Pakistan’s economy has faced significant challenges over the past decade, grappling with maintaining a high sustainable growth rate amidst mounting pressures from fiscal and external fronts.
However, amidst this backdrop, the information and communication sector, particularly technology, has emerged as a notable outlier. Data compiled by Data Darbar indicates that this sector has largely outpaced the national GDP growth, demonstrating resilience even as other sectors faced slowdowns.
From the third quarter of 2022 onwards, there has been a visible slowdown in the sector’s growth, aligning with broader macro trends. Sequentially, the sector’s GDP even witnessed declines over three quarters, signaling a shift from its previous robust performance.
The dominance of the software and computer services within the sector is evident, reflected in their higher price-to-earnings multiples compared to peers. Despite a narrowing gap, these segments continue to trade at premium valuations, with the sector as a whole boasting a P/E of 15.45 by the end of 2023.
While venture capital has experienced a downturn, it remains a crucial source of funding for growth-oriented companies, overshadowing lackluster public listings in recent years. Since 2019, the Pakistan Stock Exchange has seen minimal activity in initial public offerings, contrasting sharply with the substantial funds deployed through venture capital, highlighting a gap in traditional financing avenues.
ICT exports serve as a key indicator of Pakistan’s tech sector vitality, with exports experiencing impressive growth at a 10-year CAGR of 19.3 percent since 2014. However, there has been a noticeable slowdown in growth over the last two years, reflecting a shift from previous robust expansion.
Alternative metrics, such as the sector’s deposits in banks, also point to healthy growth, with total deposits surpassing Rs. 100 billion for the first time in 2023. Despite this, there hasn’t been a proportional increase in banking credit issued to tech companies, indicating a gap in financing options despite robust growth.
Corporate activity in the sector remains significant, with a steady increase in new IT company registrations, making up a notable percentage of overall new incorporations. However, investor interest in the sector seems subdued, reflected in modest foreign direct investments, which stood at $42 million in 2023.
Talent availability remains a crucial factor driving the sector’s growth, with the technology industry serving as a major source of employment, particularly in urban centers. Despite this, there is a need to significantly expand capacity through formal and vocational training to meet growing demands.
