Pakistan’s technology industry comprises almost 1% of the country’s GDP1, having crossed the $4bn mark. Whereas the target is set to reach at least $20bn by 2025. Software houses registered with the SECP are 10,000, out of whom more than 3013 (March 2021) are registered with Pakistan Software Exports Board (PSEB). The country’s Tech Hub is Lahore, with the highest number of tech firms, 3567 2.
Moreover, there are more than 0.5m English speaking BPO and IT professionals situated in the country, with around 25000 graduating in the same field every year 3.
The country’s IT industry has evolved into a mature ecosystem, serving numerous global entities at an almost 70% lesser cost than what is charged in developed markets. Thus, Pakistan has been ranked amongst the top countries in terms of affordability of IT services. Similarly, the A.T Kearney Global Services Location Index (2019) placed Pakistan at number 5 in terms of attractiveness of offshore services 5.
Apart from this, the Global Gig Economy Index 2019 termed Pakistan as the world’s 4th most popular country in terms of freelancing.
The domestic market for IT has soared over $1bn, demonstrating the rising penetration rates in the country across different verticals. The penetration rates are specifically prevalent in the telecom market. The broadband penetration is above 40.95% with the number of users exceeding 100m (March 2021). The Tele-density has soared over 79.65% with more than 85m (40%) 3G/4G users. Regarding the telecom infrastructure, fiber-optic cables occupy 85% of it with internet accessibility to more than 2000 cities/towns 5.
Government Initiatives to Boost the IT industry
To boost the country’s IT industry, the government has taken numerous initiatives. The most prominent ones among them are as follows:
- A 100% repatriation of investment and dividends has been allowed to foreign investors of the IT industry. This would encourage greater foreign investment in the country since no restriction would be placed on the mobility of the income and investment (though at the cost of capital outflow from the economy).
- A 3-year tax holiday has been granted to the country’s IT startups with no withholding or minimum tax
- Venture capital funds have been granted a tax holiday till 2024
- IT exports have been exempted from income tax till 2025
- An accelerated tax depreciation rate of 30% is allowed on computer and other IT equipment, therefore reducing any possible tax liability arising
- 100% equity ownership has been allowed to foreign investors
- 16 IT parks have been built with state-of-the-art redundant facilities and IT-enabled infrastructure
- Special Technology Zones authority has been established which is expected to attract an investment of $100m in 5-years
Fundraising by Major Startups
11Funding has been a significant bottleneck for startups in Pakistan. In 2018, there were only $0.06 per capita venture capital funds in Pakistan compared to $0.07 in Bangladesh, $0.18 in Nigeria and $3.72 in India. In 2017, only 9 Pakistani startups received funding, compared to 790 in India, 38 in the UAE and 34 in Nigeria. Pakistani startups were only able to raise around $30m in 2018, whereas a country like Indonesia was able to raise US$274m (excluding unicorns). However, the tables have turned now.
Startups in the country have thus far received $305m in the Venture Capital funding (VC) during Jan-Sep 2021. In the first 8 months, the amount was $228m, surmounting previous year’s $77m, as the Venture Capital firms continue to build their war chest in the country. The boom was mainly led by the e-commerce firms, which bagged $42m in the first half of 2021, across 11 deals. This is against the $11.2m raised by these firms through the whole of 2020. The fabulous 5, namely Retailo, Bazaar, Tajir, Dastgyr and Salesflo raised a cumulative sum of $6.2m in 2020. Thus, their funding has surged by almost 6 times in a year. The FinTech firms played their part too, raising $32m during the first half of 2021. The main contributors were Sadapay with $7.2m and TAG with $5.5m amongst the electronic money firms whereas Seedlabs bagged $6.4m along with KTrade’s $4.5m amongst the trading platforms. In contrast, the entire 2020 only saw a $9.6m funds raised in the sector, that too singlehandedly supported by Finja’s $9m, which was able to raise a further $1.15m from HBL in 2021 to finally wrap up its Series A round.
Latest funding rounds
- December 2021: Krave Mart, a grocery-delivery startup, raised $6m in Pre-seed funding. The round was led by MSA Capital, ru-Net, Global Founders Capital and Zayn Capital
- December 2021: Bagallery, an e-commerce fashion startup, raised $4.5m in Series A. The round was c-led by Zayn capital, Lakson Venture Capital, and Hayaat Global. Earlier, the company had raised $0.9m in Seed funding by Lakson Venture Capital
- December 2021: Bookme, an online tickets booking platform, raised $7.5m in Series A, led by Zaynn Capital, Lakson VC and Hayaat Global
Future Outlook of the Industry
Youth unemployment and lack of diversification in exports which lead to these boom-and-bust cycles are one of the major macro-economic hurdles the country is currently facing. And to tackle both these issues, the IT industry is seen as a robust avenue.
In December 2020, an Ex-IBM executive, Amer Hashmi was appointed as the chairman of Special Technology Zones authority. In his first meeting with the prime minister, he explained that the major reason for the country’s deprivation from a tech boom was the lack of a tech-ecosystem and an enabling environment. Therefore, such an infrastructure was needed to be built on a pathway similar to Dubai Internet City, which was able to attract major Silicon Valley firms.
Hashmi left his job at IBM, Canada, to set up his own technology company in the country, however, this is where he saw the dark side of the country’s regulatory regime, and had to pay bribes and face delays in approvals. Hashmi commits that this would not be the case in these zones, where the companies would be able to operate on a “plug-and-play” model.
The Government intends to open up to 12 STZs in the country, where a 10-year waiver on corporate taxes and import duties pertaining to building material and equipment would be offered to the companies. The zones are expected to attract
an investment of over $1.5 billion, taking the country’s IT industry to over $6 billion, more than double of the current figure.
It is clear that a full-blown technology boom in the country is not possible due to the lack of money the country has. Therefore, the public-private partnership that the government intends to run makes complete sense. The government seems fully committed to use this project as a driver to make Pakistan a back-end operator of the world, as have India and Philippines been for the past decade or so. This was evident from the finance minister’s commitment a few months back, where he said that the government would give these IT companies “anything they want”.
2 IT Industry Sector Report 2019-20
3 IT Industry Sector Report 2019-20
4 IT Industry Sector Report 2019-20
5 IT Industry Sector Report 2019-20