Pakistan Eyes India Software Boom

Little good generally emerges from the political rivalry between India and Pakistan, some compelling cricket encounters aside.

But for Pakistans embryonic software industry, the south Asian neighbours traditional competitiveness is proving galvanising. The more Indias software sector sparkles, the more Pakistans policymakers have taken jealous notice - prompting a series of new incentives to the industry.

The faster Indias software exports grow, the more of a boost it is for us, said the head of one of Pakistans biggest software houses. They are doing us a great favour.

Pakistans software sector pales beside that of its bigger neighbour, where the industry last year grew by 55 per cent and billed $1 billion in export earnings.

 

Best industry estimates in Pakistan - there are no hard figures - suggest the countrys 40 or so main software houses turned over a total of perhaps $40 million, with optimists suggesting exports may have reached $24 million.

But few in the industry doubt that exports are poised to grow fast, aided by a series of fiscal and other incentives by Pakistans five-month-old, and pro-business, Moslem League government. Youll see an explosion in our export potential in the next couple of years, said Anwar Rodney Rahman, secretary of the Pakistan Software Houses Association (Pasha).

Rahman sanguinely thinks exports can top $800 million within three years - though other industry insiders suggest $100 million by 2000 may prove more likely.

Either way, the software sector has captured the governments attention as offering Pakistan a rare export opportunity in an economy where manufacturing per-formance has been consistently dismal - industrial output actually contracted last year - and where foreign exchange earnings are thus weak and dependent on the countrys erratic cotton crop.

Like India, much of Pakistans potential advantage lies in supplying labour-intensive offshore services for clients in the US or Europe, rather than sales of proprietory software products.

Pakistan boasts low wage costs for software professionals, which executives say can average 20 per cent of salaries paid in the US.

To give the industry a boost, Sartaj Aziz, Pakistans finance minister, has removed all duties on computer equipment and software for use by software exporters and extended a seven-year tax break to all exporting houses.

The government also for the first time enabled software companies to qualify for export refinancing from commercial banks.

A government team is also working with Pasha to market Pakistan internationally as a resource base for helping solve the millenium bug problem. The moves have been widely welcomed within a software industry which felt ignored and overtaxed by the previous administration of Benzir Bhutto.

But - again with an eye on Indias experience - industry executives argue that government must take more concerted steps if Pakistans software export sector is to spread beyond the three or four bigger houses which currently account for almost all significant exports.

The prospects are there, says Mr Waqar Ahmed, president of CresSoft, a subsidiary of the $1bn-turnover Crescent group of companies and among Pakistans biggest software house. But if we are going to be a player at country level, it cant be done just through the initiative of private players. The industrys two chief demands are for government support to establish training programmes for sofware engineers and some form of state-sponsored financing mechanism for start-up companies and to provide working capital. Executives think the limited availability of trained engineers will prove the greatest brake on Pakistans software potential. We could double exports each year for the next three years, says Mr Aezaz Hussain, chief executive of Systems, a Lahore-based house which is marketing a millenium bug product in the US. Thereafter we will hit a ceiling because of the human resource limitation. While India turns out tens of thousands of computer-trained personnel a year, the figure in

Pakistan is closer to just 1,000, according the Mr Rahman. The second impediment to much wider growth is finance. At present Pakistans commercial banks refuse to lend to most software houses, since few if any have chargeable collateral. In the absence of private sources of capital, the government recently charged the state-owned National Commercial Bank with formulating new lending criteria for software companies. It will be some time before the sector approaches the success of its Indian rival. But executives suggest that - as the government has apparently realised - with the countrys manufacturing industry lying moribund, there is a compelling economic logic to encouraging software exports. We are really positive for the next few years, said Mr Syed Hamza Matin, manager of EDP Services, a Lahore-based software company. Pakistan has been putting all its efforts into things like cotton and other exports which tend to be blocked by quotas, affected by the weather and so on. Software is just about the only window open where Pakistan has some chance to make a real leap. The more Indias software sector sparkles, the more Pakistans policymakers have taken jealous notice Copyright Financial Times Limited 1997. All Rights Reserved.