Tag: Pakistan Software Development

Every now and then, one sees the policymakers or leading industry people talk about the potential of digital and how Pakistan needs to leverage that. Comparisons are offered with respect to regional countries like the Philippines and India and how they have boosted their IT exports.

But how can that be when there is no proper infrastructure or robust capital markets? Just a cursory glance at the technology and communication sector on the Pakistan Stock Exchange gives a fairly good idea: the sector represents a little over one per cent of the overall market capitalisation.

However, ever since the tech wave triggered by Covid-19, Pakistani tech stocks also followed the global trend and rallied by over 27pc in 2020 compared to a 4.61pc increase in the KSE-100 index. Leading that tide was Systems Ltd, one of the oldest IT services export companies in the country that listed on the bourse in 2015.

During the last year, it was the best scrip-wise performer on the PSX. It posted phenomenal gains of 273.6pc as the share price hit Rs468.63 on Dec 31, 2020. While the company had been consistently recording net profit CAGR of over 30pc since 2014, it was only the past 12 months when it truly grabbed the attention of investors. One obviously wonders then: what has changed?

“There was an internal momentum as a group along with growth consistency, and after we crossed a threshold level, the market responded back,” says Systems Ltd Chief Operating Officer Asif Akram, who joined the tech company in July after over 20 years at IBM where he last led the global business services.

“Then obviously Covid-19 also impacted us. Lastly, Pakistani tech companies have remained undervalued and thus offer a good value for money,” he adds. There is truth to his statement. In a Nov 27 report, KASB Research stated: “The average PE multiples for IT services companies in India and Brazil are around 38x 2021 PE — 90pc higher than the multiple we are assigning for valuing the company.” In comparison, Systems Ltd hovers around 20x of trailing earnings.

In 2019, Systems Ltd was named the largest IT exporter from Pakistan though the overall proceeds are too small as proceeds from “telecommunication, computer and information services” stood at only $1.44 billion in 2019-20. Time and again, ambitious targets are set but how can this be really changed?

“For starters, we will need the government to become our marketing agency globally,” says Mr Akram. Another area that requires work, he says, is ending the setting up of competing bodies in the public-sector technology space that perform the same functions. Basically, think of bodies like Digital Pakistan, IT Ministry or even the telecom authority, which often pursue the same goals in parallel but end up creating more silos for the industry.

Finally, the COO reiterates what everyone in the industry also has been saying for a while: there is a lack of talent. “We need more supply of engineers, computer scientists.” Currently, the few top schools produce around 5,000 computer science graduates a year combined while the industry needs no less than 20,000-25,000 of such kids.

And that’s for the baseline scenario. In order to reach a better growth rate (100-200pc) instead of being content with 30pc that’s in some part due to the low-base effect, that recurring supply will have to be in hundreds of thousands.

But for a moment, let’s really put aside our obsession with exports and focus on the local market. With demographics like these, there must be something in it too, right? If we look at Systems Ltd, around 18pc of its top line comes from Pakistan, which clocked in at Rs1.37bn in 2019.

So can we expect a shift in geographical focus from the management? “That amount will increase obviously as we are growing at over 30pc annually but the share is going to remain similar,” Mr Akram says.

In the end, the question is even if the IT exports get to a respectable level, what are going to be the spill-over effects for the local economy? Or could it be a repeat of other sectors where a sizable chunk of the foreign exchange finds its way into the real estate amnesties?

“If we look at what’s happened in the regional countries, such as India or the Philippines, the spill-over effects are huge. A lot of that supply will also be entering the local market services and that will push digitisation in the domestic economy,” he says.

Published in Dawn