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Slow and steady October 27, 2006

Posted by R.S in Pakistan.
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Seems that the Pakistan’s IT industry is gradually moving in the right direction (or the PSEB has a really good media relations manager) as indicated in the following Business Recorder report

IT exports crossed $1 billion in fiscal year 2005
KARACHI (October 16 2006): The country’s Information Technology (IT) services exports breached the dollar one billion barrier in FY 05 calculated as per the World Trade Organisation’s four-mode model.

According to statistics received from Pakistan Software Export Board (PSEB), Pakistan’s ‘Cross Border’ exports account for 150 million dollar. Cross border exports represents services that are sold by the exporting country to the importing country, with only the service crossing the border eg architectural drawings sent by courier, consultant report sent by email, call centre support provided over the Internet, or software programmes sent over the Internet.

While the services sold in the exporting country to foreigners or foreign owned entities in the exporting country itself account for 200 million dollar (average $250,000 expenditure by over 800 entities).

For example, IT services sold to the World Bank, US Embassy or to one of the 700 multi-nationals operating in Pakistan. As far as WTO’s mode-3, ‘Commercial Presence Abroad,’ is concerned, which represents revenue of national firms established abroad selling services in a foreign market, Pakistan’s exports stood at 400 million dollar.

Under mode-4 ie ‘Temporary Movement,’ the sum accounts for 250 million dollar (at least 5,000 workers earning at least 50,000 dollar per year on average). This refers to the services that are sold or delivered through the presence of the service provider temporarily in the foreign market eg the annual salaries of all H-1, L-1 and B-1 Pakistani IT workers in the USA.

Therefore, total IT services exports from Pakistan in FY 05 amounted to 1.050 billion dollar breaching the dollar one billion barrier. The WTO lists Mode 3, revenue generated by commercial offices overseas, and Mode 4, compensation received by temporary workers who have travelled abroad, as export revenue streams which must be included in trade revenue calculation. It may be mentioned here that other countries such as India employ global services export figures when reporting or estimating revenue.

The need for the four-mode model arises because trade in services is much harder to monitor than trade in physical goods. On the other hand services trade can be transacted over the Internet, through post or through travel of personnel with revenue flowing into company or personal accounts which can exist anywhere in the world.

A recent Bearing Point (BP) study places Pakistan’s global IT exports revenues in FY 04 at around 400 million dollar. The basis of the figure was State Bank of Pakistan IT export revenue figures of just under 50 million dollar. Bearing Point multiplied this figure by two to account for IT export revenue brought into the country but not registered as such with the State Bank.

BP further estimated that for each dollar brought into the country three dollars is retained by Pakistani IT companies overseas. Therefore, global IT revenue of Pakistani companies added up last year to 400 million dollar. Therefore, for official IT export figures of just under 75 million dollar reported by the SBP for FY 05, actual global receipts of Pakistani IT firms should be around 600 million dollar.

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