Pakistan Tech Exports Continue to Soar: Up 40% in last 6 Months Amid COVID19 Pandemic
Pakistan's technology exports are continuing to soar amid the Covid19 pandemic. Tech exports jumped 43% in December, 2020 and 40% in July-December 2020 period over the same period in 2019. This is a rapid acceleration from 21% increase in all of Fiscal Year 2020 (July-June 2020) over FY 2019. Tech exports (up 40%) far outpaced overall exports (up 5.1%) in this period.
The modest 5.1% increase in Pakistan's overall exports is still commendable in the midst of the global economic devastation caused by COVID19 pandemic. What is even more commendable is the 19% jump in exports in December 2020 over the same month in 2019, indicating a strong upward trend.
|Pakistan Tech Exports Soared in First Half of FY 2020-21. Source: Commerce Department|
Total monthly ICT exports hit a record $194 million in December 2020, up 43% from $135 million in December 2019. For the entire 6 month period from July-December 2020, the ICT exports reached $958 million, up 40% from the same period a year earlier. Tech services exports now account for a third of all service exports of the country.
|Pakistan Tech Services Export Share of Service Exports. Source: Commerce Dept|
Pakistani diaspora sent home $14.2 billion in remittances in July-December 2020, up 25% from the same period in 2019. Pakistanis settled in the United Kingdom and the United States increased their remittances by 52% and 47% respectively in this period, helping Pakistan achieve a record $1.8 billion current account surplus in the first 6 months of the ongoing fiscal year 2020-21.
|Remittances From Pakistani Diaspora. Source: Arif Habib|
While Pakistan's exports increased a modest 5.1%, the remittances from overseas Pakistanis jumped a hefty 25% in response to an appeal by Prime Minister Imran Khan who remains very popular among them. He drew nearly 30,000 Pakistani-Americans to a rally during his Washington D.C. visit in 2019.
|Pakistan Trade 1H of FY 2020-21. Source: Arif Habib|
Pakistan's imports increased 5.5%, more than the 5.1% increase in exports, during the first half of the current fiscal year 2020-21. This resulted in $12.4 billion trade deficit, a 5.9% increase. Without the 25% jump in remittances, Pakistan would most likely have a current account deficit rather than a surplus in this period.
The modest 5.1% increase in Pakistan's exports is still commendable in the midst of the global economic devastation caused by COVID19 pandemic. What is even more commendable is the 19% jump in exports in December 2020 over the same month in 2019, indicating a strong upward trend.
Pakistani diaspora is the world's 5th largest with more than half a million Pakistanis migrating every year to work overseas. Over 11 million Pakistanis have left home for employment in Europe, America, Middle East and elsewhere since 1971, according to Pakistan Bureau of Emigration. The pace has particularly picked up over the last 10 years. This phenomenon has helped reduce unemployment in a country where about 2 million young people are entering the job market each year. It has also helped remittances soar nearly 28X since the year 2000.
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It is pertinent to mention that the country’s exports had witnessed a steep decline of 19pc in August 2020 before rebounding in September, October, and November.
According to an FBR report, the spread of Covid-19 had impacted the flows of containers from the country to the lowest level of around 12,000 in April 2020. Since then, a gradual improvement was seen in container shipment from the country.
Measures announced under the export facilitation measures led to an increase in the number of exports Goods Declarations (GDs) from 71,190 in July 2020 to 79,756 in December 2020, posting an increase of 11pc.
Also, under the ‘Make in Pakistan’ initiative, duty drawback rates for at least eight sectors were revised upwards by FBR. During the whole exercise, more than 434,000 claims were disposed of with approximately 7,800 exporters benefitting from this initiative.
VISIT TO UZBEKISTAN
Meanwhile, in a separate statement issued on Monday, the Ministry of Commerce informed that Razak Dawood was leading a delegation to the Republic of Uzbekistan. The visit was a follow-up to the visit of Uzbek Deputy Prime Minister Dr Sardor Umurzakov to Pakistan on 10th September 2020.
“The first meeting of Joint Working Group on Trade and Economic Affairs and the meeting of Tripartite Working Group on the Implementation of the Trans-Afghan Railway Project would be held between Pakistan and Uzbekistan from 1st till 4th February, 2021,” the statement read.
On Monday, the Advisor called on Uzbekistan President Shavkat Mirziyoyev and discussed with him matters related to economic cooperation between the two countries. He also met Uzbekistan Chamber of Commerce and Industry President Adkham Ikramov to deliberate upon cooperation in textile, leather and engineering sector.
During the 1st meeting of the Joint Working Group on Monday, both sides expressed desire to enhance bilateral trade relations. In this regard, they discussed streamlining bilateral phytosanitary standards, enhancing banking cooperation, working on rail & road connectivity and establishment of off-dock terminal.
The two sides also expressed resolve to enter into Preferential Trade Agreement (PTA).
The Uzbek side invited the Pakistani business delegation to organize a joint exhibition in Tashkent in June this year.
Exports increase 5.53pc in seven months
The exports of the country during July-January (2020-21) were recorded at $14.242 billion.
The exports from the country increased by 5.53 percent during the first seven months of the current fiscal year (2020-21) as compared to the corresponding period of last year, Pakistan Bureau of Statistics (PBS) reported Monday.
The exports of the country during July-January (2020-21) were recorded at $14.242 billion against the exports of $13.496 billion during July-January (2019-20), according to the latest PBS data.
The imports during the period under review also increased by 6.92 percent by growing from $27.316 billion last year to $29.205 billion during the first seven months of current fiscal year.
Based on the figures, the country’s trade deficit increased by 8.27 percent during the first seven months as compared to the corresponding period of last year. The trade deficit during the first seven months of the current fiscal year was recorded at $14.963 billion against the deficit of $13.820 billion last year.
Meanwhile, on year-on-year basis, the exports from the country increased by 8.11 percent during the month of January 2021 as compared to the exports of January 2020. The exports during January 2021 were recorded at $2.132 billion against the exports of $1.972 billion in January 2020, the data revealed.
The imports into the country also increased from $4.121 billion in January 2020 to $4.733 billion in January 2021, showing growth of 14.85 percent.
On month-on-month basis, the exports from the country decreased by 9.89 percent during January 2021 when compared to the exports of $2.366 billion in December 2020.
Likewise the imports into the country also decreased by 5.43 percent in January 2021 when compared to the imports of $5.005 billion in December 2020, the data revealed.
Meanwhile, the country’s services exports during the first half of the current fiscal year increased by 0.31 percent from $2.835 billion last year to $2.844 billion. Likewise, the services imports also declined by 15.68 percent from $4.532 billion during first six months of last fiscal year to $3.821 billion during the corresponding period of current fiscal year..
Based on the figures, the services trade deficit witnessed sharp decline of 42.41 percent by falling from $1.696 billion last year to $0.977 billion during the current year.
The United States cannot match China’s economic investment in Pakistan or in the region for that matter, but it can influence the direction Pakistan takes. That possibility is greater now than at any time in recent memory as there are significant changes to fundamentals that have long defined Pakistan’s strategic calculus.
First, the United States is no longer fixated on terrorism, which means it is no longer paying attention to Pakistan in the ways it did after the 9/11 attacks. Pakistan is keen to find new ways to engage the United States. These sentiments, exhibited at the highest levels of military and civilian leadership in Pakistan, are motivated by the pragmatic realization that the country can no longer take US interest for granted as the United States shrinks its presence in Afghanistan.
Pakistan has offered a new approach based on economic security that seeks collaboration with the United States on climate change, technology, and a host of other non-security issues. Translating this new approach into a reality is going to take a lot of work, as Pakistan falls short in keeping its own economic house in order.
This is related to the second fundamental change: the economy. Dwindling foreign aid, dips in labor remittances owing to the collapse of Gulf Cooperation Council economies, and decreases in Pakistan’s textile and manufacturing exports have put the country in dire straits. Pakistan has long borrowed to finance existing debt. That is no longer possible, and payments on its short- to medium-term debts are converging. Pakistan needs international assistance, preferably via loans and economic aid, and it must grow its exports to boost its economy. The United States should take note that under these circumstances Pakistan will be more open to policy compromises that could provide relief on these fronts.
Third, Saudi Arabia no longer serves as Pakistan’s strategic depth. After nearly five decades of close ties, Saudi Arabia is decisively distancing itself from Pakistan. Last year it canceled a three-billion-dollar loan after Islamabad complained about lack of Saudi support for Pakistan over Indian suppression in Kashmir.
Fifth, the paradigm for India-Pakistan relations is changing. With Saudi Arabia, China, and the United States de-linking conflict between India and Pakistan from their respective relationships with those countries, Pakistan is being forced to reevaluate how it engages its traditional partners on the defining feature of its foreign relations with many countries: competition with India.
The cumulative effect of these five developments has been to unmoor Pakistan’s strategic calculus, leaving the country somewhat adrift and unsure of its standing and future direction. The changes introduce serious questions for policymakers. For example, what will the end of an Islamic foreign-policy paradigm mean for Pakistan-based militancy, which has long enjoyed the patronage of financiers based in Persian Gulf states? What will the distancing of China and Saudi Arabia from India-Pakistan tensions mean when the two neighbors come to the brink of nuclear war?
CPFTA-II will significantly improve Pakistani exporters’ access to the $2 trillion Chinese import market and thus help address the country’s trade deficit.
The tariff structure applicable to Pakistan under CPFTA-II shows a marked improvement over CPFTA-I. On over 80% of CPFTA-II product lines that China imports, Pakistan is now offered tariffs that are lower than or equivalent to those applied to China’s main trade partners.
Tariffs on nearly 40% of CPFTA-II products that China imports have been reduced compared to CPFTA-I and 45% of the tariff lines are now being offered duty-free access to China. Potential items that Pakistan could export to China include seafood, garments, synthetic blankets and knitwear shirts.
“Focus on these items in exports to China can provide Pakistan with easy gains in the short to medium term,” said Khalil. In the long term, “Pakistan needs to export those items which China imports but Pakistan does not export at present,” he said.
As a starting point, Pakistan can gain market access for export of machinery, mechanical appliances, electrical equipment and parts, mineral fuels, optical, photographic and surgical equipment, plastics, vehicles and essentials.
Industrialisation in the country and production of these goods must be the top priority of the government in a bid to ease the burden of imports and gain access to the Chinese and other global markets.
With this opportunity, a question arises whether Pakistan can produce goods according to demand in the Chinese market?
“In order to evaluate Pakistan’s ability to produce good-quality goods as per Chinese market demand, it is important to see it in the context of Pakistan’s trade performance in general,” suggested Khalil.
Pakistan’s global export performance has declined over the past two decades – reasons for this include low competitiveness and exports of low value-added and non-unique products.
Apart from the textile sector, Pakistan has largely lost the world market over the past five years. Low value-added products are the main hindrance in the way of meeting Chinese market demand.
“Industrialisation is the need of the hour for building capacity to produce sufficient goods, which can satisfy domestic and international demand,” said Khalil.
“There is also a substantial information deficit facing Pakistani businesses. Factors behind this include a lack of research on China, identifying Chinese partners and meeting regulatory requirements,” he said.
“In order to translate the improved tariff concessions into sustained exports, the government must address the issues related to capacity building amongst Pakistani businesses and issues pertaining to ease of doing business – both of which affect the ability to deliver orders of the scale required in China within the specified time,” said the former KCCI official
Things are getting brighter for Roshan digital reached $480mn. LSM recoded 11.4% in Dec-20. Exchange rate below 159/$
Large-scale manufacturing (LSM) in Pakistan grew 11.4 per cent in December 2020 as compared to December 2019, data released by Pakistan Bureau of Statistics (PBS) on Friday showed.
LSMI Quantum Index Number (QIM) was recorded at 167.21 points in December 2020 against 150.11 points in December 2019.
As per the data, the overall LSM output increased 8.16pc during the first half (July-Dec) of the current fiscal year (FY21), compared to the corresponding period of last fiscal year. Industrial production during July-Dec FY21 was recorded at 143.30 points against 132.49 points last year.
The highest increase of 6.23pc was witnessed in the indices monitored by the Ministry of Industries, followed by 1.63pc increase in indices monitored by the Provincial Board of Statistics and 0.29pc increase in the products monitored by the Oil Companies Advisory Committee (OCAC).
Meanwhile, on a month-on-month basis, the country’s industrial output witnessed an increase of 13.51pc in December 2020 when compared with November 2020.
Major sectors that showed a positive growth during the month under review included textile (3.54pc), food, beverages and tobacco (17.72pc), coke and petroleum products (23.91pc), pharmaceuticals (13.82pc), chemicals (16.95pc), automobiles (43.91pc), non-metallic mineral products (17.52pc), fertilizers (11.98pc), paper & board (8.93pc) and rubber products (8.24pc).
On the other hand, LSM industries that witnessed a negative growth in December included electronics (35.59pc), leather products (40.55pc), engineering products (23.93pc) and wooden products (30.20pc).
MN (Mahnoor Nadeem CEO REDTone): The MOITT is on a mission to first build an environment of innovation through knowledge parks, educational initiatives, investments in the start-up space etc.; and then incubate this country as a centre of excellence and development. This is a fantastic vision, because you are transforming the mindset of a country, to focus on core competencies and bridge gaps between talent and real-world experience.
If we can get our people to become more aligned with the innovation requirements of the world, we open ourselves up for business, which will immediately boost our IT exports, as our work will speak for itself. The key areas in development for local talent are IoT, Blockchain, Cloud/Edge Computing, Robotic Process Automation etc. We need to first get our people to understand the building blocks behind these innovations (which means giving them the right exposure/mentoring to understand how the tech was built, core languages/components behind it).
In short, the Ministry of IT is being led by brilliant people, they have the right vision and are taking necessary steps to incubate our domestic talent. The private sector needs to up their game, support the ministries initiatives and align efforts so that we are all moving in a cohesive manner.
BRR: Pivoting to retail, how is the retail ecosystem transforming, and how important is the role of digital payment system?
MN: Digital payments are essential to the growth of the retail sector, with more and more retailers augmenting their brick-and-mortar operations and making room for ecommerce initiatives, they need a robust digital payment system that can help them settle funds and receive payments efficiently.
The cash on delivery (COD) method relies on the transportation of physical cash from the buyer to the seller, one that is no longer necessary. To get rid of COD and truly embrace digital payments, we need to work on trust (both at the consumer and the retailer level - making sure that the right goods land on the right customers doorstep every time); real-time settlement to reduce the reconciliation and settlement process between buyer and seller to allow for smooth working; and incentivisation i.e., rewarding people for investing in a transparent business process - through cashbacks, tax incentives, smart-lending, rewards etc.
These measures build habit and reduce friction. If we put our weight behind digital payments, it will ease cashflow issues and reduce time to market, and hence lead to an efficient retail sector.
BRR: What impact do you think the introduction and implementation of Raast will have on the development of the retail ecosystem?
MN: Raast is Pakistan’s first instant payment system that will enable end-to-end digital payments among individuals, businesses, and government entities instantaneously. It aims to act at the centre of the Digital Financial Services ecosystem. As this begins to grow, stakeholders will be able to make instant transactions, with ease, which will allow for real time settlements at very low costs. With our proposition of digitising the kiryana ecosystem through REDRETAIL, an initiative such as Raast will play a pivotal role - it will allow us to have real time settlements between our merchants, distributors, manufacturers, and consumers, thereby optimising the ecosystem. I look forward to the exponential growth in digital payments we will witness through Raast - currently such payments only account for 0.2 percent of Pakistan’s transactions.
Our goal at REDtone has always been to enable innovation and digitisation in the country, and SBP’s initiatives such as these play an enabling and complementary role, thereby propelling Pakistan towards a digital and cashless society.
Pakistan’s government is planning to issue a $500 million green bond in the next few months to help boost its development of hydroelectric power.
The bond, denominated in euros, will be the government’s first to fund environmental goals, Malik Amin Aslam, an adviser to Prime Minister Imran Khan on climate change, said in an interview. It is set to be issued through the country’s state-owned Water & Power Development Authority, with JPMorgan Chase & Co. advising, he said.
“We’ve got a lot of hydro potential in Pakistan,” he said on Thursday. “The bonds are there to accelerate this.”
Khan’s government is investing in renewable energy to ramp up its economic stimulus in the wake of the pandemic. It’s also promised to ban new coal power plants and is looking to plant 10 billion trees. The nation’s cities rank among the worst globally for air pollution, according to IQAir.
The South Asian nation has a fragile economy that goes through regular boom and bust cycles. It received debt relief during the pandemic, restoring its $6 billion bailout program that it secured from the International Monetary Fund in 2019 to avoid bankruptcy.
Issuance of green bonds globally is seen surging to $375 billion in 2021 by Moody’s Investors Service, after record sales last year. While Europe has led the way, countries from Singapore to Brazil plan to sell their first to tap buoyant investor demand.
JPMorgan, the world’s top arranger of green debt, declined to comment.
According to data released by the State Bank of Pakistan, remittances under IT and IT-enabled services surged to $1.119 billion from July 2020 to January 2021 compared to $812 million recorded in the corresponding period of the last financial year, showing a handsome growth of 37 percent year-on-year
The growth in IT exports was driven by the increasing automation, and digitalized services in different countries after new ways of doing business emerged following the outbreak of COVID-19 worldwide.
Different foreign companies, mainly from the USA and EU markets, prefer placing their orders to Pakistani companies rather than Indian and the Philippines.
Barkan Saeed, Chairman Pakistan Software Houses Association (P@SHA) for IT and ITeS told Propakistani,
The growth in IT exports value was driven by the foreign clients moved from Indian companies to Pakistani companies in a post-COVID-19 scenario.
The government could double the exports from $2 billion per annum to $4 billion per annum by the next two years, with a concrete roadmap for the IT sector, which could not only fetch foreign exchange for the country, but it is a key sector that could provide the skilled job to millions of youngsters, Saeed further said.
Local IT companies and the government should work on a strategy to protect the growth of the IT sector on a sustainable basis for the future, he added.
Saeed demanded that IT should be declared a strategic sector with the same focus and treatment. The PM should resolve the pending issues of the sector immediately to unleash the true potential of the IT sector.
KARACHI: Pakistan’s information technology exports increased 41 percent to $1.3 billion in the eight months of this fiscal year, the central bank data showed on Monday, as the coronavirus-related restrictions accelerated the demand for IT services to meet both social and economic needs of people.
IT exports rose 69 percent year-on-year to $179 million in February. The rise was 11 percent when compared with the previous month. Technology exports contributed 34 percent to overall services exports. Exports of services stood at $3.809 billion in July-February FY201, compared with $3.815 billion in the same period of the last fiscal year.
The growing use of digital means for making financial transactions and the measures taken by the State Bank of Pakistan (SBP) contributed to this rise in the exports of IT services. Electronic banking transactions increased 22 percent to Rs21.4 trillion in the second quarter of this fiscal year, according to the SBP’s Quarterly Payment System Review (QPSR) for the second quarter of the fiscal year 2020/21.
Pakistan’s IT exports maintain growth of 40% over 8 months
Pakistan’s IT sector has remained impressive throughout the current financial year, with consistent growth of above 40 percent in exports between July 2020 and February 2021.
According to data released by the State Bank of Pakistan (SBP), the export of IT and IT-enabled services had surged to $1.298 billion during July and February of the financial year 2020-21 as compared with the values of last financial year that had stood at $918 million. This shows an increase of $380 million or 41.2 percent, year-on-year.
The growth in exports has mainly been driven by the high demand for automation, e-commerce, software development, and other services of foreign clients who now prefer to place orders with Pakistani IT companies instead of other countries including India and the Philippines.
Industry experts have projected $2 billion worth of exports of the IT sector this year while considering the penetration of the local companies in various exportable countries in the different fields of the sector.
However, the local industry is fearful of being taxed heavily by the revenue collection authority, which may destabilize the prevailing trends of growth in the IT industry and its expansion.
The industry also fears being taxed as the government is mulling over the possible withdrawal of the tax exemption in the upcoming budget. It is demanding that the industry should be taxed duly after it achieves a sustainable level of maturity with a solid contribution to the economy.
The growth in the IT exports sector will strengthen the industry and facilitate the maintenance of the current account in surplus and the generation of employment for hundreds of skilled professionals.
Technology exports up by 41% YoY during 8MFY21
During Feb’21, technology exports was up 69% YoY.
During 8MFY21, technology recorded exports worth USD 1,298mn (+41% YoY)
The Ministry of Commerce has launched the ‘Look Africa campaign’ in search of new unconventional markets and did a lot of work on Central Asian markets, which has resulted in good exports. He said that in addition, new industrial units are being set up to promote product diversification to boost domestic exports in information technology, light engineering including tractors, fisheries and electronics and mobiles.
So far, Country’s exports of non-traditional products, including information technology, have grown by 60 percent in the last four months. Razak Dawood said that the increase in the existing exports was a manifestation of good policy of the present government during Covid -19. He said that like Association of South East Asian Nations (ASEAN), “We also need to strengthen the our regional bloc in South Asian Association fo.r Regional Cooperation (SAARC) and increase bilateral trade activities in the regional countries.”
He said that the government has reduced tariffs and duties on raw materials to zero per cent to increase the country’s exports. These include Textile, Fiber and Jute where tariffs are discounted.
Replying to a question, he said that Pakistan exports to Central Asian Republics (CARs) countries increased to USD $ 145 million in 2020-21 from USD $ 104 million in 2019-20. For six months, from July-December 2021, these exports increased by 173 percent to USD$ 134 million from USD 49 million during the same period last year, he said. The Ministry of Commerce’s ‘Silk Route Reconnect’ initiative is now bearing results, he added.
To increase the trilateral trade Volume with CARs, the Adviser said that the Pakistan-Uzbekistan Transit Trade Agreement was signed in 2021 at Tashkent and both the countries discussed opening banks in each other’s country. “We are negotiating Preferential Trade Agreements (PTAs) with Afghanistan, Azerbaijan and Uzbekistan”, adding, transit trade agreements were also being negotiated.
The advisor said that for truck movement, their negotiations were at an advanced stage. Replying to another question on Information Technology exports, he said that there is a lot of scope to increase exports in Information Technology (IT) from non-traditional sectors at present.
The current annual $ 2.5 billion IT exports are very low, “We now have an annual export target of $ 4 billion this year, he said.
Razak Dawood said that there was a need to promote export culture in the country at present and the government wanted to increase exports on priority basis.
He added that Micro Small and Medium Enterprises (MSMEs), that use e-Commerce platforms, are around five times more likely to export than those in the traditional economy and the policy aims to pave the way for holistic growth of e-Commerce in the country by creating an enabling environment in which enterprises have equal opportunity to grow steadily. He stressed that the way forward for Pakistan on the economic front is to focus on exports, specifically IT related exports.
While informing about the current export situation, he said that because of prudent economic and trade policy of the government, Pakistan export target of USD $15.125 was achieved in the first half of FY 2021-22 from July-December.
From July-December 2021, Pakistan exports were USD$ 15.125 billion and the target for the first half of the current FY, were USD$ 15 billion, said. Razak Dawood said that Pakistan’s exports during December 2021 increased by 16.7 percent to USD$ 2.761 billion as compared to USD$ 2.366 billion in December 2020, showing an increase of almost USD $400 million.
Pakistan’s 🇵🇰 D.G. Khan to Export Cement to U.S. for the First Time
The cement maker is in process to ship 50,000 tons of the building material to the US 🚢
In a first: Pakistan's D.G. Khan to export cement to US: report
Ship is being loaded at Karachi port for delivery to Houston, says CFO
D.G. Khan Cement Company is in process to ship 50,000 tons of cement to the US, reported Bloomberg on Tuesday, a welcome development for Pakistan that is desperately seeking an increase in exports in the face of a widening trade deficit that has pushed the rupee to record lows.
Company CFO Inayat Ullah Niazi stated that a ship was currently loading cement at a port in Karachi for delivery to Houston, added the report.
The development comes at a time when the country's exports registered negative growth of 10.22% on a monthly basis in May 2022, clocking in at $2.6 billion from $2.897 billion in April 2022, according to latest figures released by the Pakistan Bureau of Statistics (PBS).
D.G. Khan Cement, one of Pakistan's largest cement makers, posted a 26% higher profit during the nine-month period that ended March 31, 2022 with earnings amounting to Rs4.1 billion. The company had posted earnings of Rs3.25 billion in the same period of 2020-21.
In 2020, DG Khan Cement won orders for export of cement to the Philippines.
Meanwhile, in a report published earlier, JS Global analyst Muhammad Waqas Ghani stated that continuously rising coal prices and rupee depreciation have led to the procurement of coal at higher rates by cement manufacturers, requiring them to raise domestic prices by Rs40 per bag during the last few weeks.
With an almost 50% (Rs300 per bag) increase in the last 12 months, further price increments would be needed to neutralise the coal cost impact, if prices remain elevated, added Ghani.
"If coal prices stay at these high levels, 4QFY22 profitability will likely be impacted given higher average cost of coal inventory."
Pakistan’s tech exports have taken a plunge for the first time since February 2021, as new data reveals that the country’s exports in the tech sector dropped by 27 percent in May 2022 as compared to April 2022.
As per State Bank of Pakistan (SBP) data, IT exports in May amounted to $183 million while in April they were considerably higher at $249 million. Exports have fallen 8 percent year-on-year.
In May 2021, Pakistan exported $198 million worth of technology-related products and services. The technology sector witnessed exports worth $2.4 billion in 11 months of this fiscal year, contributing 38 percent to overall services’ export and marking a 25 percent year-on-year increase.
While IT export performance has certainly been encouraging, and has helped improve the country’s foreign exchange earnings, the monthly drop in exports in May is still far from an ideal scenario.
The reason being touted for the drop in IT exports is the extended Eid holidays. Since the pandemic resulted in a rise in freelancing, the export performance of country’s technology products and services stayed higher.
However, despite the Prime Minister of Pakistan’s ambitious declarations to target $15 billion in IT and IT-enabled services exports, the released budget brings down the industry’s potential to meet this aim. This was noted in a recent P@SHA press release.
According to Chairman P@SHA Badar Khushnood, the current taxation regime in place is “regressive” and has already proven disastrous for the IT industry’s growth.
“This year’s targeted exports of USD 3.5 billion are also not being achieved due to the introduction of an inefficient tax regime,” he stated. “Rather than facilitating the IT industry with more and better incentives to catalyze the existing organic growth, the previously announced one and the only benefit, i.e., ‘tax exemption’ committed till 2025 has been abruptly reneged and revoked. If nothing else, this is a recipe for disaster for a nascent yet fastest growing exports-led sector!”
Analysts say growth hindered due to government indifference, inconsistent policies
Despite being entirely free from the cumbersome process of acquiring Letters of Credit (LCs) and not being dependent on imports for its raw material, the export volume of the information technology (IT) sector only grew a meagre 5% in November year-on-year (YoY). Analysts are laying the blame for this low number on the government’s indifference towards unconventional export sectors.
Speaking to the Express Tribune on the condition of anonymity, an official from the Ministry of Information Technology and Telecommunication said, “Globally, IT companies’ exports grow in hundreds and thousands of times, a potential that Pakistan has in abundance but cannot tap into due to inconsistent policies. The cooperation of the finance ministry, Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) is crucial in this regard.”
“Any suggestion given to them by our ministry, however, is ignored,” said the official, lamenting that, “People in the government do not understand the export potential held by the IT sector.”
According to a Topline Research report by IT Analyst Nasheed Malik, “Pakistan’s IT exports for November 2022 increased by 5% YoY to $233 million due to a 29% jump YoY in telecom services. The exports also increased by 5% month-on-month (MoM) due to a 15% MoM increase in telecom services and 3% MoM in computer services.”
“The latest export number is also above the six-month rolling average of $221 million. Exports, however, are down by 10% from a peak of $260 million recorded in March 2022 but managed to cross the $230 million mark set in June 2022,” said Malik.
However, on a broader level, a slowdown is being witnessed with YoY growth averaging 6% in the last six months (June to November 2022), compared to the average growth of 17% YoY in December to May 2022.
“The IT Ministry has set an export target of $3 billion for FY2023,” said Malik, adding that, “With a current fiscal year monthly average rate of $217 million and a six-month rolling average of $221 million, there are concerns about whether Pakistan will be able to achieve the set target.”
In the five months of FY2023, IT exports are up by 3% YoY to $1.09 billion – the slight growth was witnessed due to a 5% YoY growth in computer services to $864 million.
According to a report conducted by Arif Habib Limited, the SBP’s reserves currently stand at around $6.7 billion, the lowest since January 18, 2019. Including the banks’ reserves of $5.9 billion, the total foreign reserves in the country stand at $12.6 billion – amounting to an import cover of less than one month – 0.99 months to be exact.
ICT Expert Parvez Iftikhar said, “So far, no government has been able to comprehend that the IT sector can help the country earn dollars without incurring any huge expenditures on raw material imports. This just indicates the lack of understanding in the government’s finance management team that decides on taxes and concessions.”
“If we equip our youth, however, with in-demand skill sets, facilitate them with in/out dollar payments, and high-quality internet connectivity, they’re quite capable of doubling the country’s exports within two years,” claimed Iftikhar, adding that the solution “isn’t even out-of-the-box!”
Si Global CEO Noman Ahmed Said told the Express Tribune that, “It is no secret that Pakistan is currently facing one of its worst economic crises yet and whilst the tech sector has consistently outperformed, it is no longer feasible for it to continue doing so at a snail’s pace.”
“Growth has slowed, but the trend still remains positive,” said Khurram Schehzad, CEO of ABCore.
Since inception of the Bureau in the year 1971, more than 10 million emigrants have been provided overseas employment duly registered with the Bureau of Emigration & Overseas Employment. During the year 2015, highest number of Pakistanis(946,571) proceeded abroad for the purpose of employment. During the year 2022 (December), 832,339 Pakistanis proceeded abroad for the purpose of employment.