Debugging Pakistan’s IT Aspirations

Pakistan suffered the equivalent of 22 full days of nationwide digital blackouts last year, costing the country USD 1.6 billion in lost productivity, according to global internet monitor Top10VPN.com. The longer-term adverse impacts of 2024’s internet disruptions are likely to exceed the immediate-term opportunity costs, given that IT professionals and freelancers serving international clients missed their deadlines, lost contracts, and Pakistan’s viability as a reliable offshoring location was called into question.

Yet, the Ministry of IT saw no incongruity between this reality and its aspirations as it hosted the Digital Foreign Direct Investment 2025 Forum in April, urging international partners to invest in Pakistan and its youth. This is either a case of untethered optimism or a complete lack of understanding of the IT sector and what it takes to cultivate a dynamic and thriving economy. The evidence points to the latter.

Tech Styled on Textiles

For years, the Government of Pakistan focused on a manufacturing-centric export promotion policy. Efforts to grow foreign currency earnings consisted of offering tax exemptions, discounted real estate and cheap financing to textile companies — even as power and energy shortages disrupted their operations. Little thought, if any, was given at the national level to developing a diversified knowledge economy, bolstering the service sector, or capturing a portion of the multi-billion dollar IT outsourcing industry.

It was not until 2017 — while Microsoft was marking its 20th year of operations in neighbouring India and SoftBank was making its largest private investment in India’s consumer tech sector — that the Government of Pakistan belatedly realised the latent potential of the IT industry and decided its intervention was required. The response was a predictably uninspired mix of incentives lifted from the same policy playbook that had left textile exports completely stagnant at USD 15 billion for the last seven years: a limited set of tax exemptions and an IT park to be built with the help of South Korea. Bean counters at the FBR never allowed the tax exemptions to be practically implemented. Meanwhile, eight years on the Islamabad IT park, originally budgeted at Rs. 6 billion, is expected to be completed sometime this year, at a cost of Rs. 25 billion.

Not So Special Economic Zones

While the government's ambitions for the IT sector have grown dramatically over the years, it is not clear that its understanding of IT sector incubation has evolved. Subsidised real estate, for example, continues to feature prominently in government plans. The Uraan Pakistan National Economic Transformation Plan plans to establish more IT Parks in the form of special economic zones focused on IT exports. IT parks do provide undeniable benefits, but they’re not magic. The same subsidised office space could turbocharge Pakistan’s struggling manufacturing or logistics sectors, where productivity gains would ripple far wider. Software firms can work from cafés; factories cannot.

Town, Gown and Crown

Where IT parks have been particularly successful, such as in India, they have been so because they are designed as far more than just office spaces. World class IT parks are situated in close proximity to, and are often affiliated with, engineering universities and technical institutes that provide a steady supply of skilled talent. IT parks also facilitate close collaboration on research and development between these technical institutes and private businesses, creating a symbiotic ecosystem of knowledge sharing, apprenticeship, innovation and growth. IT parks and special economic zones are unlikely to make Pakistan the next hub for business process outsourcing without strengthening the IT curriculum, creating industry and academia linkages and providing government grants to bolster the research and development budgets of Pakistan’s universities.

To the government’s credit, they recognise the need for strong IT education and development of human capital; they have articulated the need to expand IT programmes to smaller cities. This is the right sentiment, but runs the risk of devolving into a set of campus construction projects, with no impact on the quality and depth of IT instruction. Pakistan already produces 75,000 IT graduates annually, but a Gallup survey of IT sector employers found that less than 10% of these graduates are considered employable. Expanding IT institutes without first aligning the curricula to what is required by the industry and addressing the educational quality will just add to the number of disillusioned, unemployed graduates.

All That Glitters

Government officials have been particularly seduced by the hype created in the second startup boom. Publications issued by the Ministry of IT are abuzz with references to the startup ecosystem, digital disruption and venture funding. Policymakers’ limited understanding and gold-rush mindset is perhaps best captured in the Uraan Pakistan IT Strategy, which refers to the ICT sector as “the quickest and most reliable pathway for wealth creation”. Accordingly, targets have been set to cultivate a strong startup and entrepreneurship ecosystem within the next five years, including incubating 1000 startups through the National Incubation Center, attracting annual venture funding to the tune of USD 500 million, and producing Pakistan’s first unicorn: a startup with a billion dollar valuation. The federal government has even announced the creation of its own Rs. 5 billion venture capital fund.

To be sure, the government should create an enabling environment for startups and entrepreneurship. But this should be done for the innovation, invention, efficiency and new ways of thinking and working that they bring, not so that Pakistan can produce a billion-dollar tech firm. Startup and entrepreneurship-led innovation catalyses growth in the wider ecosystem as other companies adopt and build on their ideas. A unicorn makes for good optics, but the wealth creation is highly concentrated and in many instances, just exists on paper.

The government's disproportionate emphasis on tech startups echoes the same myopic thinking that resulted in decades of textile sector subsidies. The countless small businesses started and run by self-employed individuals are also entrepreneurial ventures deserving of government support. These businesses have been quietly operating in uphill conditions long before the advent of glitzy startup conventions and will continue to do so long after adding the prefix ‘tech’ ceases to drive up a startup’s valuation.

Government policies should create an enabling environment for all firms, whether they are tech startups or ordinary small businesses. Billion-dollar companies can really only exist when there is a sufficiently deep and vibrant overall economy to generate demand for the goods or services they produce and to sustain continued growth. This enabling environment will come from genuine reform and business friendly policies, not from a taxpayer funded, government-run venture capital fund.

This is again an example of the government formulating policy based on a superficial understanding informed more by buzzwords than by a tangible needs analysis. Even in developed markets, venture capital accounts for less than 5% of the funding that goes into new businesses.

The government would do better by simply working to reduce the cost of doing business. Company incorporation and annual filing processes remain too complex and cumbersome, even after SECP reforms. Statutory requirements like mandatory retainerships for auditors and legal advisors add needless costs for small companies, who already bear the costs of serving as withholding agents for tax authorities. The overall system remains designed for rent seeking, extortion and general harassment by government authorities. Addressing these issues will benefit both tech startups and small businesses and likely yield greater economic benefits.

A New Type of Sweatshop

But perhaps most off the mark is the government's celebration of freelancers and the ‘gig economy’ as a newfound revenue source and employment creation avenue. The fact that so many Pakistanis are engaged in gig economy work as freelancers is more an indictment of the private sector’s capacity to absorb jobseekers than the point of pride that Pakistan’s economic stewards are seeking to further cultivate.

Freelancing is a good way for students, recent graduates and young professionals to make some extra money on the side. It is also a good, often dollar-denominated, income source for individuals who are unable to commute or wish to work remotely or individuals unable to work full time or during regular business hours. But freelancing is not the route to wealth creation that the Planning Commission seems to imagine it is.

Freelancers seeking to land projects from international clients need to aggressively bid for work on online platforms that can take a cut of up to 50% of their earnings. Without an established portfolio of work and completed projects to showcase, new joiners are unable to land any work. A single bad review from an irate or excessively demanding client can jeopardise the freelancer’s ability to charge good rates and land future projects. Invariably, the top echelon of freelancers manage to land the bulk of the work. And the work is not routinely invigorating or intellectually stimulating; much of it comprises relatively menial tasks that are farmed out for cost savings or work that forms the low end of IT skills, such as website development or simple coding. Needless to say, the cutting edge of AI engineering is not being honed by freelancers on Fiverr.

Gig workers are a subset of freelancers who may have it even worse. While freelancers may cultivate long-term relationships with clients and manage to grow over time, gig workers are almost exclusively on short-term, transactional, task-based work, usually assigned via apps. These individuals do not grow over time as a full-time employee in an organisation might. They have minimal ability to influence their hourly wage rate, have to go without pay if they take a sick day and have no safety net against being let go. These individuals have no employer-provided medical coverage or support, despite working for the same billion-dollar unicorns that our government so admires. Far from encouraging gig work, the government should be heavily regulating businesses who seek to exploit workers in this way.

Government authorities are right, however, in making it easier for freelancers to open bank accounts and send and receive money easily — more should be done to enable freelancing as a work choice, especially if it is made willingly, and not out of necessity due to lack of other economic opportunities. But the emphasis has to be on creating viable economic opportunities where job-seekers can earn a living wage in a sustainable manner.

Pipes over Pixels

Blindly importing the Silicon Valley playbook will not build a thriving IT sector — it will replicate its failures. The unicorns celebrated in Western economies often owe their valuations to speculative bubbles, not sustainable value. The gig economy, far from being a marker of progress, emerged from eroded labour protections and stagnant wages. Pakistan does not need to mimic these dysfunctions; it needs to craft policies tailored to its realities.

The IT sector is critical to Pakistan’s future, but its potential won’t be unlocked by subsidised office parks or state-run VC funds. True growth will come from education that meets industry needs, regulatory reforms that lower the cost of doing business for all firms, not just startups, and labour policies that protect workers, whether they’re freelancers or factory employees.

Most importantly, Pakistan’s economy cannot thrive on IT alone. While officials chase billion-dollar unicorns, the country faces a dearth of skilled blue-collar workers — electricians, welders, mechanics — who form the backbone of any functional economy. A nation cannot leapfrog to a knowledge economy when its pipes are leaking and its wires are frayed.

The lesson is clear: stop idealising tech exceptionalism. Build an economy where IT thrives alongside other sectors and provide enabling support to all entrepreneurs. Pakistan’s future depends not on mimicking Silicon Valley, but on fixing the systems that keep its own talent in the dark — both online and off.