Sustainability of digital trade …Hassan Nawaz Sheikh
PAKISTAN’S ailing economy is undergoing a process of revival. The economic wizards have placed a lot of bets on IT in the hope that the enormous potential of this sector can help alleviate our economic woes. There have been claims by former federal IT ministers that Pakistan’s IT exports would reach between $10 billion to $20bn from the existing mark of $2.6bn within the next few years. The premise on which these claims are being made is that the IT sector has been recording consistent upward growth since the last few years.
The IT industry gained further focus when it was picked up by the newly christened Special Investment Facilitation Council as one of the five core areas on which Pakistan’s economic revival is predicated. Under the auspices of SIFC, investment opportunities are available for setting up special technology zones (STZs) at seven prime locations including Lahore, Peshawar, Swat, Abbottabad, Haripur, Islamabad and Karachi. The Ministry of Information Technology & Telecommunication also has a project for the establishment of 25 software technology parks (STPs) throughout Pakistan by converting public-/ privately owned dilapidated or non-operational office buildings/ factories/ warehouses to provide IT-enabled office spaces to IT and ITeS companies at affordable rates.
A Special Technology Zones Authority has also been set up under the Special Technology Zones Authority Act, 2021 that provides incentives for STZ enterprises and zone developers for 10 years. These incentives include tax exemptions under the Income Tax Ordinance, 2001, and Sales Tax Act, 1990. Capital goods imports are exempt from taxes. There are no property tax obligations. Most importantly, investment/profit repatriation freedom is granted.
There’s no doubt that the development of STZs/ STPs is important to catalyse the emergence of digital and IT-related trade as more and more businesses and start-ups would be tempted to move their offices within these zones to avail tax benefits. However, these are just infrastructural developments at best, whereby, a conducive environment for setting up businesses is being provided. Once IT firms shift their offices to the proposed STZs or start-ups occupy rental spaces in the buildings of STZs, the next step would be to sustain their existence. How then do they generate businesses to ensure survival? Without business opportunities how can we achieve the goal of enhanced IT services exports?
Without business opportunities how can we achieve the goal of enhanced IT services exports?
Thus, clearly something is missing. Having large buildings does not guarantee business activities within those quarters and a longer-term plan is required to create opportunities for our tech entrepreneurs. Accordingly, we would need the following:
Digital trade policy: The term ‘digital trade’ has no clear definition, yet it is believed to refer to “commerce enabled by electronic means in both goods and services”. The Digital Trade Principles, as agreed upon by the G7, cover five areas: (1) open digital markets; (2) data free flow with trust; (3) safeguards for workers, consumers, and businesses; (4) digital trading systems, and (5) fair and inclusive global governance.
While there is no clear measurement of this sector, the Organisation for Economic Cooperation and Development estimates it to constitute approximately 25 per cent of the entire world trade. However, given how quickly this sector is expanding, the domestic regulatory environment will become increasingly restrictive, making it more difficult for consumers and businesses to seize some new and emerging opportunities.
How are these problems to be tackled? How would a start-up’s performance not be hampered by such problems? How will our domestic businesses deal with cross-border regulatory requirements as violations thereof might restrict their ability to continue business with their customers? For all these key problems and other related issues, our country needs to have a robust and dynamic digital trade policy for sustainable growth in this sector.
Digital economy/ trade agreements: While digital trade policy would bring a holistic and competitive edge to our IT entrepreneurs so that they’re able to compete at the international stage, digital trade agreements would bring them bilateral and preferential market access. DTAs are just a niche version of the traditional free trade agreements. Whilst Pakistan is struggling to gain benefit even from the conventional FTA model, the developed world is moving swiftly towards the advanced form of an FTA in the shape of DTAs.
For instance, digital trade is a key element in the European Union’s trade policy and every modern trade agreement that EU has concluded contains a dedicated digital trade chapter. Pakistan should, thus, aim to have a DTA with the EU that is the world’s largest exporter and importer of digitally deliverable services.
Singapore can be taken as another example that has already concluded negotiations on digital economy agreements with Chile, New Zealand, Australia, the UK and South Korea. So, the trend of digital economy and trade agreements is definitely picking up. If our IT entrepreneurs can have direct and preferential access to developed economies — through the medium of DTAs — then we can keep our hopes high that sustainable and continued business will come our way and that would then justify the mushroom growth of STZs.
Finally, the government is not supposed to hand out jobs, but to facilitate an environment where businesses themselves can thrive and create jobs. There’s no two ways about it that STPs and STZs are beneficial, yet these are only a part of the overall puzzle, and many other challenges also need to be addressed to sustain the momentum of IT-related trade in the long run and to enable Pakistani firms to compete with regional and global competitors.
Therefore, the focus should also be on getting more market access and global business opportunities in addition to the initiative of STZs. Current times are tough and the journey of revival is long but one must remember that ‘a smooth sea never made a skilled sailor’.
The writer is a barrister.
hassannawaz@hotmail.com
Courtesy Dawn, March 30th, 2024