For years, tech enthusiasts have championed software for its global scalability, low resource requirements, and high margins, often treating any challenge to this view as heretical, especially when seeking venture funding. However, the advent of generative artificial intelligence (AI) has reignited interest in hardware, with companies like Nvidia briefly surpassing Microsoft in market capitalization.
While such debates may seem irrelevant to Pakistan, given the country’s lack of investment in technology, hardware remains a critical issue. Pakistan’s infrastructure needs are basic but vital for economic growth. As a large and young nation, developing both physical and digital infrastructure is crucial.
Currently, Pakistan’s progress is concerning. Surveys from a few years ago estimated that between 7% to 14% of households own a computer. Even doubling the higher end of this estimate means only about a quarter of households have computer access.
Digitalizing Pakistan requires substantial investment in hardware and local production. Although mobile phones are pivotal in developing countries, the neglect of hardware is alarming. Data from Trade Information Portal Pakistan shows that laptop imports rose to 972,590 units in FY24—a 40.9% increase—but were still below FY22 levels. Personal computer imports plummeted, with only 659,617 units purchased last fiscal year, less than half of previous figures.
The problem extends beyond computers. Analysis of trade data reveals that Pakistan’s imports of ICT goods fell to $796.1 million in 2023, the lowest in a decade and less than half of the second-lowest figure. This is troubling for a country relying on the tech sector for growth, especially with minimal local ICT production, except for a shrinking mobile manufacturing industry.
Imports can bridge the hardware gap, but the government’s currency mismanagement and trade restrictions have made ICT goods even less accessible. Digitalizing Pakistan necessitates investing in hardware and local production. While becoming a global tech supplier is unrealistic, there is potential for manufacturing and exporting simpler ICT components.
Egypt’s success in localizing ICT production and earning over a billion dollars in exports in 2022 serves as a model. Despite being in a similar economic situation, Egypt has managed to boost its ICT sector.
The key question is: who will invest in this area? Contrary to the belief that hardware is less profitable, it actually offers good returns. Bain & Company’s DealEdge reports a median multiple on invested capital for hardware deals at 1.8 times between 2010 and 2023, consistent with the overall average.
In Pakistan, digital infrastructure businesses like Transworld, Nayatel, and RapidCompute show strong financial performance, with net margins often in double digits and gross margins exceeding 30%, though payback periods can be lengthy.
In essence, the market is ripe for investment, but the government should avoid making imports more costly with additional taxes and duties. Building a robust digital infrastructure is not merely beneficial—it’s essential for the tech sector’s growth.
