World-class success still eludes Pakistan's IT industry but, says Athar Osama, it can be achieved — if policymakers tackle the big issues.
For most of the 1990s, Pakistan invested heavily in information technology (IT) and an industry began to emerge. Thousands of people there are now online, but developing quality software that sells in the international market is a different matter — and one that needs a radical rethink.
During the initial flush of enthusiasm, IT training institutes opened across Pakistan, and the government funded increased Internet access in villages, towns and cities. The assumption was that Pakistan would somehow become a big software exporter, and reap a projected US$1 billion by 2000.
Today, things have changed considerably. On the plus side, there are signs that the industry has become more sophisticated. Many entrepreneurs who formed companies in the early 1990s — believing in the mantra 'I will make it, they will buy it' — have learnt the value of specialisation, good marketing, and quality software development.
Software companies have developed an increasingly strategic vision, and the 'reverse brain drain' has also helped by bringing in fresh ideas, capital and contacts.
On the downside however, the industry faces serious organisational and managerial challenges. These include a lack of human resources, venture capital and — most importantly — an inspiring, world-class success story.
The problem with policy today, as opposed to the 1990s, is that while policymakers generally recognise that the IT sector is going to be important to Pakistan's long-term growth, there is considerable ambiguity on how big that role can be. The policymakers have, therefore, failed to tackle the biggest challenges directly.
They need to decide whether their objective is to build an industry that challenges those in some emerging countries (whether big players such as India or smaller ones such as Malaysia, the Philippines and Ukraine) or merely one that remains a user of IT. There is nothing wrong with either choice, so long as one is actually made and then diligently followed.
If Pakistan is serious about emerging as a global IT leader (or even a second-tier follower) it needs to take drastic policy measures.
Although the industry continues to grow at a healthy rate of 20-30 per cent, it is stuck in a low-level equilibrium: there are no imminent technological leaps, such as those that transformed India's IT industry in the 1990s.
The roots of the problem lie at many levels — from individual companies through to policymakers in government, and the industry as a whole.
Infrastructure, investment, image
Pakistan's IT industry suffers from a lack not just of physical infrastructure, but of carefully distributed telecommunications capacity — i.e. multiple access points and extra capacity to link with the international telecommunication network.
For instance, until recently, the country's Internet access was through a submarine cable that was cut off twice in 2004. While this was an eye-opener for policymakers and forced them into launching a standby undersea cable, Pakistan's telecommunications capacity and access remain too restricted to support a fast growing industry providing constant support to serve the Western market.
This clearly shows the government's failure to provide a public facility that is critical to the growth of the IT industry.
A clear, consistent and uniform investment policy is the second key element in elevating Pakistan's IT sector. Attracting investment not only boosts image, but also exposes the local market to foreign ideas, management practices and capital.
The government must develop policies for attracting foreign investment in IT. Providing tax-free status to the industry has clearly not worked as well as expected, primarily because too many other countries do the same. Unconventional approaches are needed.
One might be to develop a package of incentives specifically designed to ease bottlenecks such as a lack of real estate and manpower training. This might level the playing field for foreign companies looking to invest abroad.
Such a package would not have to be an outright subsidy, but could be a scheme that recovers its value quickly — through job creation and tax revenues. It should also be openly communicated and implemented fairly, transparently and consistently.
The widespread perception of Pakistan as a backwater also needs to be tackled because this can affect the economic interactions needed to jumpstart its IT industry — such as 'selling' the country as an alternative to China, India or the Philippines.
Branding Pakistan is not a job for individual companies, but a collective task for the industry as a whole, and one in which the government must become an equal partner. Doing so would require a sustained and meaningful interaction with academics, business leaders, and policymakers in the West.
The human factor — and beyond
The quality and quantity of human resources is another critical issue facing Pakistan's IT sector. Cheap labour, often seen as a strategic advantage, is in reality a major weakness. Not only does Pakistan produce too few software professionals (programmers, managers, entrepreneurs) for the proper development of an industry, but it also fails to provide the quality of training needed.
According to a senior policy-maker, of the 5,000 or so IT professionals trained within Pakistan's various IT institutions, only 1,000 or so are immediately employable. A high-quality curriculum and efficient trainers are obviously needed, yet our policymakers have so far failed to grasp this.
But while it is important for policymakers to take on these four challenges — infrastructure, investment, image and human resources — ensuring unrestricted growth in Pakistan's IT industry could depend on a number of other policy issues.
One is the creation of a vibrant domestic IT market. Significant barriers stand in its way, however.
Several IT leaders I spoke to complained of a lack of government contracts, the slow pace of the 'e-government' initiative and the award of major contracts to large public sector organisations and foreign entities. They argue that major IT clusters such as Silicon Valley in the United States and Boston Route 128 would not have met with success if major contracts for US defence research had not been awarded to the local industry.
Policymakers, on the other hand, complain — with some justification — of the IT industry's 'lack of sophistication' and inability to deliver.
Other issues that require careful analysis and comprehensive policy interventions include providing venture capital and protecting intellectual property rights.
These policy measures, however, require reciprocation by the industry as well. The industry would need to commit to these goals — ideally through a public-private partnership designed at making, and realising the benefits of, contingent commitments by both public and private sectors.
Such a model would demand that the industry identify the policy gaps that are hampering growth, as well as progress towards policy goals. The industry could also commit to meet certain revenue targets that could provide the impetus for further action from policymakers.
This is the kind of focused approach that will help Pakistan finally realise its software dream.
Athar Osama is a doctoral fellow at the Frederick S. Pardee RAND Graduate School for Policy Studies in Santa Monica, California, United States.
This is an edited version of an article in Pakistan's Daily Dawn newspaper.