Pakistan’s IT exports flat in Aug 2022 on YoY

Information Technology (IT) exports of Pakistan for August 2022 increased by 14% MoM to US$227mn but remained flat when compared to same period last year (SPLY). It is also down 13% from its peak of US$260mn seen in March 2022. The 2MFY23 IT exports were recorded at US$426mn, almost flat compared to the SPLY. This trend is in line with global IT spending slowdown. According to a report by Gartner (Technology Research and Consulting firm), IT spending is expected to grow by 3% in 2022 compared to 10% growth in 2021. Skilled labor shortage is causing IT service providers to offer competitive salaries thus increasing cost of IT services in an inflationary environment. 

According to industry experts in Pakistan, global phenomenon and domestic taxation measures is behind slowdown in Pakistan IT exports. To recall, government withdrew 100% tax credit regime with effect from July 1, 2022 from income of export of Software and IT services and had replaced it withholding tax of 0.25% of export proceeds in FY23 budget.     

For the month of August 2022, Segment wise breakdown indicates that Telecom Services exports decreased by 32% YoY to US$ 41.5mn and Computer Services exports increased by 14% YoY to US$185.1mn. % share of exports for Telecom services stands at 18% whereas share in Computer services stands at ~82% of total IT exports.

On a broader level the global IT industry operates across three verticals. Hardware implementation, software implementation and software/product development. The movement of this classification is from low to high value addition.

SBP reported numbers capture broader classification mentioned above. Therefore, IT & Telecom sector exports are further divided into Telecom Services, Computer Services and Information services. 

Trailing Twelve month (TTM) IT exports of Pakistan as of August 2022 increased by 17% YoY to US$2.6bn compared to US$2.2bn SPLY.

IT sector has depicted a 5-year growth CAGR of 23% (FY18-FY22) and a 10-year CAGR of 19%. Therefore, the current growth trajectory is in line with historical trend.

Computer services require higher value addition compared to Telecom Services whose share is rising. Share of Computer/Telecom services now stands at 82%/18% as of Aug 2022 data as compared to 80%/19% in FY22.

This also compares favorably to share of Telecom/Computer services of 61%/39% in FY17. Growth of IT companies and training of IT professionals has have led to rise in share of Computer services.

§  Slowdown in startup funding is expected to continue in 3Q2022. Few of the recent prominent funding deals in 3Q2022 as per CrunchBase includes: One load (Series A – US$11mn), Price Oye (Seed Round – US$7.9mn), Snap Retail (Pre Seed Round – US$2.5mn), Neem (Seed Round – US$2.5mn), and Mahaana (Pre Seed Round – US$2.1mn).

Pakistani Startups in 2Q2022 raised a total of US$88mn across 14 deals. This translates into an average ticket size of ~US$6mn per deal. Compared this with US$99mn raised across 19 deals in 2Q2021. For analysis purposes, we have not included deals with undisclosed amounts.

The most funded sector in 2Q2022 was E-Commerce (US$40mn) similar to 2Q2021 where E-Commerce was also most funded (US$32mn).

For 1H2022 startups have raised a total amount of US$260mn across 30 deals compared to US$114mn in 1H2021 across 26 deals. This depicts a growth of 128% YoY.

On QoQ basis, amount raised by startups dropped to US$88mn in 1Q2022 vs. US$172mn in 1Q2021. This is in line with global trend where decline in startup funding has been seen due to rising inflation rates and fears of global recession.

Courtesy- Topline Securities

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