The government should outsource large IT projects to the private sector

Shehryar Hydri is the Secretary-General of the Pakistan Software Houses Association (P@SHA) for Information Technology (IT) and IT-enabled Services (ITES). He has over two decades of wide-ranging experience in Technology, Media and Communication. He has worked in leadership roles for technology firms in addition to being a core founding member in media and tech startups. Edited excerpts from a recent BR Research interview with the Secretary-General P@SHA are produced below:

BR Research: Briefly, what is the mandate of P@SHA and how is it structured to achieve that mandate?

Shehryar Hydri: P@SHA is the main trade association for the IT and ITES industry in Pakistan. We represent the industry in the local market where we deal with the government, as well as abroad where we interact with global IT players and associations. Our main mandate is to work for the industry’s rights and to lobby the government for policy incentives to encourage this business in Pakistan.

We follow the hard and fast rules for trade associations that are laid out by the Directorate General of Trade Organisations. Those rules compel us to have elections every year. The yearly election helps elect members for our Central Executive Committee (CEC), which is to us what a Board of Directors is for a company. The CEC members, who are all from the IT and ITES industry, are ten in total. Half of them go up for election every year. This helps ensure continuity in P@SHA’s work.

Every year, the CEC members select a new Chairman from amongst themselves. The CEC also selects a full-time chief executive in the form of a Secretary-General (SG). The SG works full-time with the staff in the Secretariat, or headquarters, in Islamabad. I came on board as SG in 2017; Jehan Ara, our President, is looking after our flagship project, Nest i/o, in Karachi. Among Pakistan’s leading incubators, Nest i/o has graduated about 130 companies in the last three+ years.

BRR: Can you recount any achievements on the policy front?

SH: We worked very closely with the previous PML-N government on finalizing the Digital Policy. We also succeeded in getting an extension in tax-holiday for IT exports until 2025 – previously, the tax-break was expiring in 2019. This extension would encourage more planned investment in the industry. Also, the last government brought down the GST on IT services from 13 percent to 5 percent in the federally-administered areas. Now local IT services can compete better with imported IT services, which don’t carry the GST factor. Going forward, we would like the provinces to also bring down the GST on IT services.

BRR: Now that there is a new government in Islamabad, what are P@SHA’s goals for the coming year(s)?

SH: The main goal for the next year is to continue the momentum from 2018. By working with the PTI government, we want to make sure that we ambitiously build upon the digital policy of the last government and set objectives for the next five years. One of the first steps that the government has taken is the establishment of the PM’s Task Force on IT & Telecom. This task force has diverse participation from the two industries as well as representation from P@SHA. Instead of engaging with multiple stakeholders, now there is a single platform to identify and address issues faced by the industry.

On the policy incentives’ side, we remain focused on making a case for rationalizing GST on IT services within the provinces. Besides, we will be discussing with the government ways on how tax-harassment can be reduced and policy incentives be improved to bring more IT companies into the tax net. A lot of IT SMEs are working in Pakistan but due to lack of incentives, they prefer to remain under the radar.

BRR: Let’s go macro for a bit. What is the size of the local sales of IT and IT-enabled services?

SH: Our figures are not exact – but our idea is that the local market is worth about half a billion dollars. But this figure does not include IT hardware. This is only for IT and IT-enabled services.

BRR: What is the quantum of IT services exports? There have been rumours about alleged under-reporting in IT exports. What is P@SHA’s take on this?

SH: Pakistan has recently crossed the billion-dollar mark in officially-recorded IT exports, as reported by the State Bank of Pakistan (SBP). But P@SHA’s own estimates put Pakistan’s total IT exports anywhere between $2.5 billion and $3 billion. That is almost three times of what goes reported through the SBP.

Such unaccounted-for exports can be an embarrassing thing to explain to IT companies abroad. But it’s more of a process issue than anything else – a lot of IT companies don’t declare their IT exports in the correct code when they receive payments via banking channels. We believe the next billion-dollar falls into this category, as it gets marked down either as personal remittances or as proceeds for locals working for overseas companies. Another half a billion dollars is coming in for the IT freelancers.

BRR: What is your comment on the quality of IT human-resource available in Pakistan?

SH: I think the quality of education that Pakistan has, hasn’t really improved over the years. There has been more focus on volumes over quality. Between 15,000 and 20,000 engineers are graduating every year – most of them come from the IT field. But only 20 percent of them are employable. The remaining graduates require a lot of training to start. So that’s a disadvantage that we start with.

BRR: Governments usually happen to be the biggest buyers of local IT services. Why don’t we see that in Pakistan?

SH: Correct. If you look at India, the government went out of its way in supporting the local IT industry, through prioritizing local procurement, offering partnership in large projects, providing infrastructure facilitation, etc. That’s how their local companies moved up the food chain and started pitching for foreign projects over time.

That has been the missing link in Pakistan, something which we are trying to put across to the new government. Sometimes it is as simple as setting up a tech SEZ to get things going. India now has 113 techs SEZs, after the government allowed setting up an SEZ on a land area as small as five acres. This allowed one-window operation with tax incentives and soon after many tech giants, local and foreign, started setting up their campuses in those areas.

BRR: The previous governments did set up a few Software Technology Parks. What was missing?

SH: Pakistan hasn’t even come close to the Indian concept of developing a tech SEZ. The maximum that previous governments have done is that they took a few building and declared them Software Technology Parks (STP). There were no incentives like low utility bills, high-speed Internet, freedom from tax harassment, etc. The few companies that set up shops in those STPs, therefore, ended up dealing with existing laws, which are according to old ways of doing business.

BRR: Sounds like building ‘scale’ is the main problem of the local IT industry. How do we achieve scale in a reasonable period of time?

SH: I think the government has a big role to play here. The government needs to outsource its large IT projects to the private sector. It may be a little costly, but it will save money through efficiencies and lack of corruption. The government will always have limits scaling its in-house IT development. FBR’s PRAL system is a case in point. Their implementation team developed the technology themselves. But now they have hit a dead-end. They cannot scale or re-modernize it further unless they re-do it from scratch.

We realize that currently, due to PPRA rules, it is difficult, even tricky for the government to work with smaller companies. But a restructuring of government laws and authorities dealing with contracting is in order. I think that the PM’s Task Force on IT & Telecom is going to have a look at it.

BRR: Towards that end; what are your thoughts on setting up a centralized contracting system for IT-related procurement?

SH: It will be good to have a centralized contracting system for the government’s procurement of IT services. Centralization has an obvious disadvantage in that it strengthens bureaucracy. But the advantage is that it will build a scale for local vendors as they become part of a large procurement ecosystem, which is essential for them to become competitive. Besides, it will create negotiating leverage for the government on overall costs when it is buying specialized IT services from foreign majors like HP, Oracle and Google.

Copyright Business Recorder, 2018