Pakistan IT Exports in September 2022 down by 10% MoM
Analysts say that Startup funding is slowing down but is expected to cross 2021 levels
Information Technology (IT) exports of Pakistan for September 2022 declined by 10% MoM and by 4% YoY to US$206mn primarily due to lower computer services exports.
IT exports peaked at US$260mn in March 2022 and since then it has been on a declining trend. This number is also below the 6-month rolling average of US$217mn.
In 9M2022, IT exports are up 9% to US$1.95bn whereas IT Exports for 1QFY23 stand at US$633mn declining by 5% QoQ and almost flat YoY.
This decline in IT exports for the last few months is concerning as the country’s foreign exchange reserves are falling and the IT sector has been one of the better-performing sectors.
IT sector exports have depicted a 5-year growth CAGR of 23% (FY18-FY22) and a 10-year (FY13-FY22) CAGR of 19%. Therefore, the current growth trajectory is below the historical trend.
IT sector exports have depicted a 5-year growth CAGR of 23% (FY18-FY22) and a 10-year (FY13-FY22) CAGR of 19%. Therefore, the current growth trajectory is below the historical trend.
The decline in IT exports is reflecting a global trend where IT spendings are likely to be trimmed in 2022. According to a report by Gartner (Technology Research and Consulting firm), IT spending is expected to slow down to ~1% in 2022 compared to 10% growth in 2021.
Pakistan’s Finance Minister recently stated that it refused to withdraw the 0.25% levy on IT exports terming it as minimal.
However, the Finance Ministry has assured that IT professionals exporting their services would not be sent tax notices by the Federal Board of Revenue (FBR) and their tax returns would not be subjected to audit to minimize their cost.
The government withdrew a 100% tax credit regime and it was replaced with a 0.25% turnover tax on export proceeds.
Besides this industry experts also believe that volatility in the value of the Rupee has also contributed to a decline in exports due to companies holding off selling their FX.
Over the years, the share of higher value-added computer services exports is increasing as it has increased to 82% in 1QFY23 as against 79% in FY21.
Segment-wise breakdown for the month of September 2022 indicates that Telecom Services decreased by 17% MoM and by 5% YoY to US$34.5mn and Computer Services decreased by 8% MoM and by 4% YoY.
The total share of these exports for the month stood at 17% and 83% respectively almost the same as in September 2021.
The latest quarterly numbers also reflect the same trend with Telecom/Computer share of exports for 1QFY23 standing at 18%/82% compared to 22/77% share in 1QFY21.
The annual number presents a broader growth trend of value-addition with Telecom/Computer Services’ share standing at 19%/81% compared favorably to a share of 39/61% in FY17.
The growth of IT companies and the training of IT professionals have led to a rise in the share of Computer Services.
This value addition is leading to higher Net Exports (Exports minus Imports) of the sector since Computer Services exports are mostly human resource driven.
Going forward, training of IT professionals, removal of key bottlenecks, and revival of the global economy will remain key for the future of IT exports.
The slowdown in startup funding continued in 3Q2022 with US$63mn raised across 10 disclosed deals. This is compared to US$88mn across 14 deals in the previous quarter (2Q2022) and US$ 173mn across 18 deals last year (3Q2021). For 9M2022 an amount of US$323mn was raised across 40 deals, which depicts the growth of 13% YoY. Despite the slowdown in two consecutive quarters funding for 2022 is expected to cross US$359mn achieved in 2021.
The most funded sector in 3Q2022 was Fintech (US$36mn) followed by Blockchain (US$14mn) and E-Commerce (US$12mn). Some of the biggest and most prominent deals from the quarter included US$17.6mn raised by Dbank, US$13.2mn by Revolving Games, and US$11mn by OneLoad.
Dbank is geared towards financial inclusion and is Co-founded by Tania Aidrus former head of Digital Pakistan. IT Exports in August 2022 remain flat, and Startup funding slowing down
Askari Bank participated as a Secondary Investor. Revolving Games is a blockchain-based game developer and Pantera Capital, one of the biggest crypto funds, and Rockstar Games, one of the biggest gaming companies participated in the round. the download had Series A stage funding and is a product of Systems Limited associate company EP Systems.
3Q2022 saw Pakistan’s largest Tech acquisition (US$350mn) of Cloudways by Digital Ocean and Airlift, one of the most well-funded startups shutting down operations.
