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Making IT parks useful


May 21, 2019

Information Technology (IT) Parks or Technology Parks are established in many countries, with certain objectives linked with economic indicators. Those with a complete ecosystem in place are generally characterized by quality infrastructure; collaboration with universities, industries, and research institutions; business incubation facilities; and provision of administrative, financial and legal assistance to resident startups.

Generally, it is expected from the establishment of such parks to improve exports of IT and IT-enabled services (ITES), nurture hi-tech companies, commercialize innovative ideas and technologies to create new market spaces, strengthen the innovation value chain, and accelerate the process of transitioning towards a knowledge-based economy. That helps create new jobs, improve the innovation-related indicators, attract foreign investment, and increase the overall competitiveness.

Based on the Global Competitiveness Index (GCI), Pakistan ranked 122nd in the world in 2017 and since the establishment of successful IT parks have traditionally shown to improve the regional competitiveness, Pakistan may benefit from the creation of such parks. However, while doing so, there are certain precautions and prerequisites to consider before embarking on ambitiously pooling resources for such ventures in haste. The export potential of resident technology-oriented companies in an IT or technology park, that offer IT and ITES, considerably depend on the quality and value proposition of their products and services, which is closely linked to the quality of their human resource. Also, it is important that to create new market spaces, the technology used is disruptive and the products or services are considerably innovative.

That is where the importance of strengthening the innovation value chain comes in. To foster innovation, certain pre-conditions need to be fulfilled. These include the presence of a level playing field for businesses, a facilitative regulatory framework, a healthy number of competing digital or hi-tech businesses, an operational and effective link between industry and the academia, and a reasonable percentage of GDP allocated for R&D among other factors.

An IT park or a technology park with a complete ecosystem brings in all these necessary ingredients to foster innovation. However, one fundamental enabler remains -- a sustainable and quality talent pipeline of digitally skilled human resource. Given that Pakistan has fared well when it comes to generating revenue in the space of on-demand economy or through freelancing, however, to increase the IT and ITES exports, a more streamlined and integrated approach is required. The presence of a strong industrial base in many countries has proven to help the cause by creating a substantial demand locally for skilled digital and technology workers, to make their export-oriented products competitive. With the presence of hi-tech industries and their collaboration with local universities and research institutions, the quality of research and innovation improves.

In many countries that have a strong and working innovation value chain, the transition has usually taken place from conventional industrial estates to special economic zones (SEZs), eco-industrial parks, science parks, and finally to innovation districts. In Pakistan, we are currently in the second transitional phase of establishing SEZs.

India has performed exceptionally well in growing its industrial sector, improving overall competitiveness and increasing the exports of IT and ITES. In terms of global competitiveness, India ranked 39th in 2017 with 3.8 percent of GDP allocated to R&D, and its ICT exports grew from $108 billion in FY 2015-16 to $117 billion in FY 2016-17. The Indian IT industry contributes to 7.7 percent of its GDP, 49 percent of total exports, and 55 percent of global sourcing. Based on ICT Services exports in percentage of its total trade, India ranked first in the world in 2017. In India there are more than 230 notified SEZs that are specific to IT, ITES, electronic hardware, and semiconductors, out of a total of more than 350 notified SEZs, which have played a major role in increasing its ICT exports. A major credit also goes to India's liberal foreign direct investment (FDI) policy.

To galvanize the growth of businesses and startups, India ranked 9th in the world when it came to venture capital availability, 39th for ease of access to loans and 51st for quality of overall infrastructure, in 2017. In comparison, Pakistan ranked 68th for venture capital availability, 103rd for ease of access to loans and 93rd for quality of overall infrastructure. The gross expenditure on R&D in Pakistan in 2017 as percentage of GDP was only a paltry 0.2 percent with only 2.7 percent of GDP allocated for education.

Vietnam is another example which has a growth rate of 6-7 percent and its remarkable economic growth is attributed to 'Doi Moi' which was introduced by its government in 1986 as series of economic and political reforms. A major factor within Doi Moi has been the focus on investing in human and infrastructure development apart from other external and internal reforms. Its competitiveness stood at 55th in the world in 2017 with its ranking in 'ease of doing business' improving from 104th in 2007 to 68th in 2017. Its GDP per capita has grown almost 10 times since 1985.

Therefore, for Pakistan to make significant progress towards improving its IT and ITES exports and accelerate the transition towards a knowledge-based economy, the government needs to invest significantly in human development and increase its percentage allocation of GDP for education and R&D. For IT or technology parks to be useful and play a role in engendering economic activity, creating jobs, increasing exports etc, investments should be make in improving the ICT and electricity infrastructure, creating strong operational linkages between the government, industry and academia, providing a competitive incentive structure, improving the ease of doing business, and making access to loans and venture capital more convenient and easy.

Emphasis can also be laid on creating employment for low-tier skilled workers through creation of business process outsourcing (BPO) spaces within the IT or technology parks. With gradual expansion and growth of a sustainable talent pipeline of highly skilled digital entrepreneurs and digital businesses in parallel, we can expect to see increase in the exports of our IT products and ITES.

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