Securing Pakistan’s economic future with digital exports

Nadeem Mujtaba, in collaboration with Michael McKinlay, highlights the advantages of digital exports for Pakistan in an interesting piece. To brighten Pakistan’s economic future, the government needs to re-structure the higher education system and apply concepts used by the military for battles!

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The National Security Policy (NSP) has taken a whole-of-government approach towards national security that places economic security at the centre of this initiative. The heightened focus on the economic well-being of the citizens as part of the draft NSP is being applauded widely.

Economic security has many facets. I will focus on one crucial aspect of the economic vulnerability of the country namely Pakistan’s perennial balance of trade deficit. This requires a strategic initiative to expand the country’s exportable productive capacity to achieve a meaningful and sustainable increase in its exports.

While the country can choose to focus on expanding its exportable capacity in physical goods, international & regional benchmarking suggests that the opportunity for a paradigm shift is in the export of services (in particular, digital exports) where the country is severely under-performing.

Read more: Debunking the relationship between exports and currency devaluation

Physical vs. Digital Exports

The essence of strategy is about making choices regarding emphasis – where to primarily focus the deployment of the country’s finite financial, soft power, and time resources to expand the country’s exportable capacity considering the cost & revenue potential of the available options.

Let’s look at the cost first. The raw material for digital exports is human capital, a commodity for which the country has large and under-exploited reserves. In comparison, expanding exportable capacity for many physical products might result in importing raw material, thereby reducing the net impact on the trade balance. Additionally, unlike many physical exports (e.g., manufacturing that consumes electricity or agriculture that consumes water), developing digital exports capacity does not consume other precious resources.

On the other hand, the revenue potential is driven by market growth potential and the projected demand/supply balance driving the probability for the expanded capacity to find market share at commercially attractive prices. In most physical goods, the market growth projections are modest, and the demand/supply balance is competitive. The market fundamentals for physical exports are challenging.

Read more: Economy on a bumpy yet steady road to recover

In comparison, 149 million new digital jobs are projected to be created in cybersecurity, software engineering, artificial intelligence, machine learning, data science, and cloud computing (collectively referred to as 4IR-skills) between 2020 and 2025. There is a significant shortfall in G20 countries in the skills needed for these digital jobs which is creating new cross-border digital trade opportunities between countries. This creates a once-in-a-generation-opportunity for developing countries that have a large population of young adults to equip them with 4IR-related skills and enable them to compete globally to generate FX earnings.

Progressive new digital export entrants (e.g., China, Malaysia, Philippines, Vietnam, Egypt, Poland, Ukraine, Romania) are investing significantly on their human capital. On the other hand, India as the global market leader in cross-border technology services, is doubling down on its investment in human capital by re-training 2 million of its existing 4 million technology professionals and training another 3 million high school graduates in 4IR skills to increase its tech talent pool to 7 million. Its target is to increase its digital exports from $121 billion in 2017 to $350 billion by 2025 – almost twice the oil exports revenue generated by Saudi Arabia in 2021.

The case for a national strategic initiative to focus on digital exports enhancement is compelling!

Fixing the higher education system: What more can we do?

The current higher education infrastructure lacks scale and international acceptability in terms of quality. It is estimated that Pakistan’s higher education system produces 25,000+ tech graduates (it is unclear how many focus on 4IR skills). According to an article by the ex-chairman of P@SHA, only 4000 – 5,000 of these graduates are industry acceptable from the vantage point of the IT services sector in Pakistan.

Even this elite group is not readily productive without requiring further training in the industry to cover their skill gaps. The domestically produced learning content, delivered by domestic lecturers with limited connectivity to the global tech industry, with accreditation by domestic universities offering limited international currency benefits results in limited receptivity from international buyers of Pakistan’s 4IR talent.

Ad-hoc initiatives are being taken to set up new universities – some are being planned and some are work-in-progress. However, put together they ‘scratch the surface’ in terms of achieving scale. The capacity enhancement is being funded by GOP investment which is always very scarce. Setting up a university takes years, and graduation takes four years after the commencement of the programme.

Read more: NSA Moeed highlights Pakistan’s efforts for peace, stability in Afghanistan

This means that exportable productive capacity will not be made available until circa 2030. The end outcome is an insignificant projected increase in exportable productive capacity, delivered many years later and the upfront investment cost is borne by the public sector.

Given the above inadequacies, we need to re-think the entire higher education delivery model for 4IR skills to develop exportable productive capacity at scale. We need to re-define the purpose of the learning programme for 4IR skills as internationally comparable professional skills development to ensure that young adults are job ready. We need to innovate in the way higher education is being delivered by leveraging the benefits of virtual/physical blended learning so that we can process three times the number of learners using the limited physical space available in the higher education sector.

In short, we need to develop a challenger pathway to the legacy academic degree pathway currently being offered by our higher education infrastructure. We need to develop this challenger pathway at a scale that it is capable of processing four times the capacity of the entire current higher education infrastructure providing technology education today (say, 100,000 young adults within the next four years).

And we need to re-think GOP’s role in this strategic initiative. The current GOP role as the provider of investment capital and the selector of the governing team for managing educational institutions is not realistic if we wish to aim for a paradigm shift with a target to achieve 4X-capacity in four years through a challenger pathway.

Read more: Tech, human Factor and gender parity: Prerequisites for economic growth

For this strategic initiative, the government’s role should be modified to become the flag-waver for developing an investor-ready, international quality, EdTech initiative which can attract international investors to fund an over-whelming portion of the investment requirement and an international team selected by these investors to deliver on pre-agreed targets. The government should focus on setting strategic objectives and reviewing performance – not on funding the upfront capital investment, subsidising on-going expenses, or selecting the governing teams of the 4IR skills delivery institutions.

Military tactic to enhance digital exports!

Given that we are discussing economic security as a part of the national security, allow me to introduce the military concept of multi-domain-battle. Defence experts define multi-domain battle as actions in and across land, air, sea, space and cyber to achieve military effects. The key to this kind of warfare is the seamless integration of multiple functions, by multiple actors, to achieve complementary and compounded effects.

Enhancing digital exports will require the essence of the multi-domain battle concept – a seamless integration of multiple functions by multiple actors. An institutional capacity to train young adults at scale is only one facet. Success in achieving a meaningful increase in digital exports will require an integrated effort on many fronts.

To begin with, there will need to be a concerted, multi-year branding campaign to achieve a societal change in the perception of emerging technologies as a field of study so that the top quartile of the high school graduates aims to join this professional career as a matter of choice. Take a career in medicine as an example. The societal elevated view of this profession manifests itself in the form of almost 180,000 of the brightest young adults taking MDCAT entry exams for under 10,000 seats available in medical schools in the country. We can’t achieve the targeted 100,000 learners in four years if the perception of the emerging technologies profession is not elevated to attract the top quartile of the high school graduates at scale.

Read more: How governments can help in technology-led economic development?

Even if we get the targeted number of learners in the programme, this will not convert into export earnings unless these young adults are economically active in an international context. This requires an internationally comparable institutional framework to deploy this new exportable productive capacity in international arena. No such institutional infrastructure exists in the country at present.

To sum it up, the national strategic initiative needed to enhance the country’s current digital exports in a meaningful manner will need to be multi-faceted and integrated – we need to pivot the top quartile high school graduates towards a career in emerging technologies, we need to have the requisite 4IR skills delivery capacity at an internationally comparable level, and we need to have an institutional framework to link this exportable capacity with cross-border tech services opportunities.

This is certainly doable, but it will require a sophisticated international project team, collaboration with a selection of global entities in education sector and segment-leader boutique international EdTech firms, a consortium of domestic universities, and an ability to attract foreign investors to take the financial burden of the initiative away from the GOP.

Read more: PM IK to set up 60 Technology Parks and targets $10bn in IT exports in 2 years

This is certainly not a simple solution. But then no strategic national challenge has a simple answer. For those who are committed to changing the economic future of our country’s bright young adults and achieving economic security goals, the rewards of the proposed strategic initiative are certainly evident enough.

Nadeem Mujtaba is the Managing Director and Michael McKinlay is Director – GCC & Pakistan at The FinTech Group, a London-based firm focused on deploying digital & emerging technologies innovation in the education sector. The views expressed in the article are the authors’ own and do not necessarily reflect the editorial policy of Global Village Space. 

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