The total share of telecom and computer services exports for August 2023 stood at 20% and 80%, respectively, compared to an 18% and 82% share in August 2022. In 2MFY24, the telecom and computer share of exports remained at 19% and 81%, similar to the same period last year.

These encouraging developments in Pakistan's IT export sector signify a potential turning point for an industry that has faced numerous challenges in recent times. With sustained efforts and targeted reforms, the sector may inch closer to realizing its lofty export goals.