A vital issue for Pakistan’s IT service exports to thrive – human capital

Written by Usman Asif

Apr 16, 2024

April 16, 2024

Last week, I discussed the disconnect in the IT industry, and today I want to address a vital issue for Pakistan’s IT service exports to thrive – human capital.

Pakistan’s IT Industry faces a severe human capital crisis. It produces about 25,000 IT graduates from recognized universities each year, of which only 10% to 15% are employable. Many of these employable graduates either leave the country, or freelance for foreign clients.

To achieve a 10x growth in IT exports, we need a compound annual growth rate of 31%. However, the current talent pool is increasing at best by 4-6% annually. Moreover, a significant number of highly qualified Pakistanis are leaving the country, further depleting the talent pool. The core issue lies in the quality of higher education, with Pakistani universities scoring poorly on global talent competitiveness metrics with universities scoring 30.8/100 on the Global Talent Competitiveness ranking. This forces employers to bear the burden of workforce training, increasing costs. While established firms like Devsinc can manage, it poses an even bigger threat to the 2,500 new IT startups emerging yearly as per the SECP.

To improve the quality of graduates, the industry can work with the HEC and universities to improve course structure and pedagogy to align higher education with the practical needs of the industry. Looking beyond university, upskilling programs with recognition can act as highly efficient substitutes and transfer the needed skills.

There is also a misalignment between the needs of the economy and the degrees that Pakistani students will pursue. For instance, ~600,000 students were enrolled in programs relating to engineering, the natural sciences, and mathematics across the country in 2020-21. While these are undoubtedly rigorous academic pursuits, the current job market does not accommodate these graduates, which means that most of these students are either unemployed or underemployed. But for our industry, they represent a latent talent pipeline which can be polished with some investments.

Moreover, we need to encourage people to help build big companies rather than every individual going about their freelance journey. Part of the reason it happens in the first place is that currently, freelancers are exempt from income tax while salaried employees of tech companies aren’t. This creates an incentive for talent to become freelancers as that leaves them with disposable income. The government can solve this incentive structure by removing the income tax for employees and instead directly tax the revenue of IT companies.

Making Pakistan a technology hub would require concerted efforts from all stakeholders and they all have to start with creating a healthy talent pipeline.

Feel free to share this article on LinkedIn to start a discussion on this critical issue. We must address the human capital crisis to unlock the full potential of Pakistan’s IT industry.

 

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