Haq's Musings

Riaz Haq writes this data-driven blog to provide information, express his opinions and make comments on many topics. Subjects include personal activities, education, South Asia, South Asian community, regional and international affairs and US politics to financial markets. For investors interested in South Asia, Riaz has another blog called South Asia Investor at http://www.southasiainvestor.com and a YouTube video channel https://www.youtube.com/channel/UCkrIDyFbC9N9evXYb9cA_gQ

Sunday, October 6, 2024

Is Pakistan Getting Ready For AI Revolution?

Generative artificial intelligence (GenAI) has taken the world by a storm. It has drawn the attention of academia, businesses and governments around the world. This technology is expected to transform almost every sector from business and commerce to government, industries and defense. Are Pakistanis aware of its potential? Is Pakistan getting ready for what is being described as the "AI Revolution"? Let's examine the answers to these questions.

AI awareness is rising among Pakistan’s general public. The country ranks third with 76% of people being aware of ChatGPT, according to Stanford University’s AI Index Report 2024 covering a survey of 31 countries, including the United States, Europe and East Asia. India (82%), Kenya (81%), Indonesia (76%), and Pakistan (76%) have the highest awareness rates in the world. Brazil and Canada have 64% awareness, UK and Japan 61%, China, Germany and France 60% and the US 55%. Poland reported the lowest awareness, at 43%. Globally, 17% of users utilize it daily, 36% weekly, and 16% monthly. India (36%), Pakistan (28%), and Kenya(27%) report the highest levels of daily usage.

Pakistan is among the top 4 countries for enrollment in Coursera online GenAI courses, according to Jeff Maggioncalda, CEO of Coursera. India, Egypt, Pakistan, and Brazil, make up more than half (52%) of GenAI enrollments on Coursera. It offers more than 4,600 courses and 55 Professional Certificates in up to 21 popular languages, including Arabic, Hindi, and Spanish. Coursera, a global online education platform, was launched in 2012 by two Stanford Computer Science professors, Andrew Ng and Daphne Koller.

Pakistan's HEC (Higher Education Commission) has established a partnership with Coursera to give access to online quality education in Pakistan. As a result, more than 200 universities have gained access to Coursera’s library of courses. Over 267,000 courses have been completed with students logging over 1.4 million learning hours. More than 45,000 learners have achieved deep-skills specialized certifications from internationally recognized institutions, the most popular specializations being Communication, Data Analysis, and Leadership and Management, according to Coursera.

Ashar Aziz Foundation, created and funded by Pakistani-American technology entrepreneur Ashar Aziz, has sponsored Advanced AI Bootcamps at the National University of Science and Technology (NUST) in Islamabad. The bootcamp series not only provides theoretical knowledge but also emphasizes practical, project-based learning, according to NUST.

The first AI bootcamp, which focused on Deep Neural Networks (DNNs), was successfully completed at NUST in November 2023. The second bootcamp provided participants with in-depth knowledge and hands-on experience in the development and application of LLMs (Large Language Models). Ghulam Ishaq Khan Institute of Engineering Sciences & Technology (GIKI) also joined this initiative in 2024, conducting its own DNN-focused bootcamp. Participants have the opportunity to work with advanced technologies, including access to a 10xH100 NVIDIA GPU AI supercomputer, ensuring they are well-prepared to tackle real-world challenges in AI. As part of its ongoing efforts, NUST plans to partner with additional universities across Pakistan to further scale this initiative, ensuring that more students have access to high-quality AI training, according to NUST.

Smaller towns in Pakistan are also setting up AI programs with the help of Pakistani-Americans. For example, Stanford educated AI expert Shoaib Lari and Silicon Valley based technology executive Jalil Shaikh have helped Islamia University Bahawalpur start an AI program. Jalil Shaikh is now working with US-based companies to place the first group of graduates from this program.

STEM education underlies Artificial Intelligence. Pakistan stands 4th in the world with 642,562 students enrolled in STEM courses– behind Nigeria (675,371), the US (4,639,771) and India (6,000,967), according to Coursera's Global Skills Report 2023. My own estimate based on HEC data is that STEM enrollment in Pakistan exceeds one million.

The Pakistan government has released its National AI Policy Draft for comments. It focuses on how AI can help the country promote its national competitiveness and improve the lives of its citizens by outlining a wide range of developmental initiatives necessary for awareness and adoption of AI, reimagining the transparent and fair use of personal data using AI, and stimulating innovation through industry-academia collaborations and investments in AI-led initiatives. The Pakistan government has set up a National Center for Artificial Intelligence (NCAI) at the National University of Science and Technology (NUST). NCAI has created a a consortium model consisting of 6 public sector universities with 9 specialized research centers spread across Islamabad, Lahore, Karachi, Peshawar.

Pakistan has also seen several private-sector led initiatives to create greater awareness of AI. For instance, Karachi.AI is recognized as a premier community for Applied AI practitioners. Established in 2017, the community proudly hosts over 10,000 members representing various domains. Its mission revolves around three central pillars: raising awareness, promoting engagement, and driving execution. Karachi. AI hosts regular meetups in Karachi, which are also live streamed on its YouTube channel, along with other educational content about AI.

In addition to skilled human capital, the GenAI apps require a lot of digital public infrastructure, powerful computers and large data centers to securely store and rapidly access vast amounts of data. A number of private investors are jumping in to build data centers in Pakistan. Mari Petroleum Company Limited (MPCL) is planning to develop data centers across the country as part of an expansion into digital infrastructure. Chakwal Spinning Mills Limited, has recently said it was pivoting to develop data centers.

RAAST: Pakistan's Instant Payment System

2021: A Banner Year For Tech Startups in Pakistan

Algorithm: Origins of Artificial Intelligence in Islamic Age

Digital Pakistan 2022: Broadband Penetration Soars to 90% of 15+ Population

STEM Enrollment in Pakistan Exceeds One Million

Digital Public Infrastructure in Pakistan

Solar Power Boom in Pakistan

Pakistan at 75

Growing Presence of Pakistani Women in Science and Technology

Riaz Haq's Youtube Channel

PakAlumni Social Network

Thursday, September 26, 2024

Investors Celebrate Pakistan's Continuing Economic Recovery

Pakistan's benchmark KSE-100 index hit an all-time high after the announcement of the $7 billion IMF bailout deal today. Economic indicators such as inflation, exports and remittances are also showing significant improvement as well. Speaking to reporters after the IMF deal, the Fund Managing Director Kristalina Georgieva acknowledged progress made by Pakistan. She said "The economy is on the sound path. Growth is up and inflation is down". The KSE-100 index rose in early trade to a record high of 82,905.73 points, before giving up those gains later in the day to close 0.7% down at 81,657. It still represents an annual gain of nearly 100%.

Pakistani Stock Market Outperforms Asian Peers. Source: Bloomberg

Pakistan rupee has remained essentially stable at around Rs. 277 to a US dollar over the last year. Inflation has come down from 37% last year to less than 10% this year. Exports have climbed 10.54% ($2.921 billion) to $30.645 billion during the fiscal year 2023-24 compared to $27.724 billion in the corresponding period of 2022-23. Overseas workers' remittances have surged 44% to $5.94 billion in the first two months (July-August) of the current fiscal year 2024-25, compared to the same period last year. Current account deficit has declined to $681 million in FY24 from $3.275 billion in FY23. The budget deficit for the 2023–2024 fiscal year has been reduced to 6.8% of GDP from 7.7% in the previous year.

The stock market gains are driven primarily by the increasing profitability of the firms making up the index, in addition to improvement in macroeconomic indicators. The companies listed on Pakistan’s KSE-100 Index have reported their highest-ever earnings of Rs1.7 trillion in FY24, marking a 25% year-on-year increase from Rs1.3 trillion in FY23. In US dollar terms, profits after tax (PAT) rose 10% to $5.8 billion during the same period, according to data compiled by brokerage firm Topline Securities. Dividend payouts soared 30% as banking, fertilizer, and cement sectors led growth, according to media reports.

Pakistan has a long tough road ahead to carry out the reforms promised to the IMF in the latest bailout deal. Renegotiating unsustainable IPP (Independent Power Producers) contracts and carrying out long-delayed privatization of state-owned enterprises to reduce major drain on the taxpayers will not be easy, Boosting tax collection is not easy either. Offering incentives for savings, investments and exports while reducing budget deficits is a difficult feat. It will take a lot of fortitude, finesse and political will to get the results to improve the economy. Pakistani leaders' biggest challenge is to find a way to grow the economy to create enough jobs for the country's growing working age population. Failure to do so could cause major social unrest in the nuclear-armed country of 240 million people.

Pakistan Sets New Record For Rice Exports

Riaz Haq's Youtube Channel

PakAlumni Social Network

Friday, September 20, 2024

Powerful Hindutva Lobby Flexes its Muscle in California

Last year, California lawmakers voted 31-5 to approve the first state-wide bill (SB 403) explicitly banning caste discrimination. The bill, enjoying broad support among California voters, was sponsored by Senator Aisha Wahab. It was vetoed by Governor Gavin Newsom under pressure from wealthy political donors belonging to the Hindutva lobby.

Senator Aisha Wahab with Supporters of California Law to Ban Caste Discrimination

Hindutva Lobby:

The Hindutva lobby's opposition to the California anti-caste discrimination bill was spearheaded by Ramesh Kapur, a wealthy Massachusetts entrepreneur. “If you want to be our next president, veto the bill”, Kapur told the governor in no uncertain terms, according to a recent investigative piece written by British journalist Andrew Cockburn and published in the Harper magazine. Here's an excerpt from the article:

"The ultimatum was decisive. Kapur said that Newsom emailed him three hours before going public: “I’m going to veto it.” Newsom’s move dashed the hopes of all who had fought for the bill, but it seems likely to reap him rich rewards. “Now that he has made that decision, he has become the champion of the Hindu cause,” Kapur told me over the phone from California, where he was busy organizing the first in a series of fundraisers for the governor in Silicon Valley, Chicago, and New Jersey. “Newsom is hot in the Indian-American community!”"

In recent years, Hindu Americans have become the highest-income group in the United States. Most of them support Hindu Nationalist Prime Minister Narendra Modi's BJP party. There are many billionaires among them, and they are willing to use their wealth to influence the US political process. They see AIPAC, the Israel lobby, as their inspiration.

California AB 3027:

California bill (AB 3027) banning transnational repression was introduced in response to the attempted assassination of an American Sikh leader. The US government believes that the assassination was plotted by agents of the Indian government. This bill is strongly opposed by the Hindutva lobby which calls it "Hinduphobic". It is supported by law enforcement agencies in the state. The bill would provide an improved sense of personal security to many Indian Americans who are facing threats for opposing the Modi government in India. It is currently stalled in California Senate committees. Hindutva supporters see Zionists as useful allies in their effort to draw parallels between antisemitism and “Hinduphobia.”

California Hindutva Group Marches with Zionists in Support of Israel's Gaza Genocide

Donor Power:

Gavin Newsom's veto of the bill to ban caste discrimination illustrates the power of the donors crushing popular will, making a mockery of democracy. The power of the Israel lobby (AIPAC) backed by rich Jewish-American donors is the most egregious example of this, as is the power of the gun lobby (NRA).

Polls consistently show that the majority of Americans oppose US shipment of weapons to Israel while it slaughters tens of thousands of innocent Palestinian civilians, mainly children and women. But the Biden administration continues to send arms, ammunition and explosives to the Israeli government. Both Biden and Harris pay lip service to the need for an immediate ceasefire but refuse to stop giving Netanyahu the bombs that he is using to sustain the Gaza genocide.

Similarly, the majority of Americans want laws to restrict gun ownership in the country. Polls after each mass shooting confirm broad support for gun control laws. But the US politicians refuse to pass such laws because of the power of the US gun lobby.

American Muslim Vote:

There are enough Muslim voters in battleground states, particularly Michigan, where their vote can make a difference to the outcome of this year's presidential contest between Vice President Kamala Harris and former President Donald Trump. But there is little difference between their positions on Gaza. Both have expressed strong support for Israel, thanks to the power of AIPAC and its wealthy billionaire donors. Nonetheless, it is interesting to look at the numbers. Here is an excerpt from the Harper piece on this:

"Since October 7—coincidentally the same day that Newsom announced his veto—the ongoing slaughter in Gaza has brought electoral peril for the Democrats. Polls report withering support across important components of the coalition that brought Biden to victory in 2020, especially among the Muslim community, which gave him up to 85 percent of its votes in that election, according to some polls. Although Hindus were less supportive of Biden than Muslims were in 2020 (25 percent went for Donald Trump, according to certain estimates, a slight uptick from 2016), some see their votes as the perfect replacement for the Democrats’ faltering Muslim coalition. “We can make the difference!” Kapur exclaimed, brandishing a state-by-state breakdown of Hindu and Muslim populations to show that his fellow Hindus could deliver votes as well as money. Muslims outnumber Hindus in America, 3.5 million to 2.5 million. But in key swing states, the numbers Kapur presented to me, drawn mostly from 2014 data, almost balance out: Pennsylvania is home to 130,000 Hindus and 150,000 Muslims. In Georgia, the state’s 172,000 Hindus outnumber its 123,000 Muslims, while the 110,000 Hindus in Michigan provide some counterweight, Kapur implied, to the quarter million Muslims, many of whom are outraged by the Biden Administration’s support for Israel. In Nevada, Hindus outnumber Muslims by almost three to one, while in Virginia, Hindus have an edge of 200,000 to just under 170,000. During the 2021 Virginia governor’s race, both the Democratic candidate, Terry McAuliffe, and the Republican, Glenn Youngkin, paid attention to this voter pool and dutifully visited Hindu temples, but Youngkin reportedly made the stronger impression—he “listened deeply” to their concerns, as American Hindu Coalition chairman Shekhar Tiwari put it, especially their complaints about local schools’ efforts to promote diversity by modifying admissions policies at their expense. And Youngkin was not the first Republican to cultivate and enjoy Hindu support. In 2015, the Chicago billionaire industrialist Shalabh Kumar set up the Republican Hindu Coalition, which describes itself as “modeled after the highly successful Republican Jewish Coalition”; Steve Bannon was an honorary co-chair of the group. Kumar and his wife poured money into Trump’s 2016 election campaign, which was making major media buys in swing states. Trump even recorded a message in Hindi".

Saturday, September 14, 2024

ITU Cybersecurity Index 2024: Pakistan Ranked Among Top Tier Countries

International Telecommunications Union (ITU) has ranked Pakistan (score 96.69/100) among top tier countries for cybersecurity in 2024. Out of a maximum score of 20, Pakistan received 20 for legal measures, 18.21 for technical measures, 20 for organization measures, 20 for capacity development and 18.48 for cooperative measures, according to the Global Cybersecurity Index 2024 report released by the ITU.

Pakistan Cybersecurity Scores 2024. Source: ITU

Pakistan's tier one cybersecurity ranking is a big improvement from its 79th rank (score 64.88 from 100) it got in the cybersecurity ranking by the ITU in 2020. Four years ago, Pakistan scored 15.97 on legal measures, 12.26 on technical measures, 11.01 on organizational measures, 17.25 on capacity development and 8.38 on cooperative measures.

Increasing penetration and rapid growth of the Internet user base in Pakistan has brought in a lot of user complaints of bullying and fraud, necessitating government action, including new legislation and capacity building to fight cyber crimes.

Pakistan Telecom Indicators as of July 2024. Source: PTA

Back in 2018, Pakistan launched its National Center for Cyber Security (NCCS) as a joint project of Higher Education Commission (HEC) and the Federal Planning Commission. The Center includes several Research and Development (R&D) Labs at Pakistani universities. These universities have been given the mandate to establish NCCS affiliated Labs in different specialties of cybersecurity under the Center's secretariat. Earlier this year, Pakistan's economic coordination committee (ECC), a ministerial level body, allocated $36 million for work on cybersecurity measures.

Like many other nations, the cybersecurity threats in Pakistan include hacking, identity theft, cyber-bullying, cyberstalking, spoofing, financial frauds, digital piracy, viruses and worms, malicious software, money laundering, denial of service attacks, electronic terrorism, vandalism, and pornography.

Pakistan has passed a cybercrime bill and established a National Response Center for Cyber Crime (NR3C). NR3C has expertise in Digital Forensics, Technical Investigation, Information System Security Audits, Penetration Testing and Training. Since its inception, it has been involved in capacity building in various departments including Police, Intelligence, Judiciary and Prosecutors. Cyber Scouts is the latest initiative of NR3C, in which, selected students of different private/public schools are trained to deal with computer emergencies and increasing awareness of cyber threats amongst their fellow students, teachers and parents.

RAAST: Pakistan's Instant Payment System

2021: A Banner Year For Tech Startups in Pakistan

Pakistan Projected to Be World's 6th Largest Economy By 2075

Digital Pakistan 2022: Broadband Penetration Soars to 90% of 15+ Population

Pakistan's Digital Public Infrastructure

Pakistanis' Insatiable Appetite For Smartphones

Solar Power Boom in Pakistan

Pakistan at 75

Growing Presence of Pakistani Women in Science and Technology

Riaz Haq's Youtube Channel

PakAlumni Social Network

Friday, September 6, 2024

Shifting Monsoon Pattern: Is Arid Pakistan Turning Wet?

Semi-arid Pakistan, with its farmlands predominantly irrigated by the world's largest contiguous canal system, has experienced an increasing amount of annual rains and floods for several years. Even the desert regions of the country, like the vast Thar desert straddling India-Pakistan border, have recently been turning green. Now a study has found that "the mean rainfall over the semi-arid northwest parts of India and Pakistan has increased by 10%–50% during 1901–2015 and is expected to increase by 50%–200%" by the end of the current century. The authors of this study published by Advanced Earth and Space Science conclude as follows: "While an adaptation strategy to increased hydrological disasters is a must, harnessing the augmented rainfall would lead to a substantial boost in food productivity, bringing transformative changes in the socio-economic condition of people in the region".

Annual Summer Monsoon Rainfall in Millimeters For 1979-2015. Source: AGU

Already, the satellite images shared by the US National Aeronautics and Space Administration (NASA) show that greenery in Pakistan has been growing at double digit rates over the last few decades. All of this rapid greening of the country is the result of intensive agriculture in Punjab and Sindh provinces.

Greening Trends in Asia. Source: NASA Earth Observatory

Recent economic data from Pakistan lends credence to the findings of the latest study that the region will see "substantial boost in food productivity, bringing transformative changes in the socio-economic condition of people". Pakistan's agriculture sector grew 6.3% in 2023-24, far outpacing the overall economy that grew just 2.38%, according to the Economic Survey of Pakistan 2023-24. Pakistan’s agricultural exports reached a record $8 billion in FY 2023-24. This is good news for about 40% of the country's population working in the agriculture sector. By contrast, India's agriculture growth slowed to 1.2% in recent quarters. Studies have shown that strong growth in agriculture helps reduce poverty in developing nations like India and Pakistan.

Projected Percentage Change in South Asia Rainfall By End of 21st Century. Source: AGU

The study highlights shifting monsoon patterns bringing more rainfall in northwestern India and Pakistan which is explained as follows: "The warming of the western Indian Ocean and Arabian Sea strengthens winds that cross the equator, which increases evaporation and the amount of moisture carried from the ocean to the land. This leads to increased monsoon rainfall." "On the other hand, the oceanic rain belt between the equator and 10°S shows weakening, with a decrease in mean rainfall from the eastern IO (Indian Ocean) extending up to the maritime continent", it adds.

A major downside of the increased rainfall from shifting monsoon patterns is frequent flooding in both rural and urban Pakistan. The country experienced the worst floods in its history in 2022. Over a thousand Pakistanis died. About 33 million people in two southern provinces became homeless. Sindh was inundated with 784% of normal rainfall. Balochistan saw 522% of average rainfall. Both provinces suffered their worst ever heatwave prior to this unprecedented deluge. Nearly a million livestock were lost, over two million acres of farmland went underwater and 90% of the crops in Sindh and Balochistan were damaged. It was a massive humanitarian crisis.

Such extreme weather events like the floods of 2022 are likely to recur and cause widespread devastation unless measures are taken to build back better. Part of the new infrastructure needed to deal with it includes better rainwater harvesting and improved drainage systems. This is what the authors of the study refer to when they say that "harnessing the augmented rainfall would lead to a substantial boost in food productivity, bringing transformative changes in the socio-economic condition of people in the region".

Pakistan Sets New Record For Rice Exports

Riaz Haq's Youtube Channel

PakAlumni Social Network

Friday, August 30, 2024

New Net Metering Policy: Is Pakistan's Solar Boom in Jeopardy?

Recent experience in California has shown that changes in incentives have a huge impact on residential adoption of solar power technology. Since the introduction of NEM 3.0 last year, new rooftop solar business in California has dramatically slowed. New residential solar installation applications have plunged 80%, according to Cal Matters. This has driven many solar installers out of business. The business that remains is mostly focused on adding batteries to existing solar installations.

Impact of California NEM 3.0 on Solar Business. Source: Cal Matters

California Net Energy Metering (NEM 3.0) was launched last year after heavy lobbying by the state's utility companies like PGE and SoCal Edison. It has reduced payments for the excess power exported by the consumer to the grid by 75%. This change means that the consumer is better off with storage batteries to maximize self-consumption of the power generated by the solar panels. Companies such as Tesla Solar with its PowerWall 3 battery are the main beneficiaries of this change.

With rapidly falling solar panel prices, Pakistan is experiencing a solar power boom. The country imported some 13 gigawatts of solar modules in the first six months of the year, making it the third-largest destination for Chinese exporters, according to Bloomberg. In addition, there is approximately 2.2 gigawatts (GW) of net-metered rooftop solar PV capacity connected to the grid by June 2024, according to IEEFA.

What is likely to happen to this solar boom as Islamabad considers changes to its net metering policy? A recent study published by the Institute for Energy Economics and Financial Analysis (IEEFA) attempts to answer this question.

Net Metering vs Net Billing Payback Period in Pakistan. Source: IEEFA

There are several proposals under consideration by the Pakistani government to change its net metering policy. All are designed to significantly reduce payments to the consumer for energy exported to the grid. One of these proposals likely to be adopted is to switch from "Net Metering" to "Net Billing".

Net metering transactions are usually one-to-one, so the credits are often equal to the retail rate of electricity (aka what you pay). Net billing credits are often equal to the wholesale rate of electricity (aka what your utility pays), which is less than the retail rate, according to Energy Sage. Utilities tend to oppose net metering programs, so alternative compensation programs are increasingly being used.

Analysis by Haneea Isaad, an Energy Finance Specialist at IEEFA, shows that the switch from net metering to net billing would still reduce the payback period for 5kW to 25kW solar systems combined with 50% to 70% self-consumption. She concludes that the payback period will be well under 4 years for a system that has a life of 25 to 30 years. It is better than the 5-year payback period in California under NEM 3.0.

Would consumers without solar be stuck with high electricity bills? It is quite likely because capacity charges paid to independent power producers (IPPs) accounted for 62% of energy expenditure in Pakistan for the 2023-2024 fiscal year. For the 2024-2025 fiscal year, 64% of the total power purchase price is expected to be fixed capacity costs. Lower consumption of grid electricity will result in a disproportionate impact on consumers who rely entirely on grid power.

Higher levels of self-consumption closer to 100% would require larger batteries which are still quite expensive in Pakistan. This is likely to change as traditional lead-acid battery makers switch to lithium ion batteries in the country. Recent launches of electric vehicle assembly plants in Pakistan are expected to boost the lithium-ion battery production and bring down prices in the country in the coming years, according to Mordor Intelligence.

Sunday, August 25, 2024

Following the Money: Insights into Pakistan's Budget 2024-25

A look at Pakistan's current fiscal year 2024-25 budget helps gain insights into how the country is run. It shows the money flows from the key sources of revenue and the nation's spending priorities. Total planned federal spending for the current fiscal year is Rs.18,900 billion (about 69 billion U.S. dollars). This figure does not include the transfer of Rs. 7,438 (US$ 26 billion) from the federal government to the provinces. Under the 18th amendment passed in 2010, the federal government is obligated to share 57.5% of its revenue with the provinces. The federal government is primarily responsible for defense, foreign affairs, debt servicing, foreign trade, ports and shipping, and development programs, while food and agriculture, education, healthcare and housing are devolved to the provinces. There still appears to be some overlap of domestic responsibilities between the federation and the provinces.

Pakistan's Budget 2024-25 at a Glance. Visualization Courtesy of Prof Adil Najam

The federal government's total revenue is expected to be Rs. 17, 815 billion (US$ 65 billion). In addition, Islamabad plans to borrow Rs. 8,470 billion ($31 billion) during the fiscal year. Interest payments of Rs. 9,775 billion ($ 36 billion) will account for more than half of the federal budget this year. Debt servicing costs will also exceed the planned borrowing (of Rs. 8,470 billion) for the year. In other words, all of what the government plans to borrow this fiscal year will be used to service the current debt on the books.

Detailed Budget Visualization By Dr. Adil Najam via Dawn

Federal debt servicing costs (Rs. 9,775 billion or $35 billion, 9.3% of current GDP) have spiked in recent years due to the State Bank's tight monetary policy designed to fight persistent double digit inflation. In fact, interest payments on debt are by far the biggest single federal expenditure line item, far surpassing the Rs. 2, 122 billion ($7.7 billion or 2% of current GDP) defense spending. Higher interest rates have also dramatically slowed down the economy.

Pakistani provinces raise some of their own revenue on top of the transfers from the federal government. For example, Punjab, the largest of the four provinces, plans to spend an estimated Rs. 4,643.4 billion ($17 billion); including the federal transfer of Rs. 3,683.1 billion and about Rs. 960 billion ($3.5 billion) of provincial tax revenue.

Sind, the second largest province, has a Rs. 3,056 ($11 billion) budget that includes Rs. 1,854 billion from the federal government, and Rs. 1,202 billion ($4.35 billion) from its revenue sources. KP, the third largest province, has a Rs1,754 billion ($6.4 billion) budget, including Rs. 1,222 billion from the federal government and Rs. 532 billion ($1.9 billion) provincial revenue. Balochistan's budget is Rs. 956 billion ($3.5 billion) that includes Rs. 667 billion from the federal government and Rs. 290 billion ($1 billion) from its resources.

Altogether, the federal and provincial governments expect to raise about $75 billion in revenue, representing 20% of $375 billion GDP for fiscal year 2023-24. This is not bad for a developing country like Pakistan. The defense allocation of Rs. 2,122, the second largest federal expenditure, is a mere 2% of the current GDP. The biggest expenditure this year will be the interest payments of Rs. 9,775, accounting for over 50% of the federal budget and 9.3% of the current GDP. These debt servicing costs will hopefully come down as the State Bank cuts its interest rates this year and next. Lower interest payments in future years should free up money for other more pressing needs in the areas of education, healthcare, energy and infrastructure.

Sunday, August 18, 2024

Pakistan EV Launches to Accelerate Clean Energy Transition

Pakistani automobile joint ventures with Chinese automakers BYD and Changan have recently launched several all-electric and plug-in hybrid models of automobiles in Pakistan. Earlier, Honda Atlas Cars Pakistan Limited announced plans to build a hybrid electric vehicles plant in the country. Other major brands like Toyota, Haval, and Hyundai are already offering similar models in the country. It all began with the 2019 electric vehicle policy approved by the government of Prime Minister Imran Khan to incentivize the electrification of the auto industry. Pakistan EV policy goal is to achieve 30% of new cars sales, 50% of new 2-wheeler and 3-wheeler sales and 30% of new truck sales by 2030. By 2040, the target is 90% of all new vehicle sales to be electric. The main incentive is the reduction of sales tax from 17% for internal combustion engine (ICE) vehicles to 1% for all-electric (EV) vehicles.

BYD EV. Source: CNBC

BYD Launch:

Chinese electric vehicle giant BYD has announced plans to open an EV production plant in Karachi. It will start selling three EV models in Pakistan through a partnership with Mega Motors. Mega Motors is a unit of Pakistan's largest private utility Hub Power Co Ltd (HPWR.PSX), known as Hubco.

"Our entry into the Pakistani market is not just about bringing advanced vehicles to consumers," said Liu Xueliang, BYD's general manager for Asia Pacific, according to Reuters. "It's about driving a broader vision of environmental responsibility and technological innovation." "We will establish Pakistan's first NEV assembly plant... dedicated to producing BYD's cutting-edge new energy vehicles," said Hubco Chief Executive Kamran Kamal, who described the deal as a "landmark investment".

The BYD factory will be built near Karachi’s Port Qasim area that already houses assembly plants for other automobile companies including Toyota, Suzuki Motor Corp. and Kia Corp.’s local units. It will be completed in the first half of 2026, according to Bloomberg.

Last year, BYD’s total production – comprising battery-only powered cars as well as hybrids – was more than 3 million and surpassed Tesla’s production of 1.84 million cars for a second straight year, according to CNBC.

A BYD model comparable to Tesla Model Y is $10,000 cheaper and has more features, according to news reports.

Changan Launch:

Master Changan Motors Limited (MCML), a joint venture between Pakistan's Master Group of Industries and China's Changan International, launched Changan’s electric-first brand, DEEPAL, this month in Karachi, Pakistan. The joint venture unveiled the brand Deepal with 2 models, L07, the pure electric sports luxury sedan and S07 the pure electric premium SUV.

Both Changan models offer 250 HP and 320 Nm of instant torque, going from 0-100 km/hr in just 5.9 seconds. The Ternary Lithium battery by CATL has a capacity of 66.8 kWh and provides an exceptional range of up to 540 km in L07 and 485 km in S07. The cars are designed in Italy in Changan’s R&D center and have won the German RedDot design award in 2023 with its futuristic design, according to media reports.

Changan has sold 45,000 cars in Pakistan in the last 5 years.

Honda Atlas:

Last month Honda Atlas Cars Pakistan Limited (HACPL) announced its plan to invest Rs. 5 billion in a cutting-edge hybrid vehicle production facility in Pakistan. This investment will support the local manufacturing and assembly of hybrid electric vehicles (HEVs).

The company recently reported a 324% jump in sales, totaling Rs. 15.97 billion compared to Rs. 3.77 billion in the same period last year. The company reported a gross profit of Rs. 1.01 billion for the first quarter of FY25.

Two and Three Wheelers:

Prior to the BYD and Changan EV launches, Pakistan granted EV manufacturing licenses to 32 local companies under the EV Policy 2019, according to the Business Recorder newspaper. Metro Electric Bikes, VLEKTRA and Sazgar Engineering Works are among the key names leading the two and three wheeler EV manufacturing in Pakistan.

“Motorcycle buyers have started to inquire about electric bikes, scooty, and scooters options. I believe many have postponed buying a normal two-wheeler with expectations that an electric two-wheel model may soon enter the market that is closer to their need,” said Sabir Sheikh, who is also the Chairman, Association of Pakistan Motorcycle Assemblers (APMA), according to media reports.

Charging Infrastructure:

A number of investors, including ADM Group, Hashoo Group and Hubco are planning to invest in building a nationwide EV charging stations network. The EV policy provides incentives for it by reducing import duty on charging equipment imports to just 1% and lower power tariffs. It also ensures uninterrupted power supply on feeders fir charging stations.

Hubco said it will setup fast-charging stations across major cities, motorways and highways to enhance Pakistan's charging infrastructure, according to Reuters. The EV policy calls for at least one fast DC charging station per 3km by 3km area in all major cities as well as DC fast chargers on all motorways every 15-30 km.

Soaring Imports of Chinese Solar Panels in Pakistan. Source: Bloomberg

Solar Power Boom:

With rapidly falling solar panel prices, Pakistan is experiencing a solar power boom in the country. The country imported some 13 gigawatts of solar modules in the first six months of the year, making it the third-largest destination for Chinese exporters, according to Bloomberg.

Rapid increase in solar power generation complements Pakistan's push to a clean energy economy and EV adoption. This may encourage some of the charging station operators to go solar with batteries to reduce their cost of power purchases from the grid.

Climate Action:

Pakistan has contributed only 0.28% of the CO2 emissions but it is among the biggest victims of climate change. The US, Europe, India, China and Japan, the world's biggest polluters, must accept responsibility for the catastrophic floods in Pakistan and climate disasters elsewhere. A direct link of the disaster in Pakistan to climate change has been confirmed by a team of 26 scientists affiliated with World Weather Attribution, a research initiative that specializes in rapid studies of extreme events, according to the New York Times.

Top 5 Current Polluters. Source: Our World in Data

Currently, the biggest annual CO2 emitters are China, the US, India and Russia. Pakistan's annual CO2 emissions add up to just 235 million tons. On the other hand, China contributes 11.7 billion tons, the United States 4.5 billion tons, India 2.4 billion tons, Russia 1.6 billion tons and Japan 1.06 billion tons.

Pakistan's Annual CO2 Emission. Source: Our World in Data

The United States has contributed 399 billion tons (25%) of CO2 emissions, the highest cumulative carbon emissions since the start of the Industrial Revolution in the late 18th century. The 28 countries of the European Union (EU28), including the United Kingdom, come in second with 353 billion tons of CO2 (22%), followed by China with 200 billion tons (12.7%).

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Thursday, August 15, 2024

Exodus From Pakistan: 1.62 Million Emigrated in 2023

Pakistan had a net negative migration of 1.6 million people, the highest of all countries in 2023, according to the World Population Prospects 2024 report released by the United Nations. Other Asian nations like India (-980,000), China (-570,000), and Bangladesh (-550,000) are also far up the ranking. Pakistan's figure of 1.62 million includes 541,000 Afghans who were expelled from the country last year. Net migration is the net total of migrants during the period, that is, the number of immigrants minus the number of emigrants, including both citizens and noncitizens.

Top Countries Losing People to Emigration. Source: Visual Capitalist

Pakistan Bureau of Emigration and Overseas Employment data shows that 862,625 Pakistanis went to work overseas, mostly to Gulf Arab nations, in 2023. The US government granted 16,320 immigrant visas to Pakistani nationals. Another 11,861 immigrant visas were given to Pakistanis by the Canadian government in the same period. The total number of new Pakistani immigrants admitted as permanent residents in North America in 2023 was 28,181. It is likely that a similar number of Pakistani migrants arrived in Europe last year. Altogether, the total number of Pakistanis emigrants adds up to about a million. The remaining 600,000 are most likely non-citizens deported from Pakistan.

With a growing share of the working age and insufficient job opportunities, South Asian nations of India, Pakistan and Bangladesh are among the largest labor exporters in the world.

Dependency ratio, defined as the percentage of children and retirees to the working age population, is rapidly declining in Pakistan (current dependency ratio is 69.03%) and the rest of the developing nations of Asia and Africa. This demographic shift means that the world's richest and most powerful nations with the largest share of working populations will no longer be in Europe and North America by 2050. Among South Asian nations, Bangladesh has already joined the list of top 10 nations in terms of the largest share of the working age population. India and Pakistan are expected to join it by 2050. Increasingly better educated working age population is expected to significantly enhance their productivity and increase their incomes.

Shift in Share of Working Age Populations. Source: NY Times

The total dependency ratio reported for Pakistan in 2022 is 69.03%, much higher than Bangladesh's 47.09% and India's 47.5%, according to the World Bank. Dependency ratio for China is 44.96% but it is rapidly increasing. China's share of the working age population will no longer be in the top 10 by 2050 due to its aging population, according to the UN projections.

Declining Dependency Ratio in Pakistan. Source: Trading Economics/World Bank

Global Age Dependency Ratio Map. Source: World Population Review

New York Times' visual journalist Lauren Leatherby recently described this major demographic and economic shift in the following words: "The richest most powerful countries today have long had these really large working-age populations. And economists agree that that’s been a huge, huge advantage economically and geopolitically. And meanwhile, a lot of developing nations have had quite high dependency ratios having a high number of children compared to working-age people. And so, I think we know a lot of these storylines one by one, but putting it all together, it’s just like the world is going to shift really dramatically".

Current Share of Working Age Populations. Source: NY Times

"And then I think what we see (rapidly aging population) in Japan today is only the tip of the iceberg. A lot of East Asia, China, Europe, South Korea will be much older than Japan is today, in just you know, 20 or 30 years. Some countries will have upwards of 40% of their population that are 65 or older in just two or three decades. And meanwhile, on the other end, you have a lot of these other countries that have long been, you know, hindered economically by their age structures. And suddenly a lot of them will start to enjoy the exact same age structures that Europe and East Asia, the U.S., that a lot of those countries have historically enjoyed", Leatherby added.

Prijected Share of Working Age Populations in 2050. Source: NY Times

It is based on this demographic shift that Goldman Sachs analysts Kevin Daly and Tadas Gedminas are projecting Pakistan's economy to grow to become the world's sixth largest by 2075. In a research paper titled "The Path to 2075", the authors forecast Pakistan's GDP to rise to $12.7 trillion with per capita income of $27,100. India’s GDP in 2075 is projected at $52.5 trillion and per capita GDP at $31,300. Bangladesh is projected to be a $6.3 trillion economy with per capita income of $31,000. By 2075, China will be the top global economy, followed by India 2nd, US 3rd, Indonesia 4th, Nigeria 5th and Pakistan 6th. The forecast is based primarily on changes in the size of working age populations over the next 50 years.

GDP Ranking Changes Till 2075. Source: Goldman Sachs Investment Research

Economic Growth Rate Till 2075. Source: Goldman Sachs Investment Research

Economic Impact of Slower Population Growth:

Daly and Gedminas argue that slowing population growth in the developed world is causing their economic growth to decelerate. At the same time, the economies of the developing countries are driven by their rising populations. Here are four key points made in the report:

1) Slower global potential growth, led by weaker population growth.

2) EM convergence remains intact, led by Asia’s powerhouses. Although real GDP growth has slowed in both developed and emerging economies, in relative terms EM growth continues to outstrip DM growth.

3) A decade of US exceptionalism that is unlikely to be repeated.

4) Less global inequality, more local inequality.

Goldman Sachs' Revised GDP Projections. Source: The Path to 2075

Demographic Dividend:

With rapidly aging populations and declining number of working age people in North America, Europe and East Asia, the demand for workers will increasingly be met by major labor exporting nations like Bangladesh, China, India, Mexico, Pakistan, Russia and Vietnam. Among these nations, Pakistan is the only major labor exporting country where the working age population is still rising faster than the birth rate.

Pakistan Population Youngest Among Major Asian Nations. Source: Nikkei Asia

World Population 2022. Source: Visual Capitalist

World Population 2050. Source: Visual Capitalist

Over a million Pakistani university students are currently enrolled in STEM courses. Over 10 million Pakistanis are currently working/living overseas, according to the Bureau of Emigration. Before the COVID19 pandemic hit in 2020, more than 600,000 Pakistanis left the country to work overseas in 2019. Nearly 700,000 Pakistanis have already migrated in this calendar year as of October, 2022. The average yearly outflow of Pakistani workers to OECD countries (mainly UK and US) and the Middle East was over half a million in the last decade.

Consumer Markets in 2030. Source: WEF

World's 7th Largest Consumer Market:

Pakistan's share of the working age population (15-64 years) is growing as the country's birth rate declines, a phenomenon called demographic dividend. With its rising population of this working age group, Pakistan is projected by the World Economic Forum to become the world's 7th largest consumer market by 2030. Nearly 60 million Pakistanis will join the consumer class (consumers spending more than $11 per day) to raise the country's consumer market rank from 15 to 7 by 2030. WEF forecasts the world's top 10 consumer markets of 2030 to be as follows: China, India, the United States, Indonesia, Russia, Brazil, Pakistan, Japan, Egypt and Mexico. Global investors chasing bigger returns will almost certainly shift more of their attention and money to the biggest movers among the top 10 consumer markets, including Pakistan. Already, the year 2021 has been a banner year for investments in Pakistani technology startups.

Record Remittances From Overseas Pakistanis:

Pakistan is already seeing high levels of labor export and record remittances of over $30 billion pouring into the country. Saudi Arabia and the United Arab Emirates(UAE) are the top two sources of remittances but the biggest increase (58%) in remittances is seen this year from Pakistanis in the next two sources: the United Kingdom and the United States.

Remittances from the European Union (EU) to Pakistan soared 49.7% in FY 21 and 28.3% in FY22, according to the State Bank of Pakistan. With $2.5 billion remittances in the first 9 months (July-March) of the current fiscal year, the EU ($2.5 billion) has now surpassed North America ($2.2 billion) to become the third largest source of inflows to Pakistan after the Middle East and the United Kingdom. Remittances from the US have grown 21%, second fastest after the EU (28.3%) in the first 9 months of the current fiscal year.

Worker Remittances as Percentage of Pakistan GDP. Source: World Bank

Pakistan ranks 6th among the top worker remittance recipient countries in the world. India and China rank first and second, followed by Mexico 3rd, the Philippines 4th, Egypt 5th and Pakistan 6th.

Pakistan Demographics

About two million Pakistanis are entering the workforce every year. The share of the working age population in Pakistan is increasing while the birth rate is declining. This phenomenon, known as demographic dividend, is coinciding with declines in working age populations in developed countries. It is creating an opportunity for over half a million Pakistani workers to migrate and work overseas, and send home record remittances.

Pakistan Among World's Largest Food Producing Countries

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