The IT Sector in Khyber Pakhtunkhwa: Opportunities and Challenges

1. The IT Sector in Khyber
Pakhtunkhwa:
Opportunities and
Challenges
September 11, 2023

2. • The IT Sector in Khyber Pakhtunkhwa:
Opportunities and Challenges
• Introduction
• Key Issues
• Interventions
• Future Prospects
• Conclusion
• Q&A
Agenda

3. Overview of opportunities
and Interventions required
Brief overview of the issues
being faced by IT SMEs
Introduction to Khyber
Pakhtunkhwa, its IT sector
and relevant stakeholders
The IT Sector in Khyber Pakhtunkhwa: Opportunities
and Challenges
01 02 03

4. • Khyber Pakhtunkhwa can position itself as a cost-effective outsourcing destination for
national/international companies looking to reduce operational costs.
• Collaboration with the government on e-governance projects can open opportunities
for IT companies to develop and implement technology solutions.
• The provincial government has shown interest in promoting the IT sector, providing
incentives, establishing IT parks, and supporting tech startups.
• The startup ecosystem in Khyber Pakhtunkhwa is on the rise, with new ventures
focusing on software development, e-commerce, and mobile apps.
• 11.9% population having a literacy rate of 53% across Khyber Pakhtunkhwa, a growing
pool of IT professionals and graduates from universities and technical institutes
• The region offers a cost advantage compared to larger IT hubs, making it attractive for
outsourcing and offshoring services
Introduction

5. • Department of Science and Technology and Information
Technology (ST &IT), GoKP
• Khyber PakhtunKhwa IT Board (KPITB)
• KPTEVTA
• Pakistan Software Export Board (PSEB)
• Information Technology Standing Committee at Sarhad Chamber
of Commerce and Industry
• IT Educational Institutions
• Durshal, NIC, Ignite
• IT Companies and Consultants
Stakeholders

6. • Fast Internet Connectivity and adequate Physical Infrastructure available in major cities only
• Rampant electricity outages and rising rents
• Lack of capabilities for product quality, diversification and innovation at firm level
• Shortage of talent and employability issues, brain drain to other cities
• Government programmes for skill development do not attract quality talent and do not result in
employability
• Insufficient Business Development Skills, In comparison to other cities, KP has a smaller
diaspora abroad associated with the IT field, with a significant portion belonging to the
labor class.
Key Issues
01 Infrastructure

7. • Tax treatment: Cumbersome procedure of registration with PSEB to be eligible for tax
benefits
• Start-ups are exempt from withholding tax on domestic* receipts, but procedures are
cumbersome and create an environment of exploitation with the tax authorities
• Inter-Department processes gaps and issues: FBR vs KPRA: Cumbersome tax collection
procedures between departments, resulting in hassle for SME.
• Lack of legal protection to Freelancers: Enforcing contracts and resolving disputes with
international clients can be complicated
• Absence of Categorization of Firms by PSEB: Unlike the construction sector, the IT industry
lacks formal categorization by the Pakistan Software Export Board (PSEB), which could help
differentiate firms by their size and capabilities.
*Export proceeds are taxed at 0.25% for IT industry
Key Issues
02 Regulatory

8. • Limited Access to finance and growth capital: Bank credit relies too heavily on collateral-
based lending
• Working capital constraints affect payroll delays and employee turnover
• Lack of project finance affects international expansion and investment in internal capability
improvement
• Lack of specific export/project refinance facility by banks or government, as it exists for
other industry sectors
Key Issues
03 Access to Finance

9. • Whitelisting of IP Addresses by PTA: Requirement of using static IP for VOIP calling
diminishes work from home capabilities and increased costs for call centers and other BPOs
• Absence of Payment Gateways: Unavailability of Paypal services
• Alternate payment gateways are not internationally accepted or linked with widely
recognized financial systems
• Dealing with international payments, currency conversion, and payment gateways can be
complex and costly due to third-party transaction fees and exchange rate fluctuations.
Key Issues
04 Technology

10. • Risk perception and investor attractiveness: Security situation in KP is negatively affecting
the IT sector
• Political stability and national security are key considerations for investors, especially in
building a culture of trust and reliability
• International branding and marketing: No concerted effort to brand Pakistan’s IT industry
against international competition
• Lack of exposure visits and participation of IT firms in international exhibitions
Key Issues
05 Regional

11. • Streamlining Taxation and Documentation
○ Align tax deduction processes among financial institutions, FBR, and KPRA.
○ Simplify documentation for tax benefits to support IT company growth.
○ Expedite IT business setup through streamlined registration procedures.
• Optimizing International Transactions
○ Ensure fast international client proceeds exchange.
○ Reduce transaction costs to mitigate cash flow losses
○ Work toward stable national exchange rates for effective financial planning.
• Promoting Digital Payments for Economic Growth
○ Encourage digital payments over cash transactions at the government level.
○ Drive local economic digitization, enhancing transparency and efficiency.
○ Create opportunities for IT innovation in digital payment solutions, fostering technological advancements.
Required Interventions
01 Policy Level

12. • Cross-Cultural Exchange Programs for IT Managers
○ Offer exchange program opportunities for IT company managers to expand horizons
through cross-cultural exposure, skill enhancement, and networking.
○ Immersion in diverse work environments facilitates learning, leadership
development, and innovative problem-solving, contributing to personal and
professional growth and fostering a global mindset.
Required Interventions
02 Exchange programs

13. • Diversifying IT Export Markets
○ Currently, Pakistan's IT exports are heavily reliant on the United States (>50%).
○ The nation should strive to reduce this overdependence on a single market.
○ Opportunities exist in regions like the Middle East and North Africa (MENA), Europe, Scandinavia, and Asia-Pacific for
diversifying IT product and service exports.
• Coordinated Government Efforts
○ A coordinated effort is needed involving various government entities, including the Ministry of Foreign Affairs, TDAP
(Trade Development Authority of Pakistan), Ministries of Commerce, IT, and Science & Technology.
○ This collaboration aims to project Pakistan's IT capabilities and cultivate a positive outlook in target markets.
• Fostering Foreign Policy and Trade Alliances
○ Developing supportive foreign policy and trade alliances is crucial, especially in the MENA region.
○ Such alliances will play a pivotal role in boosting IT exports and expanding market reach for Pakistan's IT sector.
Required Interventions
03 Exploring new markets

14. • Tailored Financing for the IT Sector
○ Launching specialized financing schemes for the IT industry is essential.
○ Conventional banks often overlook the sector due to the lack of tangible collateral,
making it crucial to develop financial solutions tailored to its unique needs.
• Sample Scheme: IT Empowerment Fund
○ Consider the creation of a financing scheme, such as the "IT Empowerment Fund."
○ This fund can address the specific working capital requirements and the absence of
traditional collateral in the IT sector, supporting its growth and fostering economic
innovation.
Required Interventions
04 Financing Schemes

15. • Establishment of a Dedicated Start-up Fund
○ Creating a dedicated start-up fund is a pivotal step in supporting the growth and vitality of
the IT sector.
○ This fund would provide crucial financial backing to innovative ideas and young
entrepreneurs during their early development stages, fostering an environment of
experimentation and creativity.
• Strategic Investment for Industry Growth
○ The start-up fund not only offers essential capital but also demonstrates a commitment to
the future of the IT industry.
○ This strategic investment acts as a catalyst for industry expansion, technological
breakthroughs, job creation, and the country's economic transformation in the digital age.
Required Interventions
05 Start-up Fund

16. • Specialized IT Exhibitions and Trade Fairs
○ Organizing IT-focused exhibitions and trade fairs by TDAP can significantly catalyze
business growth and industry exposure.
○ These events offer IT businesses a platform to showcase products, services, and
innovations, attracting potential clients, partners, and investors, and facilitating
networking, knowledge exchange, and collaboration.
• Amplifying IT Sector Visibility
○ Dedicated IT exhibitions spotlight local talents and innovations, enhancing their visibility.
○ Such initiatives position Pakistan as a competitive player in the global technology
landscape, ultimately benefiting the IT sector and the country's reputation in the industry.
Required Interventions
06 Exhibitions and Trade Shows

17. • Establishing a Robust Cybersecurity Industry Program
○ Recognizing cybersecurity as a cross-industry imperative, a strategic initiative is
recommended to create a robust cybersecurity industry program.
• Exploring Cybersecurity Export Opportunities
○ Pakistan can leverage its unique strengths to explore exporting defense software
and cybersecurity solutions, creating a distinctive value proposition within the IT
sector.
○ Drawing inspiration from countries like Israel, Pakistan can tap into industries ripe
for cybersecurity investment, such as banking, financial services, insurance,
telecom, government, defense, health, retail, manufacturing, and energy, ultimately
establishing a notable cybersecurity export initiative.
Required Interventions
07 Cybersecurity Exports

18. Continued support and investment in the IT sector are crucial for its
sustained development and success.
By attracting foreign investment, the IT sector can further enhance
its growth and create more job opportunities.
The IT sector has great potential for growth and can contribute to
economic diversification.
Future Prospects

19. Continued support,
government investment,
and collaboration with the
private sector are essential
for the future success of
the IT sector in Khyber
Pakhtunkhwa.
Addressing key challenges
such as limited access to
high-speed internet, lack of
skilled workforce, limited
infrastructure and funding,
and regulatory hurdles is
crucial for the growth of
the IT sector.
Conclusion
The IT sector in Khyber
Pakhtunkhwa has
significant potential for
economic development.

20. Q&A