We wanted to know what impact the dollar and economic situation was having on buying decisions made or recommended by the CIO in Pakistan. A lot of people wrote back and we’ve used some of their comments to explain and illustrate the situation in the Cover Story of this month’s CIO Pakistan; you can browse through the remaining commentary here. While the situation globally seems just as grim, we are hopeful that the emerging market of Pakistan will be able to wade through the low tide based on its high demand-low cost correlation.
Waqar Anwer, Business Development Manager – McAfee, Pakistan comments“We have accepted the dollar increase which to-date seems inevitable and has had no significant impact on the buying decision. I would like to add however, that the dollar fluctuation will have an impact on regulatory and amenities and people will involve banks and financial companies for enterprise deals in order to reduce the risk on earnings and profitability. Even the midrange and small investors and resellers will negotiate to reduce the credit period and mode of payment, however small venture and startups will face the difficulties since microfinance facilities are still a far off dream in Pakistan.”
Mohammad Ali Mohammad, Group Head IT at Warid Telecom International, Pakistan says, “It is a challenging time to be a CIO in Pakistan. There is increasing pressure from management to cut costs and improve efficiency. In most areas, costs have gone up due to current economic circumstances. It is critical to keep a balance and we should not shelve projects that are geared towards efficiency enhancement which will help save costs in the long run.” However, Ashar Iqbal, CISSP, Xnet Solutions thinks, “The political conflict that we have seen for most of 2008 has lengthened buying cycles. The steady devaluation of the Rupee against the Dollar will reduce buying power. As a vendor that does most of its value addition within Pakistan, we are not as badly affected by the devaluation as others, but we do see a lowering sales forecast.”
Atif Moin, Head of Purchase at Syngenta Pakistan Limited comments, “The current buying scenario is at its worse in the Pakistan market both in purchases of technology and manufacturing. Unless there is a very strong business case and aggressive revenue streams are promised by the commercial trends, it will not be wise to go for any major expansion at this given point and time.
There are 3 major factors which have made the buying and minimal variance maintenance a big challenge for any purchase department:
Rupee Devaluation: We all have witnessed the decline in rupee value in recent days. The State Bank of Pakistan is not allowing any advance buying of equipment through any bridge payment facility. The equipment which used to cost a million rupees now costs 1.3 million.
China Revokes Subsidies: Almost all major IT and Telecom infrastructure companies have their plants located in China. The Chinese Yen has been appreciating against Dollar while the Pakistani Rupee has continued to depreciate. This makes equipment more expensive and the provision of subsidies increases prices to an even greater extent. As a result, the Chinese Government has officially stopped giving any kind of subsidy.
Increase in oil prices over the past few months: The increase in oil prices has shifted the payment inflow-outflow ratio which has affected the balance of payments having a greater impact on the worth of the Pakistani Rupee causing more devaluation of the currency. Though price of oil is down from $145 per barrel to $110 per barrel, the market trend thus far remains unchanged and petroleum-based materials are being sold with the same increase.”
Dr. Aamir Matin, GM Cisco Systems in Pakistan shares a more optimistic approach. “There is a general decrease in the buying behavior in Pakistan, so there is a downward trend in the overall economy. Multinational companies that have a presence in emerging markets are dependent on sales figures and the current situation doesn’t look very favorable. Having said that, the demand for technology products and services is also on the rise. Perhaps the economy in isolation is experiencing an impact, however the long term impact coupled with the demand, will hopefully improve the situation. BPO, Web2.0 and an increased dependency on IP-based technologies are areas that are going to continue to spur economic activity. The situation might slow businesses for the time being but if the various stakeholders work together and define behavior that will be beneficial for Pakistan’s growth and things will get better.”
Abid Latif, Manager IT at Total Parco Pakistan Limited explains, “This is not the first time Pakistan is facing such a situation as history will tell. There will be no significant impact on the sales, technology buying or infrastructure planning as such. Global prices, global deals and global decisions may take preference over the local decisions and there will be a slight impact on the inventory part by the vendors and suppliers as fluctuations in the Dollar make their planning a bit wavered.”
Prasenjit Sarkar, GM PSG at Hewlett-Packard in Malaysia is optimistic in saying that “The Pakistan IT industry continues to demonstrate a mature resilience in the face of political and economic adversity. Recent day-to-day USD-PKR exchange rate unpredictability has naturally caused some corporate customers to be prudent in the actual timing of their PC purchase orders on our channel partners. However, most corporate PC procurements have continued. Projects have, at best, been tactically delayed but not permanently shelved or even indefinitely postponed on this account.
Acknowledging exchange rate differences between the date our partner had originally quoted for a project (say three weeks earlier) and the date our partner eventually delivered the products to the customer (after importing them from Singapore to Pakistan), several customers have, in fairness to our partners, agreed to partial revisions in their PKR purchase prices on a case-by-case basis. Yet other customers have agreed to accept, for newly initiated procurements, partner quotations denominated in USD (to be converted to PKR on the actual date of delivery).”
To get an Expatriate Pakistanis perspective, CIO Pakistan asked Shahzad Khokar,
Founder of DigiDent Solutions, to share his assessment of the situation. “The first negative impact is that risks are higher as security continues to become an even bigger concern. As an example, EnterpriseDB has asked all liabilities to be taken over by DigiDent (leases, equipment etc). This way, they can leave quickly if they have to.
Another negative impact was a local deal we had done in Pakistani Rupee with net 45 payment terms. We ended up losing more than $15,000 on the project. The temporary positive of the Rupee devaluation is that we can sustain the jobs in the office longer. So, if, due to the first reason stated above, we lose business, we can keep our bench with us longer. This helps slow down the sudden reduction of force actions you may see happening during times of economic down turns.”
There has not been any significant impact. Some of our customers actually expedited their order processing to avoid expected increase in costs due to US$ appreciation. In case of a bank, the CIO ordered all the IT equipment for their branches until Dec 08. If the Pak Rupee was not on the devaluation trend, the ordering would have taken place somewhere in October.
Ahmer Ghazi, CEO at Innovative Integration (Pvt) Ltd adds another perspective by saying, “Same is the case with 16% GST. The corporate customer understands that this is a tax imposed by the government which will increase the cost but their paid GST is also adjusted in their input GST claims.”
Talking about the planning trends, Tariq Mustafa, GM Long Distance Network at Multinet Pakistan says, “We are being a bit conscious of the current situation but essential projects have to move ahead in any case. However if the conditions remain same or continues to worsen, this is definitely going to impact the business planning for 2009 which is in progress.”
Maria Medvedeva, Regional Director, Technology at Computer Associates MENA, has visited Pakistan several times and maintains the company’s business interests in the region. She comments “While the political situation in Pakistan definitely slows down the decision making process of major organizations, it gives them an opportunity to revisit their IT strategies, develop modernization plans and assess maturity levels regarding linking technology to business needs. As a multinational software vendor, we are trying to utilize this instability to our client advantage by offering them health checks and information sessions about global best practices, new technologies, and innovations in business practices. We also spent significant time on planning sessions with our strategic partners to understand their skills gap and improve their ability to position, prove and deliver CA technology to Pakistan market.
While politics run their course, mobile phones still work which means telcos must run their day to day business; checking accounts and ATMs still dispense money which requires financials institutions to address their client needs; students still attend schools which means that the education sector is as strong as ever. Customer service is critical to the survival of the organization.”
Adnan Ali, Founder at ClickChain Pvt Ltd, gives the startup perspective. “As a founder of a new company, I am taking this economic situation in my stride. When the economy is down, I feel it’s a good time for startups. The dollar situation is really bad but there are tactical level plans that need to be executed in all organizations. Long term thinking is that the dollar will not come back down by a lot so might as well continue with business as it is. On the flip side, all of a sudden, payments from foreign clients are now going a longer way in Rupees than before. Farhan Ali, MD of Online Corporation Limited adds to this view by saying that “The situation will remain this way until we start producing products locally – the way we are doing in software industry. The only push we need at the CIO level is to encourage the local product manufacturers as well as convince the buyers to start deploying locally manufactured products. This can be done but requires the buyer support.”
Is there an upside to any of this? Farzal Dojki at Amaana offers an explanation, “I was at a gathering where I ran into engineers and managers of software companies. They are delighted at the 25% increase in their software and services revenue due to devaluation. The situation has helped to provide cost of living allowances to employees in mid year, helped to improve profits and improve the over-all working environment.” Moving on, Farzal also gives a perspective on the flipside by commenting, “This is a country where the public utility company has not figured out how many hours of load-shedding it will conduct every day; PIA has zero hedging against fuel prices (compared to SouthWest which has been at 100% hedges for many years) and the SBP never knows what inflation will be, how many notes it will print, what budget deficit will be, what exports will be or what imports will be. How in the world do you except private enterprises to plan for long term when our institutions don’t provide us with any long term guidance?”
