 | Issue: | Asia-Pacific II 2005 |
| Article no.: | 1 | |
| Topic: | Pakistan’s leap towards convergence | |
| Author: | Awais Ahmad Khan Leghari | |
| Title: | Minister for Information Technology | |
| Organisation: | Pakistan | |
| PDF size: | 60KB |
About author
Mr Awais Ahmad Khan Leghari is the Government of Pakistan’s Federal Minister for Information Technology. Mr Leghari is a member of a prominent political family from Dera Ghazi Khan, an underdeveloped area of the Southern Punjab. He has actively dedicated himself to socio-economic developmental issues and pursued a career in politics. Mr Leghari, a founding member of the Millat Party, contested and won the Provincial Assembly Election in 1997 from Rajanpur as an independent candidate. He has been elected for two seats, a National Assembly seat from Dera Ghazi Khan and a Provincial Assembly seat from Rajanpur. Mr Leghari is a graduate of the University of Rochester, New York State, USA, where he earned his degree in Economics (Game Theory) and Political Science.
Article abstract
Pakistan is deregulating, privatising and liberalising its ITC sector. The Ministry of Information Technology has licensed several competitive fixed-line, long-distance and mobile operations, and will soon sell its controlling share in PTCL, the incumbent operator. There is considerable unmet demand for mobile, fixed and broadband data-based telecommunications services. Accordingly, Pakistan’s telecom sector is expected to grow from 1.7 per cent of the GDP today, to 3 per cent in the coming five years, when new operators roll out their networks in the country.
Full Article
It is no secret now that Information and Communication Technologies (ICT) will define the economic direction of nations in the years to come. Those countries that specifically focus on aligning themselves with this development will come out ahead. People living in the Stone Age did not know they were living in the Stone Age. Civilizations that followed were the ones who grouped the people of the earlier ages and gave them a name. Perhaps for the first time in human history, people are defining, indeed naming, their age for future generations – the ‘information age’. This is also the first time that nations across the globe are working together, trying to bridge the gap between haves and have-nots for fear that, if ignored, this gap could become unbridgeable and would not bode well for the globe as a whole. Before elaborating the situation of IT and telecom sectors of Pakistan, it is indeed useful to present an account of Pakistan as a country with immense opportunities for investment and growth due to its demographics, consistency of policies and sound economic reforms. Pakistan, with an estimated population of 148.7 million, is the seventh most populous country in the world. The population of Pakistan is growing at a relatively fast pace: it has increased 75 per cent since 1981, indicating a CAGR (Compound Annual Growth Rate) of about 2.7 per cent over the past two decades. Rich in natural resources and strategically located, Pakistan has a total surface area of 796,095 sq km and approximately 148.7 million inhabitants. Pakistan’s economy, after several years of poor performance, has commenced on a growth path due to a recently implemented program of economic stabilization. The rate of growth of the country’s GDP reached a seven-year high of 6.4 per cent in 2004, and during 2004-05 Pakistan achieved a very commendable growth rate of 8.35 per cent. The improvement of economic fundamentals gathered momentum during 2004-05 and led to accelerated growth, including a sharp pickup in large and small-scale industrial production, a rise in investment and further strengthening of the balance of payments. Furthermore, pre-payment of expensive external debt from internal resources, re-entry into the international capital markets through heavily oversubscribed Eurobond and Sukook offers and better fiscal management are among the notable economic achievements of the current economic managers. Performance of a country’s financial markets is always a good indicator of the growth pattern of the economy. Financial and capital markets of Pakistan have witnessed huge gains in the last three years. The Karachi Stock Exchange’s KSE-100 index rose by more than 55 per cent in the twelve-month period between June 2003 and June 2004. This followed a 92 per cent increase in 2003. With dividend yield of approximately 7 per cent, the valuations on the exchange are still amongst the most compelling of any emerging market. Pro-growth economic policies, stable macroeconomic environment, stable exchange rates, divestments through the capital markets, improvement in the Pakistan-India relationship, availability of liquidity, better corporate performance and appropriate reforms introduced by the Securities and Exchange Commission of Pakistan (SECP) and stock exchanges are the factors behind the stellar performance of the capital markets. ICT assumed an unprecedented importance in the country during the last three years. Significant measures were adopted to boost the profile of the IT Sector by focusing attention on major areas, such as human resource development, telecom infrastructure, legal framework for IT, marketing support, software exports and electronic government initiatives. As a result of newly announced broadband policy, PTCL (Pakistan Telecommunication Corporation Limited), at the behest of the Government of Pakistan, announced a drastic reduction in the IP Bandwidth rates, reducing 2MB charges from US$3950 to US$2000. Universal Internet Access has also been extended to more than 2000 cities and towns, and 100 per cent digitalisation of PTCL’s network has been achieved. The Government of Pakistan’s strategy for development in the telecom sector is focussed upon obtaining the active involvement of the private sector. It was in 1991 when the government initially made clear its intention to privatise the country’s telecommunications sector. The telecommunications industry of Pakistan has started picking up since the beginning of 2004, and has clearly exhibited growth in all segments of the industry. This is especially noticeable in the mobile segment of the industry, which has demonstrated phenomenal growth. Despite increased activity, primarily in voice-based segments of the market, the unmet demand for telecommunications services remains. Due to this repressed demand, a huge potential for growth exists in both the basic telephony and mobile sectors. Internet, data communications and value added services also experienced considerable growth during the past few years. Deregulation and liberalization of the regulatory environment for the fixed-line sector was set out in the De-Regulation Policy for the Telecommunication Sector (Deregulation Policy), which was issued by the Ministry of Information Technology (MOIT) on July 13, 2003. This deregulation policy creates two types of license: one for fixed-line operators covering Local Loop (LL) fixed-line telecommunications within a PTCL region and one for operators of Long-distance and International (LDI) fixed-line telecommunications. While there is no limit on the number of licenses that may be issued in either category, new LDI operators will have certain network, rollout and reporting obligations. Similarly, LL operators will have obligations to provide specific services such as offering free directory assistance to their own customers, emergency service, operator assistance and other similar support services. Subsequent to the release of this policy, the telecom regulator, the Pakistan Telecommunication Authority (PTA), auctioned 84 LL, 108 Wireless Local Loop (WLL) and 12 LDI licenses. With respect to mobile industry, in January 2004 MOIT released its Mobile Cellular Policy, which discusses the issuance of technology neutral cellular licenses and the obligations applicable to new operators under the new licensing regime, as well as the obligations that will be applicable to current operators upon their renewal of their existing licenses. In April 2004, the PTA auctioned two mobile licenses for US$291 million each. On the privatisation front, Pakistan Telecommunication Company Limited (PTCL) is close to being privatised with 26 per cent of its shares, along with management control, to be sold off to a strategic investor. World-renowned companies and groups have been pre-qualified and these have completed their due diligence. The process is now in its final stages and is expected to be completed in June 2005. The impact of telecom deregulation on the overall economy has been quite obvious. The share of the telecom sector in Pakistan’s GDP increased from 1.5 per cent in the year 1999-2000 to approximately 1.7 per cent by the year 2004. It is expected that total share of Telecom sector in GDP will increase to 3 per cent in the coming five years, when new operators roll out their networks in the country. Some of the key incentives provided for the growth of this sector are as follows: √ Imported plant, machinery and equipment not manufactured locally will be subject to a Customs Duty of only 5 per cent; √ General Sales Tax (GST) exemption on domestically produced and imported plant and machinery; √ Corporate Tax Rates for companies within the services sector have been fixed at the rate of 39 per cent. Previously this rate was 45 per cent. Rapid development of the ICT infrastructure is a prerequisite for making progress in every segment of the economy. Modernization and development of the telecom infrastructure has been correlated to increased economic activity as enunciated in various studies and surveys carried out by independent observer groups, analysts and international institutions. Pakistan has always been one of the forerunners in the region in terms of its pace of sector reform. The country began licensing of mobile services in 1990, and was one of the first in the region to license the GSM bands. The Internet made its debut in Pakistan in 1992, and it was formally licensed soon after that. Catching up with developments in the age of convergence, we have now fully opened up the telecom sector with cheap and easy licensing for local loop and long distance licenses. This license is technology-neutral, and we already have operators providing international voice service over IP – only six months from licensing to service launch, a very short development period. We also have recently launched a broadband policy that is very liberal in its scope. It allows operators to provide broadband services using only a class-license. This is expected to usher the nation into a spurt of broadband related services growth, including rapid growth in local content development and enterprise-based services. The results of opening up the sector have been above and beyond our expectations, in terms of better choices, quality of services and reduced tariffs. Nevertheless, the most significant result we are expecting to get from the implementation of the present policy cycle is the deployment of infrastructure. Several licensees have already indicated their interest in laying a fibre backbone network in the country. One of them has even included the laying of undersea cable from a landing point in Pakistan to the nearest international cable termination point in the Middle East. Once these are in place, the major monopolistic component of our network today, would no longer be a monopoly, and true ubiquitous access for the masses can then begin. We expect almost all new players to deploy IP-based networks. The Government is also introducing initiatives such as Universal Service Fund (USF), to ensure that there is an outreach of telecom services to the rural and under-served areas, and an R&D Fund, to support an R&D and infrastructure development activities in the areas of ICTs. These are quite useful indicators of Government’s long-term commitment for the growth of this sector. Based on the above, I can confidently say that today, Pakistan is perhaps one of the freest markets in the region and the best place for investment.
