Special Section: Pakistan’s Growing IT Exports and Tech Start-

ups: Opportunities and Challenges1

Information Technology (IT) sector presents an opportunity for developing economies to leapfrog due to its
transformative nature and lower entry barriers. IT facilitates this transition by improving efficiency and
productivity across public and private sectors, potentially benefiting nearly all aspects of socio-economic life.
However, IT-led leapfrogging depends on various factors such as the absorptive capabilities of individuals,
businesses, and governments; effective coordination among stakeholders; availability and access to IT. The recent
growth in Pakistan's IT service exports and tech start-up funding appear as emerging signs of digitalisation amid
Pakistan's large young population alongside regulatory developments aimed at increasing digital adoption and
online payments. Further benefitting from Covid-19, which led to increased demand for digital services, the growth
in Pakistan’s IT service exports averaged 24 percent between FY20-FY22, whereas start-up funding between CY21-
CY22 reached around US$ 709 million compared to approximately US$ 100.8 million in CY19-CY20. However, to
continue this trajectory and benefit from the transformative impact of IT, the digitalisation of the economy has to be
prioritized across public and private sectors with a focus on bridging the increasingly noticeable human resource gap
in the sector, providing a facilitative environment for investment in local start-ups, addressing the issue of
availability and affordability of IT services, and the provision of cross-cutting technology and ancillary frameworks.

S1.1 Introduction
The Information Technology (IT) sector has a Supported by the proliferation of telecom,
transformative impact on developed and internet and computing technologies, the
developing economies. It is steadily growth in IT industry is being driven by two
becoming a key driver of economic growth related but distinct categories that broadly
and has been changing the structure of encapsulate a wide and evolving field. The
economies in many ways (Figure S1.1). This first, which forms the basics of IT led
includes faster growth in capital and labour digitalisation, includes software production
productivity; increased efficiency in and its usage by individuals, businesses and
traditional business operations; new governments. The second relates to broader
opportunities for employment and digitalisation of economy via technology
entrepreneurship, especially for women and based solutions typically offered by start-ups
marginalised segments; fostering financial that explore untested innovative ways of
inclusion and financial sector development; business models across various facets of
and enabling knowledge spillover that economy and society.3, 4
stimulates innovation.2

1 This special section draws on discussions with various public and private sector stakeholders including
software exporting firms, relevant government bodies, incubators and start-ups from multiple sectors.
2 Asian Development Bank (2010). Information and Communication Technology for Development ADB

Experiences. Manila, Philippines: Asian Development Bank; T. Niebel (2018). ICT and economic growth: S.
Asongu and B. Moulin (2016). The role of ICT in reducing information asymmetry for financial access,
Research in International Business and Finance, Elsevier, vol. 38(C), pp. 202-213: W. Sutherland and M. H.
Jarrahi (2018). The Sharing Economy and Digital Platforms: A Review and Research Agenda, International
Journal of Information Management, vol. 43, pp. 328-341: C. Corrado, J. Haskel, C. J. Lasinio (2017).
Knowledge Spillovers, ICT and Productivity Growth, Oxford Bulletin of Economics and Statistics, Vol. 79(4):
3 World Bank report (2022). South Asia’s Digital Opportunity Accelerating Growth, Transforming Lives,

Washington D.C: World Bank

4 The definition of start-ups is in want of consensus in academic and non-academic contexts. In this

Special Section, the term is being used in the context of firms that explore new untested technology (or
tech) based business models that disrupt the old way of economic organisation, production process or
service delivery.
State Bank of Pakistan Half Year Report 2022-23

ICT's Impact on Economic Growth and Development Figure S1.1

*Some Startups may scale up and invest abroad.

Source: SBP based on various papers cited in this special section chapter particularly: (a) J. Grace, C. Kenny, C.
Zhen and W. Qiang (2004). Information and Communication Technologies and Broad-Based Development, World
Bank Working Paper No. 12. Washington D.C: World Bank (b) M. Andrianaivo and K. Kpodar (2011).ICT,
Financial Inclusion, and Growth: Evidence from African Countries, IMF Working Paper, Vol. 73. No.11, Washington
D.C: International Monetary Fund (c) S. Asongu and B. Moulin (2016). The role of ICT in reducing information
asymmetry for financial access, Research in International Business and Finance, Elsevier, vol. 38(C), pp. 202-213.

While there are certain commonalities vis archetypical productivity-enhancing IT

between these two categories –such as need and software usage within existing business
for programmers and coders, cloud storage models. For example, generic or bespoke
and computing and digitisation of records – accounting or customer management
both are also quite distinct. Software and software for financial or non-financial
other IT firms can have large established company.
players and SMEs, whereas tech start-ups are
generally young firms with less than ten or The latter includes internet or telecom-based
even five years of operations. They are also services – such as ride sharing solutions, e-
distinct in their usage, application and commerce ventures, fintech, and education,
intended impact. The former includes agriculture and health technology solutions
software production and design, software (edTech, agriTech and healthTech) – where
troubleshooting, software consultancy vis-à- the defining feature is a technology-based

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

product or business model that has been built on the third industrial revolution that
untested or little tested before. For example, focused on IT and electronics.5 Unlike the
an accounting mobile app that enables previous revolutions, the pace of
families and individuals to maintain easy to advancement of the 4IR is exponential,6
use household accounting ledgers connected which implies that the opportunity cost for
directly with their bank accounts, credit card inaction or late action can be massive for
as well as credit bureaus for credit scoring. developing countries.

Both these categories are also commonly The multi-faceted impact of IT sector
known for different reasons. Software and therefore, has particularly persuaded
other IT services have gained attention developing economies to focus on IT as a
because of its growing share in international development strategy because it provides an
services trade, even though it is their usage opportunity to leapfrog i.e. growth and
in domestic economy across various sectors development through adoption of latest
and operations thereof that leads to a technology in areas where earlier versions of
transformative impact on economy. Start- technological means and methods were not
ups have gained prominence due to the way adopted. Since IT alters the way consumers,
they are disrupting old ways of economic producers, governments and citizens operate
and social organisation given the cross- and interact with each other, increased focus
cutting technology solutions they work on. on its production and usage - both domestic
While start-up services are also tradable usage of IT and software services and
across countries, they are typically tailored to expanding footprint of start-ups - helps
their respective local environment at the time bypass the traditional pathways to
of their launch. development; hence the leapfrog. Moreover,
businesses and governments in developing
Globally, start-ups have also started using countries are comparatively swift to switch
frontier technologies, i.e. new generation to new technologies because they have no or
technologies which are reshaping industry relatively less sunk investments in legacy (i.e.
and communication, paving the way for the older or soon to be outdated) technologies
fourth industrial revolution (4IR). These whereas IT sector has low entry barriers,
include Artificial Intelligence (AI), Virtual making it an equalizing agent between
Reality, Big Data, the Internet of Things individuals and countries.7
(IoTs) and other technologies that are being

5 World Intellectual Property Organization website: (Available at:

www.wipo.int/export/sites/www/about-ip/en/frontier_technologies/pdf/frontier-tech-6th-
factsheet.pdf), Geneva: WIPO
6 K. Schwab (2016). The Fourth Industrial Revolution: What It Means, How to Respond. Fourth Industrial

Revolution. Geneva: World Economic Forum

7 C. Parez and L. Soete (1988). Catching up in Technology: Entry Barriers and Windows of Opportunity in

Technical Change and Economic Theory, Open Access publication from Maastricht University, Maastricht,
Netherlands; K. Lee (2019). Economics of Technological Leapfrogging, working paper 17, United Nations
Industrial Development Organization, Vienna: Austria; J. Manyika, M. Chui, P. Bisson, J. Woetzel, R.
Dobbs, J. Bughin, D. Aharon (2015). The Internet of Things: Mapping the Value Beyond the Hype, New York:
Mckinsey & Company

137
State Bank of Pakistan Half Year Report 2022-23

For governments, the growing prevalence of However, leapfrogging through IT-led

digital data repositories, telecom and growth and development depends on many
internet, for example, opens new, effective enabling factors. These include absorptive
and easily scalable ways to provide data capabilities of individuals, businesses and
driven policy and fiscal support. It also governments to learn, adopt and adapt to
supports the private sector to leap frog; for new technologies. This, inter alia,
instance, the internet has allowed farming necessitates improving IT-focused human
communities and other marginalised capital, wider digital literacy, and
segments of economy, such as women
affordability of technology. Moreover, given
entrepreneurs, to by-pass the conventional
the cross cutting nature of IT, the
brick-and-mortar way of retailing and
development of complementary technologies
directly venturing into web-based or mobile-
as well as rules and procedures in interlinked
app-based retailing (e-commerce & m-
commerce). This is often across national industries and sectors need to be upgraded
boundaries as IT services exports and IT- to affect IT spillover and leapfrogging.9
enabled exports can flourish without capital
intensive investments. Similarly, digital In this regard, digitalisation of both public
financial technologies (fintech) are fast and private sectors of economy plays a
tracking financial inclusion and digital critical underlying role as it directly impacts
financial payments in countries that have the addressable market for both domestic
had significantly poor performance in brick usage and exports of software, as well as
and mortar banking networks and credit start-ups. A large addressable domestic
card penetration. market provides a strong base for software
firms to ultimately grow and cater to
While the hardware aspects of IT remains
prominent, a transformational shift from IT regional and foreign markets. Given the fast
manufacturing sector to IT services has been evolving nature of IT technology and that
witnessed recently. The move from a technological adaption is a continuous and
hardware to software-centric growth has cumulative process, the public sector has an
been particularly pronounced in developing important role to play. This includes
countries, due to declining costs of improving coordination among stakeholders;
broadband internet, telecom services, and increasing awareness and usage of sector-
other new technologies that facilitate growth specific technologies; ensuring affordability
in both basic form of digitalisation i.e. and access to hardware and IT services,
software and software related services and strong domestic demand for digitalisation;
wider form of digitalisation via start-ups.8

8 Measuring the Information Society Report 2018, Vol.1, pp. 1-189, Geneva, Switzerland: International
Telecommunication Union
9 W.E SteinMueller (2001). ICTs and the possibilities for leapfrogging by developing countries, International

Labour Review, Vol. 140, Issue No.2 ; M. W. L. Fong (2009). Technology leapfrogging for developing
countries. Encyclopaedia of Information Science and Technology. Khosrow-Pour, Mehdi, ed. Information
Science Reference, Hershey, Pa, USA, pp. 3707-3713.

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

availability of infrastructure, and provision Pakistan's IT Exports as Percent of Figure S1.2

of an enabling regulatory environment.10 Other Foreign Exchange Earning
Avenues
percent percent
100 160
In Pakistan, the recent growth in IT exports 75 120
and start-ups appear as emerging signs of 50 76 65 80
16 16 18 57 15 47
digitalisation. Driven by both enabling 25 2 7 40
policies of the government and the central 0 0

Rice

Bedwear

Garments†

Remittances
Knitwear
bank, availability of low-cost human capital,
and the onset of the pandemic, both IT
exports and tech start-ups have witnessed
sharp growth in recent years. IT exports – FY13 FY22 growth*-rhs
mainly led by software and software-related *Refers to growth in proceeds from above-mentioned
exports - rose to $2.1 billion in FY22 from export products and remittances between FY13-FY22
†Readymade
$0.89 billion in FY19 and $0.29 billion in Source: State Bank of Pakistan
FY13. As a result, IT exports is increasingly
becoming one of the leading foreign domestic tech start-ups on the other hand are
exchange earning segments of economy concentrated in fintech and e-commerce that
(Figure S1.2). Likewise, the size of funding cumulatively accounted for 71 percent of
and the number of deals in technology start- total funding of all publicly reported deals
ups rose from around US$ 37.5 million and between 2015-22.12 Start-up activity as
29 in 2019 to US$ 347.4 million and 70, indicated by funding and deal count is not
respectively, in 2022, led largely by widespread across various sectors of
international investors.11 economy, such as education, health and
other sectors where digital transformation
However, as discussed in next section, this can have large positive externalities.
growth stems from a negligible base. While
software usage in domestic economy is Moreover, both IT exports and domestic tech
uncommon, implying low level of basic form start-ups have substantially large room to
of digitalisation, the country’s IT exports are grow. Even after such fast paced growth in
dominated by small-sized software exporters recent years, Pakistan’s share in global export
most of whom export less than $0.1 million a of computer services is only 0.3 percent.
year. IT exports are not diversified, where Similarly, the start-up space still lags far
the share of US alone is more than half. The behind regional and global players vis-à-vis

10 C. Xavier, D. Comin and M. Cruz (2022). Bridging the Technological Divide: Technology Adoption by Firms
in Developing Countries. Washington, DC: World Bank: D. Suarez and E. Abdallah (2019) Public Sector
Readiness in the Age of Disruption in partnership with Seven Imperatives to Navigate your Journey to Readiness,
World Government Summit in partnership with PwC: J. Tanburn and A. D. Singh (2001). ICTs and
Enterprises in Developing Countries: Hype or Opportunity? ILO Working Paper. Geneva: ILO
11 Funding refers to an investment by any type of foreign or local investor in a start-up firm, usually

against an equity stake in the firm, whereas deal refers to the number of funding transactions regardless
of the size of funding. Investments by same investors in different funding rounds are reported as distinct
deals.
12 Source: Data Darbar

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State Bank of Pakistan Half Year Report 2022-23

the presence of unicorns (start-up with $1 also ought to be made as top priority agenda
billion valuation or more), venture capital alongside streamlining of sectoral policies
(VC) funding and overall start-up ecosystem. and regulations.

Lastly, the enabling factors needed for With a focus on software exports and
domestic tech start-ups within the broader IT
digitalisation are wanting. At the one end,
sector, this Special Section is organized as
human capital constraints have begun to follows. The next section discusses trends in
emerge in the form of demand-supply gaps, Pakistan’s IT exports and start-ups space,
skill-mismatch and inadequate quality of followed by Pakistan’s comparison with
technical and soft skills. At the other end, regional and global players. Section S1.3
low levels of basic literacy and weaker levels discusses the above mentioned enabling
of digital literacy among population impairs factors that have supported IT exports and
absorptive capacity of technology. start-ups thus far but are far from being
adequate for digital transformation. The last
section summarizes key insights and
Similarly, despite recent gains digital emphasizes the importance of enabling
connectivity remains a challenge both in environment necessary for leapfrogging,
terms of access and usage as the cost of which necessitates whole-of-the-government
mobile phone devices and internet is higher approach given IT’s cross cutting nature.
in Pakistan compared to both advanced and
peer economies and thus a constraint to S1.2 Trends in Pakistan’s IT Exports
potential digital transformation. From the and Technology Start-ups
perspective of underlying enabling
technologies and frameworks such as cloud Pakistan’s IT exports and technology start-
computing, strong cybersecurity and ups have gained prominence in recent years.
interoperability, policy framework has The former, led by software and software-
started moving in the right direction. related services, grew at a CAGR of 24.4
However, in this regard, Pakistan is lagging percent between FY17 and FY22, whereas the
behind peer economies. latter rose significantly during the same
period, both in terms of deal count and in
Finance is another area that warrants terms of funding.
attention, from the perspective of limited
access to finance and fintech’s current level IT Exports – Software and Software Related
of penetration in the face of low mobile Services Leading the Way
money account ownership and the challenge
of low levels of financial literacy. And while In terms of export classification, IT is part of
the country needs to improve significantly on the larger ICT sector in Pakistan, which stood
e-government indicators to fast track at only $269 million in FY06 when reporting
digitalisation of economy that can increase of ICT exports began as per BPM6
the size of domestic market for software standard.13 It took more than 10 years before
firms and start-ups, digital transformation the country’s ICT exports was able to cross

13In line with Balance of Payments and International Investment Position Manual (BPM6), the
classification ‘ICT exports’ is divided into three broad sub-categories: Telecommunication Services;
Computer Services, and Information services. Each of these comprise different sub-categories that
correspond to different nature of transactions as per the Purpose Codes currently adopted by the SBP.

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Growth Trajectory of ICT & IT Figure S1.3 exports in FY22 with the rest of inflows
Services Exports stemming from Telecommunication Services
billion US$ category (including Call Centres) and a
3.0
negligible share of Information Services
(Figure S 1.4).
2.0

IT exports as classified under the category

1.0 Computer Services comprise five sub-sectors:
(a) Export of Computer Software; (b)
0.0 Software Consultancy Services; (c) Other
Computer Services; (d) Hardware
FY20
FY06

FY08

FY10

FY12

FY14

FY16

FY18

FY22

Consultancy Services; and (e) Maintenance

ICT exports IT exports and Repairs of Computers. Of these,
Source: State Bank of Pakistan
software and software related exports – i.e.
Exports of Computer Software and Software
the $1 billion mark in FY18. However, the Consultancy Services – have the largest share
pace of growth accelerated sharply since in Pakistan’s IT exports rising to 52 percent
then, with ICT exports crossing $2 billion by in FY22 from 32 percent in FY13, as a result
FY21 and $2.5 billion by FY22. (Figure S1.3). of an increase from $255 million to $1.4
The share of ICT exports in total service
billion during this period.
exports increased from 7.2 percent in FY06 to
37.7 percent in FY22 which makes it the
largest contributor of service exports. However, these official statistics do not fully
capture the share of software and software-
The growth in exports of Pakistan’s ICT related exports. By definition, the category
sector is mainly led by Computer Services (IT of Other Computer Services also includes a
exports), which contributed 80.5 percent (or host of unspecified hardware, software and
$2.1 billion) of Pakistan’s ICT services software related services, of which, industry

Breakdown of ICT Exports Figure S1.4

3.0 billion US$

2.0

1.0

0.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Software consultancy services Other computer services Export of computer software

Telecom services Call centres Others*
*Others include Hardware Consultancy Services, Maintenance & Repair of Computers, Information Services
Source: State Bank of Pakistan

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State Bank of Pakistan Half Year Report 2022-23

Top 10 Exporters of Computer Figure S1.5 combination of these factors imply that total
Services - 2021 share of software and software-related
billion US$ percent exports in Pakistan’s IT exports may actually
250 35
28.8 be higher than what is reported as per official
200 28
150 21
classification.
100 11.5 14
7.5 6.6 4.7 Small Firms; Undiversified Markets
50 3.6 3.5 3.4 2.3 2.3 0.3 7
0 0
From the perspective of global trade, while
Singapore
USA

UK
China

France
Ireland

Germany
India

Israel
Netherlands

Pakistan
Pakistan’s share in global exports of
Computer Services remain small; it has
increased from 0.17 percent in 2017 to 0.3
Exports Share in global exports-rhs percent in 2021. (Figure S1.5) However,
Source: State Bank of Pakistan & International Trade analyses of Pakistan’s export markets and
Centre firm-wise exports point towards substantial
room for improvement.
estimates suggest, Pakistan mostly exports
software and software-related exports since In terms of export diversification, total IT
the country’s hardware industry is not as exports are concentrated to a few markets
developed as software industry. 14 Moreover, where the share of USA has averaged more
the official statistics of Other Computer than 55 percent between FY13-FY22 (Figure
Services also currently includes export S1.6). Moreover, while Pakistan’s exports to
proceeds ($265 million in FY22) from its top five destinations has increased slightly
Freelance of Computer and Information
Services, which is also estimated to include Pakistan's Share in Computer Table S1.1
software and software related consultancy Services Imports of its Top
exports by freelancers.15 Export Destinations
Ranking Top Exporters 2014 2021
Lastly, an additional $1.5 billion of IT 1 USA 0.7% 3.9%
(including software and software 2 Singapore 0.1% 0.4%
consultancy) and IT-enabled exports was 3 UK 0.4% 1.4%
estimated to be in the grey market in 2019, 4 Ireland 0.0% 0.4%
which as per current industry estimates may 5 UAE 9.6% 7.1%
have grown to $2.5 billion by FY22.16 The Source: State Bank of Pakistan and International
Trade Centre

14 SBP’s purpose codes for services export classification are currently based on sub-sectors that have large
inflows, and several hardware and software related services (identified in IMF’s BPM 6th Edition) that do
not have large export inflows are currently clubbed as Other Computer Services. The full list of services
included in other computer services may be reviewed at:
(www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf page. 176-177 accessed on February 02, 2023)
15 Freelance of IT-enabled exports such as online tuitions, report writing and other services other than

those related to computer and information systems are reported in a separate category-(Chapter 10)
16 State Bank of Pakistan (2019). Special Section: Performance of ICT Exports of Pakistan, The State of

Pakistan’s Economy, First Quarterly Report 2018 – 2019, Karachi: SBP

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Pakistan's Top 5 Export Destinations Figure S1.6

a. Export of Computer Software b. Other Computer Services c. Software Consultancy
billion US$ billion US$ Services
68 68 billion US$
68
51 51
51
34 34 34
17 17 17
0 0 0
UK

UAE
USA

Singapore

Canada

Singapore
USA

UAE

UK
Ireland

UAE
USA

UK
Ireland

Singapore
FY13 FY22

Source: State Bank of Pakistan

in recent years (Table S1.1), its export share Pakistan Export's Share in the Table S1.2
in the top importers of Computer Services Top Importers of Computer
remains negligible except for an increase in Services
the share of US imports (Table S1.2). This Ranking Top Importers 2014 2021
underscores the need to explore new and 1 Germany 0.0% 0.1%
other big markets. 2 USA 0.7% 3.9%
3 China 0.1% 0.1%*
Among the various reasons behind export
4 Singapore 0.1% 0.4%
market concentration is the existence of small
5 Japan 0.0% 0.0%
IT firms that do not have adequate means to
explore international markets, especially 6 France 0.0% 0.0%
non-traditional markets (i.e. markets other 7 Netherlands 0.0% 0.1%
than USA, UK, UAE) with which Pakistan 8 India 0.0% 0.0%
does not have strong commercial or 9 Belgium 0.0% 0.0%
historical ties.17 Analysis of firm-wise data 10 Sweden 0.0% 0.1%
shows that more than 80 percent of firms in * based on 2019 data
Pakistan export less than $0.1 million and Source: State Bank of Pakistan and International
more than 90 percent export less than $0.5 Trade Centre
million per year.18 In terms of percentage of
each of the major sub-categories of Computer
total receipts, relatively small firms
Services (Table S1.3).
contribute the most to total annual receipts in

17 Pakistan’s export market concentration is a structural issue affecting all sectors of the economy. The
reasons for this concentration includes low level of export competitiveness and product diversification,
and negligible investment in Research and Development (R&D) etc. (SBP website:
www.sbp.org.pk/publications/staff-notes/SN-2-17-Export-Prefor-Pak.pdf and SBP website:
www.sbp.org.pk/reports/annual/arFY16/Chapter-06.pdf)
18 NTN Reporting Firms.

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State Bank of Pakistan Half Year Report 2022-23

Distribution of Firms by Size of Export Receipts - FY22 Table S1.3

Exports of Computer Software Software Consultancy Services Other Computer Services**
Exports No. of Cumulative No. of Cumulative No. of Cumulative
Proceeds
<0.1 Firms
769 (65) Proceeds
19 (4) Firms
3351 (80) Proceeds
69 (12) Firms
2185 (86) Proceeds
38 (16)
Ranges (millions US$) (millions US$) (millions US$)
0.1-0.5 237 (20) 56 (11) 643 (15) 143 (25) 281 (11) 60 (26)
(million US$)
0.5-1.0 84 (7) 59 (12) 124 (3) 85 (15) 32 (1) 22 (10)
1.0-5.0 69 (6) 146 (29) 84 (2) 156 (27) 32 (1) 56 (24)
5.0-10.0 8 (1) 50 (10) 5 (0) 32 (5) 2 (0) 15 (7)
10.0-50.0 7 (1) 120 (24) 5 (0) 97 (17) 1 (0) 40 (17)
>50 1 (0) 59 (12) 0 (0) 0 (0) 0 (0) 0 (0)
Total* 1,175 506 4,212 582 2,533 231
Figures in parentheses show percent of total. *The total may not match the official total figure as this figure
includes the export proceeds of only NTN Reporting Firms. A firm may be reporting exports in more than one
Soft information
category. suggests
** Excluding that
freelance the existence
proceeds of $265 million interventions to drive IT consumption by
ofSource:
small State
firms Bank of Pakistanmay be attributed
in Pakistan domestic businesses and individuals.
to a variety of factors including the nascent This is because large domestic demand
stage of domestic IT industry, the challenge enables the typically small software firms to
of access to finance, increasingly evident test their products, and gain competiveness,
human capital constraints, and insufficient scale and managerial capabilities, which
domestic demand. While these are discussed readies them for international competition.
in Section 3, it’s important to note that Even in India and Ireland, demand for
although IT has garnered attention from the software by quality conscious domestic
perspective of exports in Pakistan and in consumers, such as local multinational
other developing economies, domestic subsidiaries in financial and non-financial
software demand has an important role in sectors, served as conduit for many firms to
fostering IT industry. the export market. Moreover, India and
Ireland have recently started focusing on
While countries like India and Ireland – top domestic market digitalisation which
two global IT exporters – mainly benefitted includes plans for both increased usage of
from global demand, several other leading productivity-enhancing software by
software exporting countries, such as both domestic businesses and increased frontier
the earliest adopters of IT (Western European
technologies’ usage across the economy.19
countries, and the US), and late followers
(China, Brazil, Korea, and Russia) primarily
thrived on strong domestic demand. This Technology Start-ups
growth in domestic demand is partly
supported by increased usage of IT by the Pakistan’s start-up ecosystem is still nascent
government and government policy but evolving, having grown manifolds in the

19UNCTAD (2012). Information Economy Report: The Software Industry and Developing Countries, Geneva:
UNCTAD; R. Heeks and B. Nicholson (2011). Software export success factors and strategies in
“follower” nations, Competition & Change Journal, Vol. 8 No. 3, pp. 267-303; McKinsey Report (2019).
Digital India: Technology to transform a connected nation, New York: McKinsey & Company; Government of
Ireland website: (www.gov.ie/pdf/?file=https://assets.gov.ie/214584/fa3161da-aa9d-4b11-b160-
9cac3a6f6148.pdf#page=null); European Investment Bank Report (2019). The digitalisation of small and
medium enterprises in Ireland Models for financing digital projects, Luxembourg: EIB

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

last seven years as measured by three key 2021, local start-ups raised about US$ 330 to
metrics: total funding raised by start-ups, US$ 362 million, compared to US$ 60 to US$
total number of deals or deal count, and 63 million in 2020. Similarly, the total
growing interest by international venture number of deals increased to 82-84 in 2021
capitalists and other investors. from 47 in 2020.

Local start-ups have raised roughly a total of Sectoral division of these inflows shows that
US$ 837 to US $ 872 million between e-commerce and fintech accounted for 71
2015 and 2022 with noticeable inflows percent of total funding between 2015-2022.
witnessed in the last couple of years. Of the Similarly, in terms of deal count, the e-
start-ups that closed deals between 2015- commerce and fintech sectors had a share of
2022, about 11.4 percent are now inactive, about 43 percent in total deals during 2015-
with the rest either acquired or active. In 22. On the contrary, during this period,
edtech, healthtech, agritech and foodtech
Deals & Fundings - Pakistan's Figure S1.7 cumulatively attracted only 9.4 and
Startups 22.2 percent of the funding and deal count,
440 million US$ number 80 respectively.20, 21 These indicators suggest
that start-up activity is not widespread
330 60 across different sectors, particularly those
220 40 where digital transformation can have a large
positive spillover (Figure S1.7).22
110 20

0 0 Nevertheless, international players have

2015 2016 2017 2018 2019 2020 2021 2022 started investing in Pakistan’s start-up
Others
Healthtech ecosystem in recent years. For instance,
Transport/Logistics Kleiner Perkins, an American venture capital
Fintech
E-commerce firm and one of the investors in notable
Undisclosed Deals* - rhs companies like Google, Amazon, and
Disclosed Deals - rhs Twitter, made its first investment in Pakistan
* for the undisclosed deals the amount is not disclosed.
Note: The total number of deals and funding may not in 2021.23 Similarly, Sequoia Capital, which
match from different sources because of differences in partnered with companies like Instagram,
classifications and cateogrisaiton of the startups and Airbnb, Apple, and Zoom, also entered
deals. Hence, the data is indicative and not exhaustive.
Source: Data Darbar

20 Deal count includes disclosed and undisclosed deals.

21 Estimates are based on the deal flow tracker by Invest2Innovate and Data Darbar. The data is reported
on calendar year basis; data prior to CY15 is incomplete and inconsistent. Start-up-related statistics, in
general, and the funding and deal count numbers, in particular, used in this section are indicative, and
figures from different sources may vary. This variation originates from the differences in the classification
and categorisation of the deals.
22 Ignite (2023), Study for Assessment of Pakistan’s Startup Ecosystem
23 Kleiner Perkins (www.kleinerperkins.com/partnerships/alumni [accessed on December 1, 2022] and

www.kleinerperkins.com/perspectives/Tajir-new-funding/, [accessed on November 27, 2022]

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State Bank of Pakistan Half Year Report 2022-23

Total Number of Unicorns Figure S1.8 Pakistan’s Start-ups in Global Landscape

Created (2010-2022)
Pakistan’s start-up funding growth in 2021
Others,
Indonesia, 10 353 was in line with global funding boom. In
Turkiye, 3 2021, total venture funding worldwide rose
Malaysia, 2 by 114.5 percent to reach US$ 638.4 billion, as
Nigeria, 2
Egypt, 1 UK, 66 Unicorns United
compared to 14.8 percent growth in 2020. 27
States, Despite significant progress, Pakistan’s start-
India,
108 865 up ecosystem is still small compared to
global leaders, and also lags behind regional
China, players in multiple indicators.
224

For instance, India, with approximately more

than 100 unicorns, is currently third in the
Source: Traxcn
list of countries with the most unicorns
Pakistan’s start-up ecosystem.24 Y (Figure S1.8).28 Likewise, other countries
Combinator, an American accelerator that Funding and Deal Count (2022) Figure S1.9
helps start-ups grow and includes alums like
Dropbox and Stripe, has also been involved 2,000 million US$
in different Pakistani start-ups. 1,600 Turkiye
UAE
Further, other local and international firms, 1,200
such as Pakistan’s Habib Bank Limited Saudi Arabia
800 Nigeria
(HBL) and Brazil’s Nubank, one of the Kenya
Egypt
largest digital banks in the world, have also 400
funded local start-ups.25 Foreign start-ups 0 Pakistan
South Africa
are also attracted to Pakistan’s market; for 0 100 200 300
instance, in 2021, Trella, a trucking and Number of Deals
logistics start-up from Egypt, started its Note: Size of bubbles represents share in total funding
operations in Pakistan.26 raised in Middle East, Africa, Turkiye and Pakistan
Source: Emerging Venture Markets Report, Magnitt

24 Sequoia Capital (www.sequoiacap.com/our-companies/#spotlight-panel accessed on December 1,

2022) and Bloomberg (www.bloomberg.com/news/articles/2022-07-28/sequoia-enters-pakistan-s-start-
up-economy-by-backing-fintech?leadSource=uverify%20wall [accessed on December 1, 2022])
25 HBL (www.hbl.com/news-and-media/hbl-inks-landmark-investment-in-finja-pakistans-leading-

digital-sme-lending-fintech, accessed on January 10, 2023 and TechCrunch

(www.techcrunch.com/2022/07/27/sequoia-kleiner-perkins-nubank-invest-in-pakistan-fintech-dbank/,
accessed on January 10, 2023)
26 Trella (www.blog.trella.app/expansion/trella-in-pakistan-the-land-of-trucking-opportunity/ accessed

on 26 Nov 2022) and Innvest2Innovate (i2i) (2021). Pakistan Start-up Ecosystem Report (PSER) 2021.
Islamabad: i2i
27 CB Insights (2022). State of Venture. New York: CB Insights.
28 Source: Traxcn (www.tracxn.com/d/unicorn-corner/unicornlist, accessed on January 25, 2022).

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

with population trends similar to Pakistan populous countries not to have produced a
have also produced their first unicorns. For local unicorn by 2022.29
instance, Indonesia had its first unicorn in
2016 and had produced approximately ten Further, funding in Pakistan’s ecosystem is
such companies by 2022. Nigeria, which also still very small when compared with global
features in the top ten populous countries leaders in the start-up space. For instance, of
list, had its first unicorn in 2019. In the disclosed deals during 2015-2022, local
comparison, Pakistan and Bangladesh are the start-ups raised roughly US$ 831 to US$ 872
only countries from the list of top ten million.30 In contrast, total funding of US$
136 billion, US$ 837 billion, and US$ 2.7
trillion were raised by the start-ups in India,
Global Startup Ecosystem Index Table S1.4 China, and the USA respectively in the 2014-
2022 2022 period.31 Pakistan's funding level is also
Highest Total No. not yet at par with other emerging regional
Country
Country Ranked of Featured
Ranking
City Cities
players. Of the US$ 7.2 billion raised in 2022
San in the Middle East, Africa, Pakistan, and
United
States
1 Francisco 257 Turkiye, the country's share was only 4.4
Bay (1st) percent of total funding (Figure S1.9).32 In
Bangalore
India 19
(8th)
38 case of African countries, Nigeria, Egypt,
Jakarta Kenya and South Africa take up majority of
Indonesia 38 5
(32nd) tech investment in Africa owing mainly due
Istanbul to favorable ecosystems in their major cities
Turkey 46 4
(66th)
Lagos
amid growing presence of fintech.33
Nigeria 61 3 In comparison to Pakistan, these African
(81st)
Kenya 62
Nairobi
2
economies had better ranking in Global Start-
(163rd) up Ecosystem Index 2022 (Table S1.4). The
Cairo
Egypt 65
(160th)
1 index ranks 1000 cities in 100 countries on a
Karachi host of criteria including the number of
Pakistan 76 3
(291st) incubators, exits; and a mix of business and
Dhaka economic indicators. None of the cities in
Bangladesh 93 1
(326th)
Pakistan featured in the top 100 ecosystems
Total Countries = 100; Total Cities = 1000
in the world. In contrast, India’s Bangalore is
Source: Startup Blink

Note: The total number of unicorns may vary from different sources.
29 ibid
30 Estimates based on deal flow compiled by Invest2Innovate and Data Darbar.
31 Inc42 (2022). Indian Tech Start-up Funding Report 2022. New Delhi: Inc42; The variation in the

comparable period ( i.e., 2015-22 for Pakistan and 2014-22 for other countries) is because the data used is
from different sources. As highlighted above, in general, the datasets used to analyse the start-up space
are indicative.
32 Magnitt (2023). Venture Investment Report. Emerging Venture Markets Report. Dubai: Magnitt
33 A. Dushime (2022). “These four countries are leading Africa’s start-up scene — here's why” Geneva:

World Economic Forum. (www.weforum.org/agenda/2022/08/africa-start-up-nigeria-egypt-kenya-

south-africa/, [accessed on March 03,2023])

147
State Bank of Pakistan Half Year Report 2022-23

ranked 8th, with four other ecosystems from 19, the pandemic increased the pace of
the country are also ranked in the top 100 growth to a CAGR of 24 percent between
list. Similarly, Jakarta, Istanbul and Lagos FY20-FY22 compared to 14 percent in the
also feature in top 100 ecosystems. The preceding five years.
highest-ranked ecosystem from Pakistan is
Karachi, with a rank of 291, followed by Tech start-ups also saw pronounced increase
Lahore (305) and Islamabad (438).34 in the pace of growth after Covid. As
highlighted in earlier section, start-up
Similarly, Pakistan ranked 97th out of 113 funding in Pakistan witnessed
countries in the Asian Development Bank’s unprecedented growth in the post-Covid
Index of Digital Entrepreneurship Systems period. The global shift towards virtual
(AIDES) 2021 that tracks various aspects of meetings facilitated this, which allowed
digitalisation of economy and society, such Pakistani founders to pitch remotely to
as market conditions, physical infrastructure global investors. Also, as Pakistan was one
and policy and institutional support. While of the largest untapped markets, global
Pakistan’s rank is better than Nigeria (101st) funding activity in the country increased.38
on AIDES; it lags behind India (75th), Egypt
(73rd) and Indonesia (71st).35 While Covid-19 provided an unexpected
impetus to growth, a host of other factors
S1.3 Assessment of Drivers and such as Pakistan's large population,
Enabling Factors increased adoption of digital modes, and
favorable regulatory developments also
The onset of Covid-19 provided a unique explain the recent trends in software exports
opportunity for businesses offering digital and start-ups. However, as the ensuing
services as consumer habits changed from discussion shows the country’s overall
offline to online.36 Measures such as social economic and sectoral policy environment
distancing, lockdowns, and working from needs to improve to enable leapfrogging via
home, led to wider adoption of e-commerce, digital transformation.
digital payments, and online modes of
communication, while fast-tracking the Market Size
overall digitalisation of economies across the
Pakistan is the fifth most populous country
world. As a result, while total global services
in the world, with 72 percent of the
exports contracted by 17 percent year-on-
population less than or equal to 34 years of
year in 2020, IT service exports continued to
age.39 This serves as an advantage for the
grow.37 In Pakistan too, while the country’s
tech-centric start-ups in the country as
IT exports had been growing prior to Covid-
young people are generally early adopters of

34 Source: Startup Blink (www.startupblink.com/)

35 E. Autio, E. Komlosi, L. Szerb, and M. Tiszberger (2021). Asian Index of Digital Entrepreneurship
Systems 2021. Background Paper. Manila: ADB
36 Invest2innovate (2021). Pakistan Start-up Ecosystem Report (PSER) 2021. Islamabad: i2i
37 Source: World Bank and International Trade Centre
38 Invest2innovate (2021). Pakistan Start-up Ecosystem Report 2021. Islamabad: i2i
39 Source: UN Population Division, World Population Prospects 2022.

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

technology. For instance, the percentage of

A.T. Kearney GSLI 2021 Figure S1.10
adults who own a smartphone is generally score
higher in the 18-34 age group compared to Singapore
those above 50 years of age in emerging and UAE
Turkiye
advanced economies.40 Thailand
Malaysia
In addition to population, growing middle Egypt
Sri lanka
class and income levels have a positive Bangladesh
impact on the start-up landscape in the Vietnam
Pakistan
country.41 Although Pakistan's GDP per Indonesia
capita income is lower than peer countries, it Philippines
has risen from US$ 531 in 2000 to US$ 1,282 China
in 2015, reaching US$ 1,505 in 2021.42 The 0 1 2 3 4 5
Financial Attractiveness
country was the 15th largest consumer People Skills and Availability
market in 2020 and is expected to become the Source: A.T. Kearney Global
seventh-largest by 2030.43 This collectively
serves as an opportunity for start-ups to cognitive abilities whose impact is not fully
foster as domestic consumption grows in the reversible.44 Other constraining factors
country; and hence attracts the attention of include Pakistan’s recurring balance of
venture capitalists. payment crisis, boom-bust cycles of
economic growth and overall
However, several factors present a challenge macroeconomic instability; as well as low
to the prospects of digitalisation in general female labour force participation that can
and growth of start-ups in particular, given impair the country’s absorptive capacity.
their detrimental impact on purchasing
power and the addressable market size. For Human Capital
instance, the potential of Pakistan's
increasing working age population may be As per some estimates, Pakistan has supply
limited by a substantially low level of literacy of 20,000 – 25,000 fresh engineering and IT
and a high prevalence of stunting that affects

40 PEW Research Center (www.pewresearch.org/global/2019/02/05/smartphone-ownership-is-growing-

rapidly-around-the-world-but-not-always-equally/)
41 A. Syed and A. Bokhari (2019). Starting up: Unlocking Entrepreneurship in Pakistan. New York: McKinsey

& Company
42 Data are in current U.S. dollars. Source: World Bank [accessed on February 28, 2023]
43 H. Kharas and W. Fengler (2021). Which will be the top 30 consumer markets of this decade? 5 Asian markets

below the radar. Brookings Institution Blog. Available at www.brookings.edu/blog/future-

development/2021/08/31/which-will-be-the-top-30-consumer-markets-of-this-decade-5-asian-markets-
below-the-radar/, accessed on December 22, 2022.
44 An estimated 54 percent of working-age population in 2031 will be illiterate or have only primary level

education, whereas 27 percent of the working age population in 2033 is estimated to be those who
suffered from stunting in childhood years. Details in Chapter 7, The Promise of Pakistan’s Demographic
Dividend?, State Bank of Pakistan Annual Report 2021-2022.

149
State Bank of Pakistan Half Year Report 2022-23

How Easy or Difficult is Hiring Figure S1.11a Why is Hiring Skilled Employees Figure S1.11b
Skilled Employees? Difficult?
percent percent
Lack of required technical
5 skill 5
7
Demand high salaries
4 7
1 = very difficult
5 = not difficult;

Applicants prefer 41
3 bigger/established firms
13
Lack of social skills
2
Demand high fringe
1 benefits 22
Other
0 10 20 30 40

Source: SBP Startups Survey 2022-2023 (unpublished)

graduates every year.45 So far this has inadequately educated workforce as the
provided a stable base and supported the second biggest challenge after political
growth in software exports and start-up instability; 22 percent of these firms report
industry.46 Moreover, IT sector wages in the workforce as a major problem, the most by
country are at par with peer economies, as any other sector.47 This resonates with the
indicated by the financial attractiveness SBP’s forthcoming survey on start-ups whose
component of Kearney’s Global Service preliminary results show that majority of IT
Location Index. This is representative of the firms face high level of difficulty in hiring
relatively favorable wage rates in Pakistan skilled employees (Figure S1.11a). In part,
compared to those in more established this is because IT firms, being typically small
destinations such as Singapore and China. and nascent, also find it difficult to pay high
(Figure S1.10). However, evidence suggests salaries, perks or otherwise compete in terms
that the country has started to face human of employees’ choice with bigger and
capital constraints in IT sector which, if left established companies that are mostly found
unaddressed, will hamper future growth in in the traditional non-IT sector (Figure
the industry. S1.11b).

Skilled human resource is a challenge for all Considering the estimates of over 40,000 new
sectors of the economy in Pakistan. However, job openings in just 140 companies in 2021,
of all the major problems faced by businesses the shortage of skilled resources in Pakistan
in the country, IT related firms report is considered to be biggest bottleneck in

45 These numbers are not annually reported but are rather rough estimates quoted widely by public and
private sector organisations (including Ministry of Information Technology and Telecommunication and
Pakistan Software House Association.) This underscores the need for periodic estimates of the supply of
labour in the fast-evolving industry of increasing importance.
46 World Bank Report (2020). Pakistan Economic Policy for Export Competitiveness; Digital Pakistan: A Business

and Trade Assessment; Pakistan Software Export Board. Washington DC: World Bank
47 World Bank Report (2019). Pakistan: Skills Assessment for Economic Growth, Washington DC: World Bank

150
 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Digital Skills Gap Index - Selected Countries Figure S1.12

score Overall Score
9

Research Intensity 6 Digital Skills Institutions

0
Data Ethics & Integrity Digital Responsiveness

Supply, Demand & Competitiveness Government Support

Singapore Pakistan Malaysia India

Source: Wiley Digital Skills Gap Index, 2021

achieving the desired growth in software improve skills required for a growing wave
exports and tech start-ups. Moreover, the of frontier technologies such as AI, robotics,
adequacy and quality of skills in the trained and IoTs. With a rank of 146 out of 158
workforce is also a stumbling block. Only 10 countries, the country scores 0.09 out of 1 in
percent of the IT graduates are employable, the skills component of UNCTAD’s Frontier
given different levels of weaknesses in both Technology Readiness index 2019 compared
technical as well as soft skills; soft skills to Indonesia’s score of 0.28, India’s 0.31,
include marketing, social skills, problem Nigeria’s 0.33, Egypt’s 0.45 and Malaysia’s
solving or critical thinking, entrepreneurship 0.46.49
mindset, and English language proficiency
needed to engage international buyers or These gaps need to be addressed if Pakistan
investors as the case may be.48 is to grow its IT exports and fast track
digitalisation. Indeed, labour input has been
These challenges exist mainly because of a the most important factor behind growth in
large industry-academia divide and other IT exports of leading exporters like India and
institutional gaps as also reflected in Ireland.50 One obvious solution is to
Pakistan’s performance on various metrics of significantly increase the number, and
digital skills (Figure S1.12) including employability, of university graduates to be
performance of digital skills educational able to drive export growth and
institutions, and supply, demand and digitalisation of domestic economy alongside
competitiveness aspects. In addition to consistent wide ranging improvements in the
improvements in skills for existing quality of their skills. However, since
technologies, investments are also needed to university education takes a long time, there

48 PASHA (2022). The Great Divide: The Industry – Academia Skill Gap Report, Karachi: P@sha
49 UNCTAD (2019). Frontier Technology Readiness Index, Geneva: Switzerland
50
R. Heeks and B. Nicholson (2011). Software export success factors and strategies in “follower” nations,
Competition & Change Journal, Vol. 8 No. 3, pp. 267-303

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State Bank of Pakistan Half Year Report 2022-23

is a need to scale up ongoing interim these firms are typically young, and without
solutions being offered by the public and large parcels of land or plants that could be
private sector.51 These include on-site and used as collateral.55 Accordingly, the absence
off-site IT skill bootcamps and other skills of collateral affects software export growth
development programmes, such as train-the- prospects since IT firms do not necessarily
trainer modules and training via social- have the working capital needed to meet
media platforms, to quickly address the skill export orders, nor a collateral to avail
gap in specific IT related skills including data financing under Export Financing Schemes.
analytics, cloud computing, coding, software One exception was the currently suspended
development and app design.52 SME Asaan Finance which is sector-agnostic
concessionary financing provided to SMEs in
To this end, top-tier global bootcamp which loans maybe secured against personal
companies may be invited to set up camps guarantees.56
across the country under various forms of
public-private-partnership models. In the case of start-ups, non-bank means of
Considering that male staff comprise more financing, such as venture capital, plays a
than 90 percent of IT sector’s human much more important role. This is because
resources, there is a need to focus these the prospects of start-ups are untested, given
efforts on females as well to reduce the
gender gap.53 Lastly, to incentivize employee Venture Funding Per Capita in Figure S1.13
training and to increase attractiveness of IT Selected Countries*
sector in terms of employee choice, fiscal US$
60
incentives may be offered on employee stock
options in line with international best 45 50
42
practices.54 30
29 29
15 20 6
Access to Finance and Investor Funding 4 1 1
0
Russia

Nigeria
Japan

Bangladesh
Brazil

Mexico

India

Pakistan
China

Access to credit in Pakistan, one of the lowest

among emerging markets, is rather limited
due to a host of demand and supply side
challenges including lack of collateral. For *Investment totals are for the 12 months ending October,
technology companies (software oriented or 2021
otherwise) it is even more difficult since Source: Crunchbase

51 These include Ignite’s DigiSkills Program, and various skills development training program by Pakistan
Software Export Promotion Board and provincial IT boards
52 Bootcamps refer to short, often 3-6 month, high-intensity, immersive training
53 PASHA (2021). Pakistan IT Skills Survey Report. Islamabad: PASHA
54 Ignite-National Technology Fund (2021). Study for Assessment of Pakistan’s Start-up Ecosystem &

Freelancing Ecosystems
55 For weak private sector credit penetration in Pakistan, see, Chapter 7, Understanding Low Private Credit

Penetration in Pakistan Contextualizing Recent Policy Reforms in the SBP’s FY20 Annual Report on the State
of Pakistan’s Economy Report.
56 Source. State Bank of Pakistan (www.sbp.org.pk/smefd/circulars/2021/C9.htm)

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

the innovative nature of the business- that

Funding by Type of Rounds Figure S1.14
founders have to develop, launch, and then
300 million US$ number 120 scale. As discussed in Section 2, start-up
90
funding has increased in recent years.
200 However, despite recent high growth in
60 start-up funding, venture funding per capita
100 in the country is small at approximately US$
30
1 (Figure S1.13).
0 0
Angel

Series A

Series B
Pre-Seed

Series C
Seed
Accelerator

Pre-Series A

In addition, funding breakdown shows that

angel rounds are scarce in Pakistan, which is
a constraint to new start-up formation.57 In a
Funding Undisclosed deals-rhs growing start-up ecosystem, young firms in
Disclosed deals-rhs need of angel or pre-seed investments are
Note: Deals classified as convertible notes, corporate generally greater in number than the
investments, and with the "undisclosed" round type are not
included in the figure. However, the mentioned rounds may relatively large firms that are looking to raise
contain the deals whose amount was not disclosed. Series A funding and beyond, since several
Accelerator: funding from accelerator programs (generally,
accelerators focus on early-stage and growth-driven startups and firms die in the process between ideation and
provide mentorship as well) relative maturity. In light of this, the fact that
Angel: typically, an early-stage funding round conducted by
angels (high-net-worth individuals)
only 65 of total 270 deals were classified as
Pre-seed: funding at the early or ideation stage angel round and pre-seed round in Pakistan
Seed: generally referred to as the first formal round; at this stage, between 2015 and 2022 indicates that even
companies have a minimal viable product with a better
understanding of the market and low to no revenue. when start-ups saw heightened interest,
Pre-series A: a mid-round between seed and series A investor focus on start- ups at ideation or
Series A: first formal round of venture funding; startups at this
stage generally grow revenue, expanding teams and customers. initial stages was low compared to those that
Series B: Typically succeeds Series A, with startups focusing on graduated out of angel phase to seed phase
scaling and exploring new markets.
Series C and Beyond: Late-stage rounds with companies
and beyond (Figure S1.14).
showing success.
Note: The definition of terminologies about startups is evolving. On the other hand, while seed stage funding
For instance, pre-seed was earlier considered a pre-institutional
round, but now with VCs investing at this stage, it is also is the highest in Pakistan, late-stage funding
becoming a formal round. has not witnessed large number of deals thus
Source: Data is from Data Darbar and definitions are from
various sources including Pitchbook and Crunchbase. far. Only two rounds, of US$ 6.5 million in
2015 and US$ 20 million in 2016, were
classified as Series C.58 Likewise, only seven

57 Angels are high-net-worth individuals who usually invest in a start-up's early phase and may also play
the role of mentor for founders and facilitator for subsequent rounds. Financing by angels is crucial as it
positively impacts the growth trajectory and survival rate of the start-ups they invest in regardless of the
external environment for entrepreneurs in a country. Source: J. Lerner, A. Schoar, S. Sokolinski and K.
Wilson (2015). The Globalization of Angel Investments: Evidence across Countries. NBER Working Paper
Series, W. P. No. 21808. Cambridge, Massachusetts: National Bureau of Economic Research.
58 Source: Crunchbase, available at www.crunchbase.com/funding_round/zameen-com-series-c--

c0e336e5 and www.crunchbase.com/organization/rozee-pk/company_financials accessed on January 22,

2023.

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State Bank of Pakistan Half Year Report 2022-23

rounds are classified as Series B, with one in offices by local business groups is very low
2008 and two in every year since 2020.59 A in Pakistan; for instance, in India, there are
similar trend can be witnessed in the exit rate 2600 family offices while in Pakistan, less
of start-ups in the country.60 In the last five than 1 percent of that. In addition, the
years, there have been eight exits in the number of impact investors in the country
ecosystem, with 6 of them in 2022.61 For are also very few, which presents a big
comparison, Turkiye's ecosystem recorded 31 challenge for social enterprise and impact
exits in 2022, and India, a larger ecosystem, startups to raise capital since.66
recorded 240 mergers and acquisitions in
2022.62 However, as start-ups in the country To improve financing conditions in the
mature, Pakistan’s ecosystem may witness an country, a host of measures may be
increase in exits and late stage funding as considered. These include the introduction
well; this may increase confidence of local of bank lending based on Intellectual
and international VCs to invest further. Property Rights, cash-flows, or other
alternative means of collateral such as
Moreover, the start-up funding in Pakistan is reputational collateral based on credit scores
led by foreign investors.63 For instance, in for technology firms, particularly software-
2021, local VC investments amounted to oriented firms.67 To this end, enabling
approximately 10 percent of the international legislation and regulations may also be
VC investments during the year.64 Soft introduced for technology firms. For
information suggests that this is mainly instance, Italy introduced Start-up Act in
because local investors, including high net 2012, which offered tax incentives for equity
worth individuals, family houses and VCs, investors, fundraising through equity
do not have large fund size, neither do they crowdfunding campaign, and public
have the risk appetite and the long term guarantee on loans to start-ups provided by
patient investment mindset that is financial institutions. Similarly, under
characteristic feature of investments in start- Senegal’s Start-up Act in 2019, the
ups.65 The number of family investment

59 Source: Data Darbar

60 A start-up exit refers to the sale of partial or full stake by founder and early investors; exit transactions
usually happen after several rounds of funding and may take the shape of mergers, acquisitions, or listing
at the stock market. An exit in start-up ecosystem is seen as a sign of success of a firm whose previously
untested business idea has finally been validated by the market.
61 Magnitt (2023). Venture Investment Report. Emerging Venture Markets Report. Dubai: Magnitt
62 Inc42 (2022). Indian Tech Start-up Funding Report 2022. New Delhi: Inc42.
63 SECP (2022). A Diagnostic Review of Pakistan’s Private Funds Industry. Islamabad: SECP
64 Invest2innovate (2021). Pakistan Start-up Ecosystem Report 2021. Islamabad: i2i
65 McKinsey & Company (2019). Starting up: Unlocking Entrepreneurship in Pakistan. New York: McKinsey

& Company
66
Ignite (2023), Study for Assessment of Pakistan’s Startup Ecosystem
67 Source: Ignite – National Technology Fund, Policy Recommendations for Promotion of Start-ups in

Pakistan; Special Section – Private Credit Bureaus in Pakistan – Enhancing Credit Penetration by Addressing
Information Asymmetries in Third Quarterly Report of the Board of Directors of the State Bank of Pakistan
on the State of the Economy for the Year 2020-21.

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

government guarantee on loans are provided and IT-enabled firms at the GEM Board by
to start-ups by financial institutions.68 providing financial and technical assistance
for listing is a promising development. 70 In
The stock market may also have to be addition to the GEM, a venture exchange
developed to facilitate exits and late-stage may be created as a venture capital market
funding. While raising capital through the place for over the counter trading of unlisted
stock market is not a natural route for tech shares of emerging and innovative
start-ups in the country, neither for funding companies.
nor exit, as it may not offer the same
valuation level as venture funding, the Fintech as an Enabler of Digitalisation
Growth Enterprise Market (GEM) Board of
Technology-led advances and innovation in
Pakistan Stock Exchange (PSX) offers a
financial services (fintech) is transforming
potential opportunity for relatively mature
the financial ecosystem in different ways. It
software exporting companies and other
is contributing to increase in financial
start-ups.69
inclusion and economic growth as well as
narrowing the digital access gaps. This is
To this end, the MOU between PSX and done by unbundling of financial services,
Pakistan Software Export Board (PSEB) to increased customization of services, lowering
mutually facilitate the listing of up to 40 IT the cost of services, and reduction in

Payment Systems Figure S1.15

Payment cards, mobile, internet & E-commerce merchants & POS
E-banking
active branchless banking account machines
2,000 million trillion Rupees 200 48 millions 8
thousands thousands
120
Thousands

1,500 160 32 6 80
120 4
1,000 16 2 40
80
0 0
500 40 0
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-16

Dec-17

Dec-18

Dec-19
Dec-20

Dec-21

Dec-22

0 0
CY17
CY18
CY19
CY20
CY21
CY22

No. of mobile phone banking users No. of registered eCommerce

No. of ebanking transactions No. of internet banking users merchants
Debit and credit cards No. of point of sale (POS) machines -
Value of ebanking transactions - rhs
No. of branchless banking active a/c rhs

Source: Easy Data, State Bank of Pakistan

68 A. A. Ghanghro (2020). Legal Framework for Start-ups in Pakistan. Islamabad: Karandaaz

69 For instance, the average funding raised in 37 IPOs between FY15-22 was approximately US$ 14.7
million, compared to an average of US$ 32.9 million raised in the six Series B rounds in 2015-2022. Source:
SECP 2021. Annaul Report 2021. Islamabad: SECP; SECP 2022. Annaul Report 2022. Islamabad: SECP; and
Data Darbar.
70 Pakistan Stock Exchange (www.psx.com.pk/psx/files/?file=162113-1.pdf, accessed on February 17,

2022.)

155
State Bank of Pakistan Half Year Report 2022-23

information asymmetries.71 In addition, Banking Interoperability, and more recently,

fintechs’ role in enabling payments for other Regulations for Electronic Money Institutions
start-ups- such as e-commerce and e-health (EMI) through which the SBP provided a
companies- implies that fintechs have an framework for non-banking entities to offer
essential role in fostering the digitalisation of digital payment instruments like wallets and
the economy. contactless payment.73 The SBP also
introduced RAAST, an instant payment
In Pakistan, digital payments have gained gateway, and Licensing and Regulatory
traction in recent years with improvements Framework for Digital Banks in Pakistan74,
in payment infrastructure. The number of e- under which NOCs to five applicants have
banking transactions nearly doubled been issued.75
between CY17 and CY21. The number of
branchless banking active accounts have also Despite this growth, there is substantial
outpaced total debit and credit cards, which room for fintech development both in terms
shows the potential of technology in fast of breadth and depth. For instance, Pakistan
tracking financial inclusion (Figure S1.15).72 is far behind peer economies when it comes
to using mobile phone or the internet to
While Covid-induced restrictions amid check account balances, which is a basic
growing internet penetration led to increased service. The overall account ownership as
use of internet and digital payments for well as mobile money account ownership is
various activities, a host of policy efforts also low compared to regional averages and
already had been driving these trends prior income groups (Figure S1.16). Pakistan’s
to Covid. These include National Payment low rank, 116 out of 152 nations, in
Systems Strategy for digital payments, UNCTAD’s Business-to-Consumer E-
Branchless Banking Regulations, Rules for commerce Index, 2020, also points in the
Payment System Operators and Payment same direction.76 This is in part due to
Service Providers, Regulations for Mobile relatively high cost of internet connectivity

71 Y. W. Tok and D. Heng (2022). Fintech: Financial Inclusion or Exclusion? IMF Working Paper no.
WP/2022/080. Washington D.C.: IMF; T. Beck (2020). Fintech and Financial Inclusion: Opportunities and
Pitfalls. ADBI Working Paper 1165. Tokyo: Asian Development Bank Institute.; E. Feyen, J. Frost, L.
Gambacorta, H. Natarajan and M. Saal (2021). Fintech and the Digital Transformation of Financial Services:
Implications for Market Structure and Public Policy BIS Papers No 117; X. Zhang, Y. Tan, Z. Hu, C. Wang, G.
Wan (2020). “The Trickle-down Effect of Fintech Development: From the Perspective of Urbanization”
China & World Economy Vol. 28, Issue 1, pages 23-40.
72 Data for Mar-22 is provisional. Source: SBP Easy Data
73 SBP (www.sbp.org.pk/ps/PDF/NPSS.pdf; www.sbp.org.pk/bprd/2019/C10-Branchless-Banking-

Regulations.pdf; www.sbp.org.pk/psd/2014/C3-Annex.pdf; www.sbp.org.pk/bprd/2016/C3-Annx-

A.pdf; www.sbp.org.pk/psd/2019/C1-Annex-A.pdf, [accessed on March 24, 2023])
74 SBP (www.sbp.org.pk/bprd/2008/annex_c2.pdf,); (www.sbp.org.pk/psd/2014/C3-Annex.pdf);

(www.sbp.org.pk/bprd/2016/C3-Annx-A.pdf); (www.sbp.org.pk/PS/PDF/List-of-EMIs.pdf);
(www.sbp.org.pk/dfs/Digital-Bank-Regulatory.html) accessed on February 20, 2023
75
Source State Bank of Pakistan (www.sbp.org.pk/press/2023/Pr1-13-Jan-2023.pdf)
76 For details, see www.unctad.org/system/files/official-document/tn_unctad_ict4d17_en.pdf, accessed

on March 21, 2023.

156
 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Selected Indicators From Findex - Figure S1.16 On the supply side, there is a limited supply
2021 of skilled human resources who understand
percent of age 15+
100 technology and finance to the degree that
80 they can create innovative solutions,
60
particularly targeting the financially
40
20
excluded segments.79 An underdeveloped
0 credit reporting system, marked by
Account Used mobile Mobile money incomplete and insufficient pool of credit
phone/internet to account information available with the credit
check account
balance bureaus, is also a stumbling block in this
Upper middle income East Asia & Pacific regard.80
Middle income South Asia
Lower middle income Sub-Saharan Africa
From the perspective of depth, the funding
Low income Pakistan
Source: The Global Findex Database, World Bank
trend suggests that the country’s fintech
industry is mainly concentrated in payments,
and affordability of mobile devices.77 and credit and financing. Relatively few
Moreover, on the demand side, financial startups are operating in the field of
literacy is a significant challenge, with only insurance, investment and savings, and other
14.3 percent of the country’s adult facets of financial sector development where
population considered financially literate.78

Mobile Cellular Subscribers and Figure S1.17a Total Broadband Subscribers Figure S1.17b
Mobile Data Usage and Penetration Rate
millions million GBs 12,000 millions percent
300 150 58

200 8,000 110 42

100 4,000 70 26

0 0 30 10
2017-18

2018-19

2019-20

2020-21

2021-22

2017-18

2018-19

2019-20

2020-21

2021-22

Annual mobile cellular subscribers

Broadband subscribers
Mobile data usage - rhs Total Broadband penetration - rhs
Source: Pakistan Telecommunication Authority

77 I. Khan and K. H. Jaffar (2021). Searching for the Binding Constraint to Digital Financial Inclusion in
Pakistan: A Decision Tree Approach. CGD Policy Paper 218. Washington, DC: Center for Global
Development.
78 M. Termezy and H. Razi (2021). Fintech Ecosystem of Pakistan, Landscape Study. Islamabd: Karandaaz

Pakistan
79 Ibid
80 Special Section: Private Credit Bureaus in Pakistan - Enhancing Credit Penetration by Addressing

Information Asymmetries in the State of Pakistan's Economy - Third Quarterly Report 2020-21

157
State Bank of Pakistan Half Year Report 2022-23

large and swift improvements are needed in start-up in the education or health sector
Pakistan. would generally reach the final user and
receive payments for their service digitally,
To advance the fintech industry, it is all of which are enabled by the ICT
important to encourage tech-based financial infrastructure. Likewise, better access to
literacy initiatives tailored for different affordable ICT infrastructure also enables IT
segments of society. For instance, under services exports.
National Financial Literacy Program for
Youth, an e-learning game, PomPak, was However, despite these developments,
launched focused on children and youth. 81 Pakistan’s digital connectivity indicators still
Further, digitisation of civil registries; remains rather low – both in terms of access
development of credit reporting systems, and usage – which is a constraint to the
fintech-focused courses and university prospects of sustained growth in IT, and IT-
programs; and availability of enabling enabled exports as well as digitalisation of
technology factors, such as cloud storage and domestic economy (Figure S1.18). This in
computing, cyber security mechanisms and part is because the cost of mobile devices, as
interoperability, are also needed to bring well as fixed and mobile broadband prices
about digital transformation in the country. are noticeably high in Pakistan (Figures
S1.19 & S1.20).
Digital Connectivity and Affordability
Moreover, the speed of internet also plays a
Pakistan has made considerable progress in
pivotal role in digital connectivity as internet
connectivity indicators in the past five years.
speed sets the parameters of the effectiveness
Mobile cellular subscription has increased
and efficiency of internet use. According to
from approximately 152 million to 195
2022 Netflix ISP Index, Pakistan’s internet
million between FY18 and FY22, whereas
speed is 2.8 Mbps compared to global
total broadband subscribers increased at
average of 3.5 Mbps and lower middle
CAGR of 15.1 percent, with total broadband
income countries average of 3.3 Mbps.82
penetration reaching 54 percent in FY22.
This translated into increased user data
The upcoming telecom infrastructure sharing
consumption, with a CAGR of 48 percent
framework proposed by the Ministry of
during the period (Figures S1.17a & S1.17b).
Information Technology &
Telecommunication (MoITT) offers an
This growth has had positive implications for opportunity to lower rollout costs and boost
digitalisation of economy as the use of network coverage and performance.
internet directly impacts the addressable However, since affordable mobile devices
market for tech start-ups. For instance, a tech and services holds the key to increasing

81 National Financial Literacy Program for Youth is implemented by the State Bank of Pakistan and
National Institute of Banking and Finance Source: www.nflpy.pk/pompak/ accessed on February 21,
2023.
82 World Bank’s classification has 54 countries in the lower middle income countries (LMIC

) category. Due to data unavailability of internet speed for all countries in Netflix ISP index, the average
of 8 LMICs has been taken.

158
 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Digital Connectivity Indicators for Selected Countries Figure S1.18

2021 2021 2020 megabit/s
subscriptions per 100 inhabitants percent of population covered 84 percent 150
150 27 by
120
56 100
100 18 80
40 28 50
50 9
0 0 0
0 0

Sri Lanka

Bangladesh
Egypt
Sri Lanka

Bangladesh

Indonesia

Pakistan
Türkiye
Egypt

India

Nigeria
Indonesia

Pakistan
Türkiye

India

Nigeria
Bangladesh
Sri Lanka
Egypt
Indonesia
Türkiye

Pakistan
Nigeria
India

Mobile-cellular network Individuals using the internet

Fixed broadband-rhs
Active mobile-broadband At least a 3G mobile network International bandwidth per
Mobile-cellular At least a 4G mobile network internet user-rhs
Source: International Telecommunication Union

digital connectivity, fiscal incentives need to reduction in import tariff has been one of the
be considered.83 For instance, in Kenya, key drivers of increased penetration of ICT in
following the exemption of taxes on mobile technology clusters of India.85
phones and mobile services, mobile phone
purchases increased by 200 percent and The opportunity to leapfrog that ICT offers is
teledensity more-than-trebled to 70 percent not only by way of producing ICT hardware
in 2011 in a span of two years.84 Similarly, but rather the software as well as the

Smartphone Price as a Percent of Figure S1.19 Mobile Cellular Basket as Figure S1.20
GNI Per Capita 2022 Percent of GNI Per Capita - 2021
percent percent
UK Sri Lanka
Singapore
Ireland
China
USA Ireland
UAE Türkiye
USA
Singapore Bangladesh
Thailand Malaysia
India India
Nigeria
Pakistan Pakistan
0 10 20 30 40 50 0.0 0.5 1.0 1.5 2.0
Source: Alliance for Affordable Internet Source: International Telecommunication Union

83 MoITT (2023). Telecom Infrastructure Sharing Framework. Draft. Islamabad: MoITT

84 The Groupe Speciale Mobile Association Report 2020. The Mobile Economy Asia Pacific 2020. London:
GSMA
85
R. Heeks and B. Nicholson (2011). Software export success factors and strategies in “follower” nations,
Competition & Change Journal, Vol. 8 No. 3, pp. 267-303

159
State Bank of Pakistan Half Year Report 2022-23

ubiquitous usage of ICT hardware and develop frameworks to improve digital

software in all facets of economy.86 To this competence of their citizens but also
affect, Pakistan’s accession to the periodically measure it to identify gaps in
international IT Agreement that entails digital skills of citizens and accordingly tailor
across the board drop in tariff, taxes and digital literacy programs. One such example
other duties may be considered in the is European Countries’ Digital Competence
interest of large positive spillover of Framework for Citizens to support their plan
technology on the economy. of reaching a minimum 80 percent
population with basic digital skills by 2030.
Digital Literacy In recognition of the importance of digital
Digital literacy refers to general and basic literacy of wider population, the EU’s Digital
digital skills that all citizens need to have to Economy and Society Index tracks citizens’
adapt to digital transformation of economic progress on a high bar across five diverse
and social life, and form addressable markets areas: (a) information and data literacy (b)
for digital products, services and content. communication and collaboration (c) digital
This is regardless of an individual’s general content creation (d) cyber safety and (e)
literacy level and employment in technology problem solving.88
or non-technology sector. Rapid digital
innovations are pushing the boundary of The level of digital literacy of a population
digital literacy beyond basic skills. Indeed, depends on economic development, policy
over the course of years, the evolution and priorities and the nature of a particular
increasing penetration of frontier business ecosystem. Pakistan, where general
technologies, such as AI, will reshape literacy level is already very low, also fares
personal and professional life and require considerably low in digital literacy in relation
constant improvements in digital literacy.87 to other economies even in the much less
diverse and easy standards tracked by
These exigencies have influenced developed International Telecommunication Union
and developing countries to not only (ITU) (Figure S1.21).89 Only 37 percent of the

86 S.J. Ezell and J. Wu (2017). Assessing the Benefits of Full ITA Participation for Indonesia, Laos, Sri Lanka, and
Vietnam, The Information Technology and Innovation Foundation, Washington D.C.: ITIF
87 Word Bank (2022). “South Asia’s Digital Opportunity: Accelerating Growth Transforming Lives”,

Washington D.C: World Bank; C. Dahlman, S. Mealy and M. Wermelinger (2016). Harnessing the digital
economy for developing countries, Working Paper No. 334, Paris: OECD; A. M. Oyelakin (2022). Increased
Digital Literacy Skills as a Catalyst for Driving Nigerian Digital Economy- An Overview, Malaysian Journal of
Applied Sciences, vol.7(3)
88 European Commission, DigComp 2.2 2022. “The Digital Competence Framework for Citizen”, (website:

www.schooleducationgateway.eu/en/pub/resources/publications/digcomp-22.htm);
Digital Economy and Society Index 2022. www.digital-strategy.ec.europa.eu/en/policies/desi; G20,
Priority Issue 2, 2022. “Toolkit-for-Measuring-Digital-Skills-and-Digital-Literacy”
89 The ITU measures digital literacy on basic and standard ICT skills on the basis of different computer

based activities. Basic Skills include copying or moving a file, folder or information within a document,
sending e-mails with attached files, and transferring files between devices. Standard Skills include using
basic arithmetic formula in a spreadsheet; connecting and installing new devices; using presentation
software; and finding, downloading, installing software.

160
 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Digital Literacy: Cross Country Figure S1.21 be made to ensure that those currently in
Comparison - 2021 schools meet desired level of digital literacy
percent
Pakistan*
by the time they graduate.
Iran
Viet Nam In this context, lessons may also be learnt
Bangladesh from international best practices by
Türkiye increasing the standard of digital literacy
Singapore
beyond basic skills, and ensure frequent
Egypt*
Germany
monitoring to correspond to the fast
Malaysia changing technological environment. For
instance, Singapore’s National Digital
0 20 40 60 80
Literacy Program is built around four
Individuals with standard ICT skills
Individuals with basic ICT skills competencies: (a) gathering and evaluating
* 2020 data information safely and effectively); (b)
Source: International Telecommunication Union
interpreting and analyzing data, and solving
population reports being aware of the problems; (c) using digital means,
internet, and 87 percent of those who know knowledge and skills, and (d) producing
about e-commerce platforms do not use them digital products, and collaborating online.
to buy goods or services.90 Moreover, while Similarly, Europe’s Digital Decade program
Pakistan Bureau of Statistics has begun sets targets for digital skills at various stages
tracking ICT skill indicators, mostly based on and segments of the economy and society
ITU’s basic and standard skills, the country with an annual cooperation cycle based on (i)
does not have an official framework for shared and transparent monitoring system,
periodically assessing skills in wide ranging (ii) annual report on the state of Digital
cross-cutting themes that evolving pace of Decade and (iii) adjusting Digital Decade
technologies entail.91 roadmap every two years.92

To ensure a digitally literate workforce that E-government

can absorb the technologies for digital
transformation, Pakistan needs to develop a E-government, which refers to ICT usage by
framework to target growth in digital literacy the government, is essential to digital
in both educated and uneducated segments transformation. The development outcomes
of population. Since basic education is the of e-government are not the same for every
foundation for technical and digital literacy, country, and benefits to vulnerable
both segments may need differently tailored communities are uneven. However, in
strategies. At the same time, efforts need to general, ICT usage helps governments

90 UNESCO (2018). “A Global Framework of Reference on Digital Literacy Skills for Indicator 4.4.2”,
Information paper No. 51, Paris: UNESCO; World Bank report (2019). Pakistan: Skills Assessment for
Economic Growth, Washington D.C.:World Bank.
91 Pakistan Bureau of Statistics, Social and Living Standards Measurement Survey (PSLM) 2019-20.
92 Source: www.moe.gov.sg/microsites/cos2020/refreshing-our-curriculum/strengthen-digital-

literacy.html; www.commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-
age/europes-digital-decade-digital-targets-2030_en#the-path-to-the-digital-decade

161
State Bank of Pakistan Half Year Report 2022-23

become more efficient, tailor better policies, Index (EGDI) 2022, compared to India and
and enhance public service delivery. Bangladesh that are ranked 105th and 111th
Moreover, since public sector is largest buyer respectively.96 Although the country fares
of ICT goods and services, e-government relatively better in UN’s e-Participation
helps create a demand for services offered by index helped in part by the citizen’s portal, it
local software firms and tech start-ups.93 has substantial room for improvement in
terms of overall maturity of government’s
Pakistan has taken multiple initiatives ICT usage across four key areas: core
towards e-government. These include government services, public service delivery,
development of e-office to help government digital citizen engagement, and government
ministries become efficient and paperless, as tech enabler (Figure S1.22).
and the launch of citizen portal that allows
the public to register complaints and provide Soft information complements these
feedback on government performance. findings. For instance, while e-office and
Similarly, to foster education via distance digitisation of government records have been
learning in the time of Covid-19, rolled out, their implementation and usage is
the Ministry of Federal Education introduced not widespread. Given that public sector’s
e-Taleem, a distance learning platform in usage of ICT has a positive spillover on
collaboration with various organisations.94 digital absorption by citizens, federal and
provincial governments need to scale up
However, despite these initiatives, the their ICT usage in all facets of governance,
government’s adoption of technology is where efforts need to be made to reduce
much lower compared to peer economies.95 digital divide to ensure that e-government
Pakistan is ranked 150th out of 193 countries does not create disparities.97 In addition, the
in the UN’s E-Government Development country’s public procurement rules, which

93 World Bank (available at www.worldbank.org/en/topic/digitaldevelopment/brief/e-government,

accessed on February 7, 2023; United Nations (2022). E-Government Survey 2022, the Future of Digital
Government. New York: United Nations Department of Economic and Social Affairs; J. Lee (2016). Digital
Government Impacts in the Republic of Korea: Lessons and Recommendations for Developing Countries. In T. G.
Karippacheril, S. Kim, R. P. Beschel Jr., C. Choi (eds.). Bringing Government into the 21st Century: The
Korean Digital Governance Experience. Directions in Development. Washington D.C.: World Bank; H. M.
Zangana, N. E. Tawfiq, Dr. M. Omar (2020). “Advantages and Challenges of E-Government in Turkey.”
International Journal of Creative Research Thoughts Volume 9 Issue 11 A. Imran and S. Gregor (2005).
Strategies for ICT Use in the Public Sector in the Least Developed Countries: A Cross-Country Analysis.
ACIS 2005 Proceedings - 16th Australasian Conference on Information Systems.
94 Source: National Information Technology Board

(www.nitb.gov.pk/ProjectDetail/MzUyZTQwNDktZDYwMi00OTJkLTlmMGQtMTQzZmYxN2U2MWN
k accessed on February 13, 2022.); E-Taleem (www.etaleem.gov.pk/ accessed on February 13, 2022.) ;
NITB (www.nitb.gov.pk/AllProjects accessed on February 13, 2022.)
95 World Bank (2020). “Pakistan: Digital Economy Enhancement Project.” Project Information Document

Report No: PIDC29750. Washington D.C.: World Bank

96 EGDI is composite of three sub-indices namely: online service delivery, telecommunication and human

capital. Source: United Nations Department of Economic and Social Affairs

97 World Bank (2020). “Pakistan: Digital Economy Enhancement Project.” Project Information Document

Report No: PIDC29750. Washington D.C.: World Bank

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

E-Government Index E-Participation Index GovTech Maturity Figure S1.22

Index
score score score
1.0 1.0 1.0
0.8 0.8 0.8
0.6 0.6 0.6
0.4 0.4 0.4
0.2 0.2 0.2
0.0 0.0 0.0

Bangladesh

Nigeria
UAE

UAE

Indonesia
Malaysia

Malaysia

Egypt

Kenya

Iran
Iran

India
Singapore

Pakistan

Sri Lanka
Singapore

Nigeria
Bangladesh
Indonesia

Egypt

Kenya
India
Sri Lanka

Pakistan

UAE

Malaysia

Iran
Indonesia

Nigeria
Bangladesh

Egypt
Kenya
India

Pakistan
Sri Lanka
Singapore

Source: United Nations Department of Economic and Social Affairs; and World Bank

currently favour established and large IT government-to-government partnerships.

firms, need to be revised to promote Some of the largest Singaporean IT exporting
domestic IT industry typically comprising firms have grown through such initiatives.99
small and young firms.98 Sri Lanka’s ICT Agency also helps the
development of local ICT firms by promoting
While relaxing public procurement joint ventures between foreign and local
regulations for small and less established IT firms and giving such JVs higher points in
firms are a difficult proposition because of public procurement criteria.100 Similar
risks of nepotism, poor quality of public initiatives may be considered in Pakistan
services, and ineffective utilization of public where one solution could be to mandate or
funds, there is an increasing realization that incentivize IT contractors to sub-contract a
public procurement can be a useful certain percentage of work to small domestic
mechanism to incentivize local firms. This IT service firms that do not currently meet
helps domestic IT firms to grow and public procurement criteria on their own.
eventually become capable to compete in
international markets. Key Cross-cutting Technology Enablers

Digital transformation of both public and

For instance, Singapore’s government
private sectors needs a set of cross-cutting
encourages local ICT firms to develop
technologies and ancillary frameworks that
solutions for different government bodies,
serves as a foundation for growth in both
and promotes successful firms through
software and start-ups led digitalisation.

98 World Bank Report. Pakistan Economic Policy for Export Competitiveness Digital Pakistan: A Business
and Trade Assessment, Washington D.C.: World Bank
99 V. Grant (2018). Critical Infrastructure Public-Private Partnerships: When is the Responsibility for

Leadership Exchanged?, Security Challenges Journal, Vol. 14, Issue 1 , pp. 40-52
100 UNCTAD (2013). Promoting Local IT Sector Development Through Public Procurement. Geneva: United

Nations Conference on Trade and Development

163
State Bank of Pakistan Half Year Report 2022-23

Some of the most important ones include In Pakistan, the first government national
cloud storage and computing; cybersecurity; data center – that offers various services
databases and interoperability. including cloud - was established in 2016.104
This was considerably late compared to India
A digital economy produces and thrives on and Bangladesh which had launched their
large datasets whose storage and usage first national data centers in the year 2008
requires various types of cloud services, such and 2009 respectively.105 However, in
as cloud storage and computing.101 The recognition of cloud’s importance, the
inevitability of the use of cloud technology in MoITT’s 2018 Digital Pakistan Policy - that
future can be gauged from the fact that, by envisions accelerated digitilisation in the
2025, more than 51 per cent of ICT spending country - gave a policy direction to promote
within the area of application software and cloud infrastructure and its associated
infrastructure market along with business services. Accordingly, in 2022 it launched
processing services will shift to the public Pakistan Cloud First Policy (PCFP) that aims
cloud.102 However, globally, particularly in to guide and empower organisations,
developing countries like Pakistan, several including public sector enterprises, to
barriers have decelerated the pace of cloud transition to cloud-based solutions. Prior to
migration and adoption. These include weak the launch of PCFP, SBP had also allowed
or unreliable internet connectivity; weak or banking industry to use cloud based
absence of regulations and standardization, solutions for non-core banking operations,
stringent data localization rules, and lack of which have recently been expanded now to
professionals with expertise on cloud-based use cloud based solutions for core
security solutions etc.103 operational data as well.106 Securities
Exchange Commission of Pakistan (SECP)
also issued draft Cloud Adoption Guidelines

101 Cloud storage refers to digital data storage on servers at off-site locations while cloud computing refers
to the delivery of different services through the internet. The servers are maintained by a third-party
service providers.
102 Source: GARTNER. (website: www.gartner.com/en/newsroom/press-releases/2022-02-09-gartner-

says-more-than-half-of-enterprise-it-spending accessed on January 18, 2023)

103 S.T. Koudah, B.E. Popovsky and A. Tsete (2014). Barriers to Government Cloud Adoption, International

Journal of Managing Information Technology, Vol.6, No.; T. Vemu and P. Sravya (2019). A Study on Cloud
Migration Models and Security Issues in Cloud Migration, Department of Computer Science and Engineering,
SSRN Electronic Journal, Vol. 6, Issue 4; Cloud Insights survey, Longitude Research, (2017). Oracle Cloud
Platform. Move Workloads to the Cloud; Accenture Report. Sky high hopes: Navigating the barriers to
maximizing cloud value. Dublin: Ireland
104 Source: National Telecom Center website (www.ntc.net.pk/orderbooking/home.asp accessed on

January 25, 2023)

105 India National Informatics centre website. (www.nic.in/servicecontents/data

centre/#:~:text=The%20National%20Data%20Centres%20form,and%20NDC%20Bhubaneshwar%20in%2
02018. accessed on January 26, 2023); GovTech Maturity Index Update 2022. Trends in Public Sector
Digital Transformation, The International Bank for Reconstruction and Development: Washington D.C
106 SBP Circular No. 4 of 2020. (www.sbp.org.pk/bprd/2020/C4.htm); SBP Circular No. 1 of 2023

(www.sbp.org.pk/bprd/2023/C1.htm)

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

The Cloud Ecosystem Index - 2022 Figure S1.23 Moreover, the role and responsibilities of
score
Pakistan each department also need to be clearly
Bangladesh defined with regard to data residency,
Nigeria security protocols and certification
Indonesia accreditation to avoid ambiguity.110
India
Turkiye
China Other areas that warrant attention for wider
Malaysia cloud adoption across public and private
UAE sector include improvements in cloud
Ireland
infrastructure, relevant human capital, as
USA
UK well as security, as evidenced by Pakistan’s
Singapore 73rd rank in global cloud ecosystem out of 76
0 7 14 21 28 35 countries evaluated by MIT Technology
Infrastructure Review on four key metrics (Figure S1.23).
Ecosystem Adoption To this end, one solution that may be
Security and Assurance considered, is attracting large foreign cloud
Talent and Human Capital operators to set up cloud operations in
Source: Massachusetts Institute of Technology Pakistan. This may be done by allowing data
Technology Review
centers to be set up as special technology
in 2021 for its regulated sectors; 107 however zones where the government can provide or
those guidelines have not been finalized as of lease subsidized land and ensure electricity,
yet. high speed internet under the planned 5G
rollout.
The potential of cloud adoption in public
sector is immense as federal government Cybersecurity poses a key risk to the
alone has more than 40 divisions and 600 prospects of digitalisation as, breaches of
affiliated departments.108 However, cybersecurity, privacy and data sovereignty
successful implementation of PCFP in public are a challenge for storage and processing
hinges on coordinated efforts from different infrastructure. It also risks loss of digital
government departments; for instance, identity, financial losses, private personal
ensuring cloud usage in public sector records and several other facets of digital
development programme (PSDP) and in existence. This is why regulators see
public procurement.109 This is an area that cybersecurity as among the top risks to
presently requires a detailed action plan for digitalisation, where fintech and other
migration and continuous implementation.

107 SECP website: (www.secp.gov.pk/document/draft-cloud-adoption-guidelines-for-incorporated

companies/?wpdmdl=42956&refresh=63d22f61ceced1674719073 accessed on January 26, 2023)
108 Government of Pakistan website. (www.pakistan.gov.pk/ministries_divisions.html accessed on

January 25, 2023)

109 H. Fatima and N. Qazi (2022). Untethering from Legacy Infrastructure: Pakistan's Cloud First Policy,

Centre for Digital Transformation, Islamabad: Tabadlab

110 World Bank (2020). Pakistan: Digital Economy Enhancement Project (P174402), Project Information

Document (PID), Concept Stage, Report No: PIDC29750 Washington D.C.: World Bank

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State Bank of Pakistan Half Year Report 2022-23

financial organisations rate cybersecurity Global Cyber Security Index- Table S1.5
risks at par with liquidity risks. 2020
Score Rank
USA 100.0 1
To this end, a Prevention of Electronic
UK 99.5 2
Crimes Act (PECA) was passed in 2016
Singapore 98.5 4
followed by the passing of Data Protection
India 97.5 10
Bill (DPB) in 2021 to help ensure the Turkiye 97.5 11
protection and confidentiality of online data, Indonesia 94.9 24
upholding privacy of the citizens. A Vietnam 94.6 25
National Cybersecurity Policy (NCP) was Thailand 86.5 44
also announced in 2021 aimed at ensuring Bangladesh 81.3 53
security, confidentiality, integrity, and Iran 81.1 54
availability of digital assets across the public Philippines 77.0 61
and private sector. Pakistan 64.9 79
Sri Lanka 58.7 83
*GCSI calculated on basis of legal, technical,
Moreover, in line with global best practices,
organisational, capacity building and cooperative
the MoITT has prepared draft rules for measures
Computer Emergency Readiness Team Source: International Telecommunication Union
(CERT), an important part of the overall
capacity to tackle cyber incidents. The rules cybersecurity on five aspects: legal; technical;
are in the process of finalization; once they organisational; capacity building and
are finalized and approved, all government cooperation measures. The recent passing of
authorities will form CERT for their DPB and NCP can be expected to improve
regulated sectors and assist the private Pakistan’s global rankings in legal
sector.111 For instance, the PTA has launched component of cybersecurity index
its CERT to protect telecom sector.112 A henceforth. However, considering that
National Cybersecurity Act is also currently cybersecurity breaches also cause loss of
being reviewed by the MoITT’s legal wing; it public trust leading to setbacks on the path to
is expected to take up to a year for eventual digitalisation, the country’s substantially low
approval from the Parliament, where PECA scores suggest that cybersecurity efforts need
2016 is also being reviewed for possible to be mainstreamed across various aspects
amendments to keep pace with the fast (Table S1.5). These include the need for
evolving digital world.113 cybersecurity audit and compliance; national
curriculum for basic cybersecurity literacy
While these are promising developments, and skills; human resource development
Pakistan still lags behind its peers in Global programs for technical staffing in public and
Cyber Security Index 2020 that assesses private sector; and special courts related to
cybersecurity.114

111 As per correspondence with officials of MoITT

112 Pakistan Telecommunication Authority website (www.pta.gov.pk/en/media-center/single-
media/pta-launches-cert-portal-for-telecom-industry--050421 accessed on March 16, 2023)
113 As per correspondence with officials of MoITT
114 Source: International Telecommunication Union, Global Cybersecurity Index Report 2020

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Data registries and interoperability, which institutional support to encourage innovation

refers to the ability of digital systems to policies, infrastructure, and ensure
exchange and use information, is another appropriate technological standards and
important technology enabler. One example safety.115 In Pakistan, the government has
of it is digital identity, such as Nadra’s taken a host of policy and institutional
national ID systems. Other examples of it initiatives to support the many facets of IT
include cloud-based health, police, court, ecosystem from the perspective of
taxation and land records and utilities promoting IT exports and digitalisation of
payment history. These are not only needed economy. These include the setting up of
for a thriving fintech industry, such as for National Incubation Centre (NIC) in 2016;
their KYCs and credit scores, but also for launch of Digital Pakistan Policy 2018; and
other industries such as- hospitals and better the e-Commerce Policy 2019.
public policymaking especially during
emergencies. Though the country has a Similarly, SBP has also promoted digital
relatively strong national ID system and payments and fintech in the country, with
payment system respectively, the lack of policy measures such as Regulations for
interoperability frameworks and Digital On-Boarding of Merchants.116
mechanisms acts as a barrier to public and Recently, the SBP had further facilitated IT
private sector’s capacity to exchange data exporters by advised banks to mandatorily
securely and seamlessly and thus, hampers credit 35 percent of the exports proceeds into
the transition towards e-documentation, e- these exporters’ special foreign currency
signatures and e-invoicing. account.117 SECP has provided Regulatory
Sandbox to offer tailored regulatory
Policy and Institutional Support conditions for testing new and innovative
products and services at a limited scale to
To fast track digitalisation, governments, assess their viability.118 In addition, several
especially of developing economies eyeing policies and regulations are currently in draft
the opportunity of technology-led stages; once approved, these are expected to
leapfrogging, need to provide policy and further facilitate the sector (Figure S1.24).

115 UNCTAD (2018). Leapfrogging: Look Before You Leap. Policy Brief. Policy Brief No.71. Geneva: UNCTAD;
K. Lee (2021). Economics of Technological Leapfrogging, in J. Lee, K. Lee, D. Meissner, S. Radosevic, and N. S.
Vonortas (eds.) The Challenges of Technology and Economic Catch-up in Emerging Economies. Oxford: Oxford
University Press
116 Source: SBP www.sbp.org.pk/bprd/2020/CL1-Annex-A.pdf [accessed on March 24, 2023])
117
Under Para 36, Chapter 12 of the Foreign Exchange Manual, exporters of services are allowed to retain
35 percent of their export proceeds in their special foreign currency accounts in Pakistan upon request to
banks. In January 2023, SBP had made this facility mandatory for IT exporters and freelancers (wide EPD
Circular Letter No. 2 of 2023), to further encourage them to bring their foreign exchange earnings into the
country. However, these instructions are valid until March 31, 2023. These instructions will be reviewed
in the light of incremental export performance by IT sector and realization of export proceeds thereof
during this period. (www.sbp.org.pk/epd/2023/FECL2.htm)
118 Source: SECP (www.secp.gov.pk/regulatory-sandbox/what-is-regulatory-sandbox/ accessed on 27

November 2022)

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State Bank of Pakistan Half Year Report 2022-23

Recent Regulatory and Policy Developments Figure S1. 24

Policies in Draft Stages
Digital Pakistan Regulations for Digital On- National Cyber Security National
Policy (MoITT) Boarding of Merchants (SBP) Policy (MoiTT) Broadband Policy
Pakistan Cloud 2021 (MoiTT) Telecom
Regulations for Regulatory First Policy Infrastructur
Electronic Sandbox Raast – Instant (MoiTT) e Sharing
Personal Data
Money (SECP) Payment System (SBP) Framework
Protection Bill
Institutions (SBP) (PTA)
2021 - (MoiTT)

2018 2019 2019 2019 2019 2020 2021 2021 2021 2021 2021 2022
5G Strategic Plan &
National Payment Licensing and Policy Guidelines
Systems Strategy (SBP) Policy on (MoiTT)
Regulatory National
Business
Framework for Freelancing Facilit
The Special Incubation
Digital Banks ation Policy -
e-Commerce Policy Technology Zones Centers (HEC)
(SBP) Consultation Draft
of Pakistan (MoC) Authority Act
(MoiTT)
Note: This is not an exhaustive list of policies
Source: SBP, SECP, MoC, MoITT and National Assembly

However, there are at least four key areas Indicative PSDP on Digitalisation* Table S1.6
that warrant attention from the perspective Allocated Amount No. of Projects
(as percent of total (as percent of total
of government policy and institutional PSDP spending) PSDP projects)
support. First, given the cross cutting nature FY19 0.7 4.5
of digitalisation across sectors, the degree of FY20 2.2 5.6
coordination and concerted efforts needed FY21 1.7 5.4
for digital transformation, requires highest FY22 2.7 7.3
government offices to be leading the FY23 2.3 7.1
digitalisation agenda across federal and * These are indicative allocations as formal estimates of
provincial governments. actual PSDP spending on digitalisation are not
available. These are based on the sum of all projects
that explicitly relate to the following keywords: cyber,
For instance, in Singapore, the Smart Nation digital (digitalisation, digitisation), data (for e.g. storage),
and Digital Government Office, which AI, cloud, knowledge economy, computers and computing,
prioritizes and promotes digital mobiles and broadband, e-learning, smart projects. These
estimates do not include any allocated spending on
transformation in public and private sector, digital components of projects that are not explicitly
works directly under the Prime Minister's named as digital projects.
Office.119 In Kenya, a Digital Economy Source: SBP Staff Estimates based on MoPDSI
Implementation Secretariat is planned with
implementation throughout its various state
membership from all key public and private
departments and agencies.120
sector stakeholders alongside an inter-
ministerial framework to monitor
Nigeria has also re-designated its Federal
Ministry of Communications as the Federal

PM Office Singapore (www.pmo.gov.sg/About-Us, accessed on February 14, 2023.)

119

Kenya Digital Economy Blueprint (www.ca.go.ke/wp-content/uploads/2019/05/Kenyas-Digital-

120

Economy-Blueprint.pdf)

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

Ministry of Communications and Digital of digital transformation also does not

Economy with the mandate of development appear to be pronounced in public sector
and implementation of Digital Economy development spending (Table S1.6).
Policy and Strategy across the country.121
Similarly, Malaysia has formed a National The second area that warrants attention
Digital Economy and 4th Industrial relates to the alignment of sectoral policies
Revolution Council chaired by the country’s with digitalisation agenda. In some cases,
prime minister to accelerate digitisation, such as fintech and e-commerce, policies
accompanied by a strategic change focusing on e-commerce, fintech and
management office which acts as a secretariat financial inclusion contributed to growth in
to the council to drive changes on the ground these start-ups. However, in several other
across the country.122 sectors, policies need to be formed or
updated to facilitate digitalization. For
Unlike these developing and emerging instance, ride-sharing tech start-ups faced
economies, digitalisation agenda in Pakistan legal challenges in Punjab and Sindh because
is not being led by Prime Minister office; nor public transportation laws were not
does it have a dedicated ministry or applicable on them.125 Likewise, except for
secretariat. While the MoITT has drafted the Sindh Telemedicine and Telehealth Act 2021
Digital Pakistan Policy, it does not have the and the draft policy for telemedicine
mandate to institute and monitor Pakistan, there is no e-health policy at the
implementation across the country.123 The provincial or federal level to facilitate health
absence of a strong driving secretariat to tech start-ups. Similar policy and regulatory
steer and coordinate is evident from the fact gaps need to be addressed in other sectors,
that overlapping jurisdictions and lack of including education where the involvement
clarity at the local government level have of ed-tech start-ups may go a long way in
constrained the deployment of fiber optic addressing the gaps in public schooling
cables even in large cities. Moreover, system.
whereas various digitalisation efforts by
different government bodies are in isolation Third, while the Special Technology Zones
and lack the element of interoperability Authority aims to create technology parks,
without policy frameworks for standardized and private and public incubators also
data management.124 Moreover, the agenda organize networking activities, there is a

121 Nigeria National Digital Economy Policy and Strategy (2020-2030) (www.ncc.gov.ng/docman-
main/industry-statistics/policies-reports/883-national-digital-economy-policy-and-strategy/file)
122 Malaysia Digital Economy Blueprint (www.epu.gov.my/sites/default/files/2021-02/malaysia-digital-

economy-blueprint.pdf)
123 MoITT’s role in digitalisation is only that of facilitator with a mandate to develop an action plan in

consultation with relevant ministries and departments who have the lead role in implementation in their
respective domains. Source: MoITT (2018). Digital Pakistan Policy. Islamabad: MoITT
124 Project Information Document (PID) (2020). Pakistan: Digital Economy Enhancement Project (P174402).

Concept Stage, Report No. PIDC29750. Washington, D.C. : World Bank Group
125 Gulf News www.gulfnews.com/business/careem-uber-hope-for-legal-support-in-pakistan-1.1975263,

accessed on February 15, 2023.

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State Bank of Pakistan Half Year Report 2022-23

need to significantly improve the formation timely adoption of digitalisation is needed to

of technology clusters and platforms for be at the forefront of technology. The pace of
interaction between stakeholders operating digital transformation and the ongoing
in the tech industry, especially in smaller fourth industrial revolution is much faster
cities. To this end, formation of sector than earlier technologies, which took decades
specific incubators, development of exchange to develop and spread across countries. This
programmes among clusters and between means the cost for inaction or late action can
start-ups and traditional industries will help be huge.
in community building that is one of the key
factors of success in growth of technology The recent growth in Pakistan's IT exports
startups.126 and start-ups deals may be seen as emerging
signs of digitalisation. However, domestic
Fourth, while federal and provincial market size of IT and software is insufficient
governments have started investing in to help the industry scale up; the firms in the
hardware and software towards sector are very small; and their exports lack
digitalisation of limited number of services, market diversification. The start-up
these efforts are being made in a siloed ecosystem is still very young and
manner, leading to duplication of concentrated only in two sectors: fintech and
investments. The development of these e-commerce. For continued growth in these
parallel systems is costlier for governments areas and to be amongst early adopters of
and time consuming for individuals and digital transformation, if not leaders of
businesses. Although some provincial civil innovative technologies, it is essential that
registries are being automated, such as land individuals, federal, provincial and local
records in Sindh and Punjab, digitalisation governments, and businesses across sectors
needs to be expanded to all registries and embrace latest technologies.
linked with National Database and
Registration Authority (NADRA) whilst With software and start-up led digitalisation
becoming a subject of policy attention
ensuring interoperability, security, single
sign-on and other features of an efficient around the world, the competition for IT
exports and global VC funding for start-up is
system integration.127
expected to increase in the years ahead. This
further underscores the need to grow
S1.4 Final Remarks
domestic demand for digitalisation in
Technological advancement offers Pakistan.
developing economies an opportunity to
The government, as one of the largest IT
leapfrog and catch up with the developed
consumers, can generate demand by
world faster than ever before. However,
digitalizing its services and operations of the

126Ignite (2023). Study for Assessment of Pakistan’s Startup Ecosystem

127World Bank (2022). South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives
Washington, D.C.: World Bank; World Bank (2023). Pakistan: Digital Economy Enhancement Project. Project
Information Document (P174402). Appraisal Stage, Report No: PIDA31211. Washington D.C.: World Bank;
World Bank (2022). South Asia’s Digital Opportunity: Accelerating Growth, Transforming Lives Washington,
D.C.: World Bank.

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 Pakistan’s Growing IT Exports and Tech Start-ups: Opportunities and Challenges

public sector. This will have a two-pronged capital mindset characteristic of investments
impact. First, it will bring efficiency in in start-ups. This change is especially
government’s own operations, create needed to increase local investments in areas
facilitative business environment, and of edtech, healthtech, and other areas of
improve public services provided to citizens. economy where technology can potentially
Second, it will provide the opportunity for address Pakistan’s long standing challenges,
the typically small domestic IT firms to including those related to savings, insurance,
develop tech-based solutions for the taxation, and documentation of informal
government allowing them to scale up and economy.
professionalize before they can compete in
international markets. The role of fintech in digital transformation
will be critical, given its potential to address
The appetite for technology by businesses, the digital divide and the fact that finance
including SMEs, in the private sector and complements economic transactions.
individuals at large has to increase to expand However, the growth of start-ups, in general,
the addressable market for start-ups and and fintech, in particular, depends on how
further digital transformation. One of the fast the government progresses on ensuring
major hurdles limiting the mass proliferation the availability of enabling technologies and
of IT relates to its affordability and related frameworks such as cloud storage
availability, especially for the rural and computing, cybersecurity, digitisation of
population. To remedy that, the duties and civil registries, credit reporting system
taxes on internet and the devices used to reforms, and ensuring interoperability
access it need to be reduced. Further, the between various government systems and
development of absorptive capacity of the databases.
population is crucial. This can be achieved
by enhancing digital literacy via focused The development of software, technology
initiatives, including through social media start-ups and other IT related sectors is not
platforms, and making digital education a about choosing IT industry as a winner
fundamental part of the curriculum. among others; it’s about digital
transformation of the economy at large and
Educational institutes and training centers enabling leapfrogging. In recognition of this,
must also be proactive and forward-looking a host of policies and regulations by various
in bridging the supply-demand gap of ministries and government organisations
human capital in IT industry, and keep pace have laid the right foundations. However,
with the fast evolving advanced skills. This the fast evolving IT industry and the
is where private sector has a particularly enormous nature of this task requires
important role to play by allocating resources consistent and concerted efforts to be led by
to improvements in human capital and the prime minister office or a dedicated
digital literacy. The private sector, especially ministry to direct, coordinate, and align
local high net worth investors, family funds private and public sector actors, sectoral
and foundations need to develop a patient policies and institutions across the country.

171