The services sector and export growth
The services sector of Pakistan accounts for more than 50 percent of the country’s GDP and also employs a major portion of the labour force. Internationally, services have become a vibrant part of trade and reached US$4.9 trillion in the world in 2016.
Pakistan’s trade in services, on the other hand, only amounts to 16.20 US billion dollars. Our neighbour country India, on the other hand, contributed US$162 billion in the international trade of services in 2016.
Pakistan has many offers and opportunities to liberalise trade in architectural services, construction services, engineering services, energy related services and environmental services from member countries in the Doha round of the World Trade Organisation (WTO). Due to these offers, Pakistan made four requests seeking commitments from the European Community, the USA, Saudi Arabia and other member countries.
These requests pertained to liberalising trade in computers and related services, to the movement of natural persons without the distinction of skilled and unskilled persons, cross-border supply and to Most Favoured Nation (MFN) exemptions. All these offers and commitments are excellent opportunities for Pakistan to increase its exports of services.
In the fiscal year 2015-16, the total revenue of the IT industry in Pakistan was $2.9 billion while 88 percent of this revenue came from the export of IT and IT-related services, a figure amounting to almost $2.55 billion. In fact, there are a lot of opportunities for Pakistan to grow in this sector because of several reasons.
First, information technology and its related services are not very dependent on huge physical capital and infrastructure, and only require human capital and natural talent. Second, IT related services are also not reliant on the domestic demand of a country since IT related software is developed according to international demand.
The third and the most important reason is that the international market for IT is growing rapidly and nearly 500 IT related companies operating in this market are from developing countries. All this highlights that Pakistan can truly carve out space for itself in this burgeoning sector.
About 1.75 billion people currently live in South Asia, but this region, sadly, suffers from a dearth of connectivity. Pakistan can play a significant role in connecting these people through its central location in the region.
The recent connectivity program under the China Pakistan Economic Corridor (CPEC) is likely to generate huge and highly specialised demand for transport and cargo services in Pakistan. Pakistan also has a comparative advantage in exporting professional services like construction, architecture, legal and engineering services because of the availability of cheap labour and a large pool of professionals and engineers related to the field of construction.
Despite these opportunities in boosting trade in services, many factors limit Pakistan’s ability to participate in this lucrative and expanding market. The biggest hurdle in enhancing this trade is the free mobility of labour for Pakistani nationals. Another important factor is a lack of access to export financing and a lack of efficient infrastructure in the country.
Pakistan’s trade in services only amounts to US$16.20 billion. India’s services exports, on the other hand, amounted to US$162 billion in 2016
The banking sector and other financial institutions provide export financing to only those exporters who have enough securities and resources to acquire new loans. Unreliable telecom services, moreover, adversely impact outsourcing and the direct export potential, while a lack of reliable energy and transport services raises costs for the service sector. Another significant constraint is the low human capital and the near absence of necessary vocational training in the country.
By specialising in services and scaling up their production, Pakistan can achieve a high growth rate that the commodity producing sectors are currently failing to deliver. Furthermore, there is a need to fundamentally revitalise the trade-related services sector in Pakistan by introducing efficiency enhancing reforms through institutional changes, better human capital and through the provision of technical education.
Education and especially vocational training is important to meet the growing demand of a skilled labour force. Singapore is a leading example in this regard, which grew by making huge investments in its human resource base.
The IT sector in Pakistan, moreover, is showing remarkable results as is evident by the increasing number of IT based startups in Pakistan. However, activities are largely concentrated in major urban areas, and the government must involve other cities as well to further expand business prospects.
This article was originally published at:
The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.