Friday, September 10, 2010

Can Global Pakistanis Invest $10 Billion in Post-Floods Reconstruction?

Members of Pakistani diaspora must remember their compatriots in distress as we celebrate Eid today.

While there have been high-profile recent efforts by overseas Pakistanis to raise millions of dollars to fund rescue and relief efforts after the recent devastating floods, it is now time to begin to shift focus on to the much longer term and significantly more expensive reconstruction phase that will requires billions, not millions, of dollars.

World Bank economist Sanket Mohapatra has said in a recent post that remittances by overseas Pakistanis have played a significant role in Pakistan's economic improvement. Not only have such remittances contributed to significant poverty reduction in Pakistan "by an impressive 17.3 percentage points between 2001 and 2008 (from 34.5 percent in 2001-02 to 17.2 percent in 2007-08)", but "continued strong growth in worker’s remittances in the past few years has also contributed to improvements in the external current account balance” and “have facilitated improvement in the country’s external position”, according to a World Bank report released on July 30, 2010.

World Bank's Mohaptra adds that "there is now a risk that devastating floods that have hit Pakistan, killing more than 1,200 people and leaving 2 million people homeless, could reverse some of the gains in poverty achieved in the last few years, which were already believed to have been weakened in the wake of the recent financial crisis and rise in food prices. During past natural disasters, migrants have sent additional remittances to help their families and friends in need – for example, during the Pakistan earthquake in 2005, in Philippines after typhoons Ondoy and Pepeng in 2009, after an earthquake in Haiti in early 2010, and in other countries in Asia, Africa and Latin America. It is likely that the Pakistani diaspora will send additional financial resources to help their family, friends and even larger communities. These person-to-person transfers could complement official aid efforts".

The cost and the task of post-flood reconstruction may appear to be monumental, but I feel confident that global Pakistani community is equal to it. Already, non-resident Pakistanis have been sending home nearly ten billion US dollars a year in remittances to their home country. And their invested assets are estimated to be in hundreds of billions of US dollars in different parts of the world. I believe Pakistani diaspora can double their remittances in the next twelve months, thereby boosting Pakistan's overall economy by a $10 billion stimulus for reconstruction.

If a significant part of this additional $10 billion in remittances goes into special, professionally managed, investment funds specifically for post-floods reconstruction and rehabilitation, it will be an even greater boost to Pakistan's overall economy. To put it in perspective, the $10 billion in a year would be 5 times the annual foreign aid, and twice the peak FDI Pakistan received in 2007, the last year of healthy economic growth in 2007-2008.

Here's a video clip of Pakistan's billionaire real estate developer Malik Riaz Husain pledging $2 billion of his own wealth to help the flood victims rebuild:



Related Links:

Haq's Musings

Pakistani-Americans Extend Help to Flood Victims

World Bank Report on Pakistan released on July 30, 2010

Pakistan's Economic Performance 2008-2010

Aid, Trade, Investments and Remittances in Pakistan

World Bank Blog on Impact of Remittances in Pakistan

45 comments:

floydian said...

Remittances have shown an increasing trend which is encouraging. Lets just hope that they increase further and aid the flood relief and rehabilitation process. Excellent post.

i said...

"In fact, the analysis of the poverty impact of recent economic shocks suggests that the recent
gains in poverty reduction may have been partly reversed in the wake of recent economic crises.

Food and fuel prices rose by 23.7 and 18.4 percent, respectively, between 2007/08 and 2008/09, resulting in a 21 percent reduction in purchasing power. The 2007/08 household survey results indeed suggest that poverty started rising towards the end of that fiscal year. Many middle class households have slipped into poverty due to reduction in purchasing power. However, the impact of the recent economic
downturn on poverty will only be known when the next household survey has been conducted and results analyzed." World Bank Report 07/2010.
Riaz, this taken directly from your postings and it is interesting to note this report was taken before the floods. Secondly, your report on middle class reflects data from 2004-5. Dramatic negative changes have taken place; therefore your comparisons (again with India) may not hold water today.

Riaz Haq said...

i: "Riaz, this taken directly from your postings and it is interesting to note this report was taken before the floods. Secondly, your report on middle class reflects data from 2004-5. Dramatic negative changes have taken place; therefore your comparisons (again with India) may not hold water today."

Since you quoted m on Pakistan poverty estimates, let me share with updated Indian poverty figures, as reported by Reuters:

India now has 100 million more people living below the poverty line than in 2004, according to official estimates released on Sunday.

The poverty rate has risen to 37.2 percent of the population from 27.5 percent in 2004, a change that will require the Congress-ruled government to spend more money on the poor.

The new estimate comes weeks after Sonia Gandhi, head of the Congress party, asked the government to revise a Food Security Bill to include more women, children and destitutes.

"The Planning Commission has accepted the report on poverty figures," Abhijit Sen, a member of the Planning Commission told Reuters, referring to the new poverty estimate report submitted by a government panel last December.

India now has 410 million people living below the U.N. estimated poverty line of $1.25 a day, 100 million more than was estimated earlier, officials said.

India calculates how much of its population is living below the poverty line by checking whether families can afford one square meal a day that meets minimum nutrition needs.


http://in.reuters.com/article/idINIndia-47791820100418

Unknown said...

Check this out Mr. Riaz Haq.

http://www.youtube.com/watch?v=W7YRoKvm2dw&feature=related

Anonymous said...

'India now has 100 million more people living below the poverty line than in 2004, according to official estimates released on Sunday.'

That's because the definition of what constitutes poverty changed i.e India raised the bar.So the increase is statistical not due to additional deprivations thrust on the poor.

In Pakistan by contrast the ACTUAL poverty rate has increased (whatever way u measure it).The average PAkistani is poorer now in absolute terms and what money he has buys significantly less than what it did in 2007 thanks to massive double digit inflation.

This is before the floods whose full economic impact in terms of outbreaks of cholera etc,lost industrial production in the textiles,sugar and food processing(Pakistan's principal industries) industry due to massive loss of cotton,sugarcane and food crops crops and increased social instability will only be fully felt by the end of this financial year...

Riaz Haq said...

anon: "That's because the definition of what constitutes poverty changed i.e India raised the bar.So the increase is statistical not due to additional deprivations thrust on the poor."

India raised the bar to what? One square meal a day? That is ridiculous.

anon: "In Pakistan by contrast the ACTUAL poverty rate has increased (whatever way u measure it).The average PAkistani is poorer now in absolute terms and what money he has buys significantly less than what it did in 2007 thanks to massive double digit inflation."

You may be right, but where is the data?

satwa gunam said...

data is the purchase parity of the currency.

1 usd = 44 inr
1 usd = 90 pkr

India is far ahead of pakistan in economic parameters however it has to handle the distribution of wealth in a better manner.

Anonymous said...

raising the bar, lowering the bar is all useless. the correct indicator is economy and sales of cars, homes, appliances like AC, Fridge. On all counts India is doing significantly better than Pakistan - which clearly means middle class is far better in
India than in Pakistan.

Anonymous said...

pakistanis or non pakistanis will invest(as opposed to donating for charity) $10billion more in Pakistan ONLY if they see a quality return on their investment.

The country's current situation doesn't warrant much confidence for long term investments like car & capital goods factories and the like.

Yes short term speculative portfolio investments may be significant in certain fast growing sectors like telecom,media etc etc
also investments in real estate may be forthcoming..

Riaz Haq said...

anon: "pakistanis or non pakistanis will invest(as opposed to donating for charity) $10billion more in Pakistan ONLY if they see a quality return on their investment."

I agree, and as recently as the period from 2001-2008 has shown that there are great returns to be made on foreign investments in Pakistan.

Overseas Pakistanis have to overcome the fear mongering of the media and lead the world investors by example to go back into Pakistan.

Riaz Haq said...

gunam: "data is the purchase parity of the currency.

1 usd = 44 inr
1 usd = 90 pkr"

I am afraid you don't know what you are talking about.

PPP has nothing do with official exchange rates which you have exaggerated.

Riaz Haq said...

Amidst serious allegations that powerful feudal politicians ordered flooding of poor village to save their own estates and farms, I don't have much expectations from the current government in Pakistan. But I still have great hopes in the people of Pakistan.

There are several fundamental positive trends in Pakistan that are often overlooked by the daily media grind.

Pakistan is urbanizing faster and has a bigger middle class than its neighbors. ...it's on its way to becoming an urban middle class society in the next decade. Such a society will limit the excesses of the elites, and be more conducive to better governance and accountability in a democracy.

The current crisis offers opportunities to remake Pakistan, and well-to-do-Pakistanis, including overseas Pakistanis, have a special responsibility to invest in Pakistan's reconstruction and refugee resettlement to enable the poor peasants to escape from the clutches of their terrible feudal lords.

Anonymous said...

"Pakistan is urbanizing faster and has a bigger middle class than its neighbors. .."

and their purchasing power seems to be far less than their neighbor (no plural), as evident by total lack of economy in recent years.

Anonymous said...

"Pakistan is urbanizing faster and has a bigger middle class than its neighbors. .."

not really,Pakistan is urbanizing a lot slower than India and even Bangladesh since 2007 and the trends don't look very promising.

Besides India is set to grow around 9%+ for this decade while Pakistan will according to the IMF not hit 6% per annum at least till 2015.

It takes an awfully long leap of faith to believe than an economy growing at 9% p.a with an industrial growth rate of 16% p.a last quarter is urbanizing slower than what is essentially a stagnant economy surviving on aid and remittance.

also kindly clarify:

You say on some of your posts that 30mn Pakistanis have an income greater than $10,000.
BUT
30mn X $10,000= $300 billion
The size of Pakistan's economy is significantly less than $200 billion.
So what u are probably stating is PPP 10,000 i.e a nominal income of roughly $3,000 per annum to classify someone as middle class.

Riaz Haq said...

anon: "not really,Pakistan is urbanizing a lot slower than India and even Bangladesh since 2007 and the trends don't look very promising."

According to CIA World Fact Book, Pakistan has urbanized at a rate of 3% a year (2005-2010) vs India's urbanization rate of 2.4% a year in the same period.

And the post-floods reconstruction and rehab is likely to accelerate rural-to-urban migration rate and urbanization in Pakistan.

anon: "So what u are probably stating is PPP 10,000 i.e a nominal income of roughly $3,000 per annum to classify someone as middle class."

Yes, it's the income in PPP dollars that is used to classify poor or middle class in most international reports for all nations, including India and Pakistan.

Riaz Haq said...

DC: "and their purchasing power seems to be far less than their neighbor (no plural), as evident by total lack of economy in recent years."

Not true. Consumption in Pakistan accounts for 75% of its GDP. Private consumption since 2008 has remained strong in Pakistan, even as investment and public spending has dropped as percent of GDP. At least part of this private consumption is driven by increasing remittances from overseas Pakistanis, according to ADB report.

http://www.adb.org/Documents/Books/ADO/2009/update/pak.pdf


As an aside, India has been manipulating its GDP numbers, as reported by SeekingAlpha:

Yesterday, we had written about the controversy over GDP numbers. What has happened since is even more bizarre. Now the government has issue new numbers. All within some 24 hours. The government has revised consumption numbers quite dramatically, claiming the earlier low numbers were simply a result of a calculation error.

The size of revision is dramatic. The consumption side GDP growth estimate is now 10%, compared to 3.7% earlier. Pvt consumption growth is now 3.7% compared to 0.3%, while the government expenditure growth is now 14.2% compared to -0.6% earlier.

Contrary to making us feel better about government data, this makes us feel even more uncomfortable. Yesterday, we had believed the explanation behind the low consumption numbers were systemically less efficient calculation methods. We understand quarterly data on GDP has started coming out only in the last 1-2 years, so we thought, the government still has to get its act right on the number collection mechanism.

So our point was: just ignore these consumption numbers, focus on the supply side numbers, where the data is being collected for several years, so more reliable.


http://seekingalpha.com/article/223561-bizarre-events-with-india-s-gdp-data

Anonymous said...

'Not true. Consumption in Pakistan accounts for 75% of its GDP. Private consumption since 2008 has remained strong in Pakistan, even as investment and public spending has dropped as percent of GDP.'

This according to u is a good thing?
investment/GDP is 35% + in India,It is over 50% in China.But in Pakistan it is around 10% very little of that in long term capital stock.

consumption at 75% of GDP usually means the internal capital of the economy is being eroded i.e people are shutting shop and putting money in liquid assets like gold etc

Riaz Haq said...

anon: "But in Pakistan it is around 10% very little of that in long term capital stock."

Wrong! Pakistan's gdp from investments is still about 17.5%--down from about 20% in 2008. Of course, it would be better if more of its GDP would come from investments and exports.

Unlike the Chinese economy, India's economy is also essentially consumer-driven, with private and public consumption accounting for 75% of Indian GDP.

Anonymous said...

'Unlike the Chinese economy, India's economy is also essentially consumer-driven, with private and public consumption accounting for 75% of Indian GDP.'

I am sorry consumption is around 60% of Indian GDP with investments around 40% and net exports around -5%.

Please refer:
http://blog.investraction.com/2010/06/indian-private-consumption-falling-as.html

but still :

exports(merchendise +services) +remitances+ FII + FDI > imports + outward investments.

i.e the net flow of funds for the economy as a whole remains strongly positive and we also have a $300 billion FX reserve to tide over emergencies this is 1.2 times our total external liabilities effectively making India a net creditor...

Riaz Haq said...

anon: "effectively making India a net creditor..."

Thanks for the data and the link. I stand corrected on consumption to gdp ration for India.

But I don't agree that India is a "net creditor" nation with its large twin deficits of trade and budget. India depends on foreign inflows because if its significant current account deficit.

Anonymous said...

You are most welcome for the data.

However India is a net creditor to the world because by definition foreign exchange reserves are in the form of treasury bills and other liquid debt instruments effectively credit that India extends to the world's central banks.This volume is 20% greater than the absolute value of total liabilities in foreign currencies that the Indian state(Net outstanding dues to World bank,ADB etc) as well as India Inc (Think TATA buying Corus,Tetley etc) have incurred.

Of course a much simpler way would be for India to funnel part of its foreign exchange reserves to India Inc against set export targets (South Korean policy in the 1970s and 80s basically) but the fiercely independent RBI is very very edgy about letting politicians think of India's foreign exchange reserve as a source of funds.I for one can understand the RBI's apprehensions.

Iqbal Singh said...

Ultimately, the comparisons that you make between India and Pakistan are futile.
Assuming your premise is true that Pakistan is better than India what good does it bring to the average Pakistani anyway. You haven't been to India and I have not seen Pakistan; therefore, these statistical differences between the countries are miniscule when compared to Japan for example.

However, what matters is the future 10-15 years from now. Globally what matters is how each country is percieved in socio-economic terms. The hard facts are business drives the world (unless you are a 100% communist nation = N. Korea) and that will, hopefully, bring more employment.

Making the conditions better for business that's what the Fed Bank (US) does just like any other responsible central bank in other nations. A more fruitful dialogue should discuss what the future holds. Riaz, in your case that would be Pakistan.
How does the global entrepreuner see Pakistan? What can Pakistan do to create a climate more conducive to business.

Your blog invariably leads to a discussion of India/Pakistan.

Riaz Haq said...

Singh: "You haven't been to India and I have not seen Pakistan; therefore, these statistical differences between the countries are miniscule when compared to Japan for example."

I have visited both India and Pakistan on multiple occasions, and seen the situation on the ground first hand. I have visited cities ad villages in both nations.

Anonymous said...

http://www.2point6billion.com/news/2010/09/16/china-and-india-top-forbes-asias-2010-fab-50-list-7147.html

Zen, Munich, Germany said...

@Datacruncher
"raising the bar, lowering the bar is all useless. the correct indicator is economy and sales of cars, homes, appliances like AC, Fridge. On all counts India is doing significantly better than Pakistan - which clearly means middle class is far better in
India than in Pakistan."

Are we comparing two poor third world countries or Germany and France?
If India and Pak. were middle class countries, it would have made sense to look into discretionary spending. But when more than a third goes to bed empty stomach, how can you take car sales as a reliable indicator of the well being of the people?

It is just another economic indicator and do not reflect the well being of people.

Anonymous said...

@Zen,

I was talking about the state of middle class in India and Pak. Somehow Riaz deludes that Pakistan has better middle class than India, which is not corroborated by economic stats.

Riaz Haq said...

DC: "Somehow Riaz deludes that Pakistan has better middle class than India, which is not corroborated by economic stats."

Do you think car sales in India signify middle class consumption, a middle class defined as making $2 a day?

I'm afraid you're wrong.

What you need to look at it overall consumption as percent of GDP...which, at 80%, is much higher in Pakistan than India's 60%. See my latest post on this subject.

aamsvad said...

Indo-Pak debate:-Two third class students who have failed in all subjects for over 6 terms.But that does not at all defer them form childishly comparing who got a "Bigger Zero's" on their Exam paper or who was marked a "sterner red ink wrong answer".
It would be best to compare them selves with those who have consistently passed the exams, if not the class topper!

aamsvad said...

Riaz , India has handed over 20 million cash grants to Pakistan.As you love trumpeting India's poverty around, this gesture is more than laudable. India is with u in time of need.Disasters should be above politics.But sadly Pak-Govt ,under Army pressure did exactly that.Grants would have been far more if not for...you know what happened.
so on a lighter note there is 20 mil of your 10 billion.

Anonymous said...

"What you need to look at it overall consumption as percent of GDP...which, at 80%, is much higher in Pakistan than India's 60%. See my latest post on this subject."

80% by itself means nothing unless we have a breakdown of what type of consumption. A poor man may spend 70% of his earnings on food, than a rich man who say about 10%. But who will conclude that the poor man is eating more and better food than rich.

By all indicators middle class in India have more disposable income for discretionary spending. This is indicated by growing revenue of pvt airlines in India and revenue from upper class segment of Indian railways. Pakistan is shutting down trains due to lack of demand and lack of money for infrastructure.

Riaz Haq said...

DC: "By all indicators middle class in India have more disposable income for discretionary spending. This is indicated by growing revenue of pvt airlines in India and revenue from upper class segment of Indian railways."

I don't think you understand what middle class means in India and Pakistan. It means people making $2 a day most of whom can not afford any of the things you are talking about.

Anonymous said...

"I don't think you understand what middle class means in India and Pakistan. It means people making $2 a day most of whom can not afford any of the things you are talking about."

Why are you side stepping the issue? Why is India showing higher consumption of cars, electronics items or other discretionary spending (notice how international retails are opening in India and not pak). In Pakistan they are not declining in growth.

In your obsession about India you are forgetting that unlike India, Pak was better off 20 yrs ago and is now seemingly in a irreversible decline, coinciding with growing islamization of society.

Riaz Haq said...

DC: "Why are you side stepping the issue? Why is India showing higher consumption of cars, electronics items or other discretionary spending (notice how international retails are opening in India and not pak). In Pakistan they are not declining in growth."

I am not sidestepping the issue, I am trying to educate you on the concept of middle class consumption by asking you a simple question:

Can someone living on about $2 a day afford the things you cite as examples of middle class consumption? Can they even buy the gasoline for the cars you seem to think they are buying?

Here are the figures from ABD report on middle class:

India's middle class (defined as $2 a day or more) is 25% of the population, and 80% of this middle class sits just at or slightly above $2 day income level.

Pakistan's middle class (defined as $2 a day or more) is 40% of the population, and 80% of this middle class is at or slightly above $2 a day income level.

Here are the details of income levels in India, Pakistan and China as reported by ADB:

Daily Income..$2-$4...$4-$10..$10-$20 Over $20

India...20.45%...4.15%..0.45%...0.10%

Pakistan..32.94%...6.56%...0.62%..0.15%

China...33.97%...25.17%..3.54%..0.68%

Riaz Haq said...

European textile firms are protesting EU trade concession for Pakistani textile imports to help Pakistan after the massive floods. Here's a Wall Street Journal story on it:

European Union trade concessions for flood-ravaged Pakistan have triggered a backlash among European manufacturers, led by an EU textile sector already imperiled by Chinese imports.

The tensions show how the economic downturn is increasing anxieties over trade to the point where even targeted humanitarian efforts to lower tariff barriers are called into question.

The European Commission, the EU's executive, Wednesday approved tariff waivers on 75 categories of imports from Pakistan for up to three years. The gesture followed an order by EU leaders eager to show they're helping some 10 million Pakistanis left without shelter after violent flooding this summer.

Pakistan isn't a big exporter to the EU, shipping only $4.2 billion worth of goods to the bloc last year. It ranked a distant 46th among EU trading partners, between the United Arab Emirates and Serbia.

However, more than 75% of those exports are textiles, clothing, leather or related products, and those goods will make up a majority of the roughly $140 million in total extra trade the EU says the deal will generate from eliminating the EU tariffs.

That's a problem for European textile manufacturers, mostly located in Europe's southern rim, from Portugal to Italy to Romania. Thousands of small shops and their workers have been getting crushed ever since China joined the World Trade Organization in 2001, partially opening up European textile markets. Some of these European economies are suffering slow growth because of the euro zone's debt problems.

Riaz Haq said...

Here are some excerpts from Bloomberg-Businessweek on Pakistani companies prospects after floods:

Toyota Motor Corp. and Unilever affiliates in Pakistan said the worst floods in the nation’s history may sap growth and force production cuts as consumers struggle to cope with the destruction of crops and houses.

“The economy is fragile,” Parvez Ghias, chief executive officer of Toyota-backed Indus Motor Co., Pakistan’s largest automaker by market value, said by phone yesterday from Karachi. “The prices of food and essentials have gone up significantly.”

“The overall impact of the floods is going to be very serious for the economy,” said Nasim Beg, who helps manage $200 million at Karachi-based Arif Habib Investments Ltd. “In the long term, something like cement might look alright, but in the immediate term, I think everything will be under stress.”

“The damage is going to be significant,” said Muhammad Adil Ghani, plant operations head at Lahore-based Nishat Mills. “We have to reevaluate the forecast for the coming year.”

One of the group’s power plants, in Punjab province, northern Pakistan, was closed for at least five days because of floods, he said. The company’s four textile factories around Karachi, Faisalabad and Lahore haven’t been directly affected.

Nationwide car sales may fall as much as 25 percent this quarter because of the floods, said Indus Motor’s Ghias. The automaker, 38 percent owned by Toyota and an affiliate, may cut output in October because of the expected slowdown, he said. The company has enough orders to maintain its 200 cars-a-day production rate until then, he said.

Pakistan’s major cities and industrial areas, such as Karachi and Faisalabad, have escaped the flooding, which has limited damage at factories and may also curb the impact on earnings. Unilever’s local unit gets about 8 percent of revenue from the worst affected areas, CEO Malik said.

“So far there hasn’t been a major impact on sales,” he said. A reduction in costs may offset any decline in revenue, safeguarding profit, he said.

Mark Mobius, who oversees about $34 billion in developing- nation assets as executive chairman of Templeton Asset Management Ltd.’s emerging markets group, is also buying Pakistani shares in anticipation of a rebound from the floods. Local stocks’ valuations are “very, very attractive,” he said earlier this week.

Unilever Pakistan has maintained production through steps including re-routing shipments of goods, Malik said. Nestle Pakistan Ltd., a unit of the world’s biggest food company, has continued operations at its factories, which are concentrated in Sheikhupura, Kabirwala and Islamabad.

The full impact of the disaster on foodmakers will become clearer over the next week or so as they work through inventories of goods such as fruit pulp, used to make juices, said Syed Fakhar Ahmed, a spokesman for Nestle Pakistan.

Engro Foods’ milk tankers have been unable to reach areas of Sindh and Punjab provinces because of the floods, CEO Rehman said. Retail milk prices may eventually rise by as much as 4 rupees (5 cents) a liter, he said. In the short term, the effect on food prices has been mitigated by Ramadan, a month of fasting for Muslims that began on Aug. 11, he said.

“After the people return and transportation resumes, the supply chain will recover but not completely,” Rehman said.

The country will need to import 1 million head of livestock within five months to replenish stocks, according to the nation’s Meat Merchants Welfare Association. Livestock accounted for 11 percent of gross domestic product in the year ended June 30, according to the government’s economic survey.

“Agriculture is a very significant part of the economy,” Indus Motors’ Ghias said. “If we’re going to see negative growth there, other sectors will be impacted.”

Riaz Haq said...

About 60% of India's workforce is engaged in agriculture, contributing about 16% of GDP, according to published data. Textile manufacturing claims the second largest employment and comprises 26% of manufacturing output. It accounts for a fifth of India’s exports, and employs almost 10 percent of India’s workforce, or some 35 million people, and has the potential to add another 12 million new jobs --dwarfing the 1-2 million jobs created by the much-heralded IT and BPO sector, according to a World Bank report. Even the most optimistic estimates by NASSCOM put the total direct and indirect employment in IT and ITES sectors at 10 million jobs.

Agriculture in Pakistan accounts for 19.4% of GDP and 42% of labor force, followed by services providing 53.4% of GDP and 38% employment, with the remainder 27.2% of GDP and 20% workers in manufacturing sector. Over half of Pakistan's manufacturing jobs are in the textile sector, making it the second biggest employer after agriculture.

Here is a quick comparison of different sectors of the economy in India and Pakistan in terms of employment and GDP contribution:

Country....Agri(emp/GDP)..Textiles..Other Mfg..Service(incl IT)

India........60%/16% ...........10%/4%.....7%/25%...........23%/55%

Pakistan......42%/20%...........12%/8%......8%/18%...........38%/54%

Riaz Haq said...

Here are some excerpts from BBC.com's Soutik Biswas's blog about Azim Premji's $2 billion donation for rural education and development in his native India:

Mr Premji remains an exception in the world of Indian business. India has some 60 billionaires. The wealth of its top 10 billionaires equals 12% of its GDP, compared to just 1% in China, 5% in Brazil and 9% in Russia. The combined net worth of India's 100 wealthiest people is about a quarter of its GDP. But the philanthropic record of India's rich is spotty.

A few like the Tatas - who built and run the city of Jamshedpur and have a decent record in what is called corporate social responsibility - appear to have been more generous than the others. In recent years, India's billionaires have given away money to their alma mater, mostly foreign universities. A mobile phone giant has set up a foundation for underprivileged children; a tyre company has invested in containing HIV/Aids. The chairman of a leading software company has said he would set aside 10% of his wealth for philanthropy. A tea company has adopted several hundred villages. But one suspects that it all does not add up to much, considering the enormous concentration of wealth in the hands of India's rich and the power they wield.

Are Indians then too greedy to be philanthropic? Americans, for example, are known to be generous, giving away some $300bn - or 2% of the nation's GDP - to charity. There are no figures available for India - a much poorer country - but I am sure they will not be anywhere close.

I don't think some people are hardwired for altruism and others aren't - an act of charity is often spurred by an incentive of publicity and media coverage. Readers always responded handsomely whenever a magazine I used to work with launched a donation drive following a devastating flood or an earthquake. "You give not only because you want to help but because it makes you look good, or feel good, or perhaps feel less bad," write economist Steven Levitt and journalist Stephen Dubner in SuperFreakonomics. So, traditionally, India's businessmen have felt that they have contributed enough to society by giving away a lot of money towards building of temples.

Many believe that India's rich are not generous enough and flaunt their wealth vulgarly in a country where the majority are poor. One reason could be that most Indian businesses are run by families and have mercantile origins. Prime Minister Manmohan Singh once appealed to businessmen to share their profits with the common man, maximise profits "within levels of decency" and refrain from ostentatious display of wealth because such "vulgarity insults the poor". Gurcharan Das, a writer and management guru who has worked with some of India's top companies, believes that Indian capitalism has begun to flower in the past few decades and wealth is "now being created" in plenty. He believes that the rich will begin to contribute to social causes in a big way soon, and Mr Premji's $2bn charity for education sets an "important" precedent. Time will tell whether Mr Das is being too optimistic.

Anonymous said...

"What is the track record of Pak Muslim tycoons in charity?"

Riaz Haq said...

Anon: "What is the track record of Pak Muslim tycoons in charity?"

Recently, a Pakistani billionaire real estate developer Malik Riaz Husain committed to spending 75% of his wealth on helping the flood victims.

And Pakistanis gave Rs. 140 billion to charity in 2009, according to Pakistan's center for philanthropy in Islamabad.

Rs. 140 billion is about US $1.7 billion...nearly 1% of Pakistan's GDP for philanthropy. Obviously, this money is spent in Pak rupees, not US dollars. Examples include Edhi's ambulance service...the largest non-profit ambulance service in the world.

$1.7 billion is about half of the US philanthropy of 2% of GDP, which is not bad given that there are no tax or other incentives for philanthropy in Pakistan

Zakat and Charity are key pillars of faith in Islam to ensure that the poorest and weakest members of society are well looked after.

One of the key reasons why there is less hunger and poverty in Pakistan than in India is the generosity of Pakistani philanthropists

In India, too, the biggest philanthropist is a Muslim, Azim Premji, who recently announced
a $2 billion donation for rural education and development in his native India. Other, richer Hindu and Parsee billionaires, have done nothing like this so far.

The rich in Pakistan cheat on their taxes, but not on zakat (poor due) and sadaqa (charity).

Riaz Haq said...

Here are a couple of reports on flood recovery in Pakistan:

World Food Program Report: "Six months after Pakistan was hit by devastating monsoon flooding, the recovery is at different stages in different parts of the country. In the north and central Pakistan, most families have been able to return to their homes, rebuild their houses, plant crops and take back their former lives.

But in a few areas of the southern province of Sindh, many communities are still surrounded by floodwaters. Thousands of families in Balochistan, in the southwest, are also unable to return to their homes. Between the two provinces, some 600,000 flood victims are still living in temporary camps and for these people recovery seems some way off."


BBC Report: " A village in Pakistan devastated by flooding has been renamed Midlands after a West Midlands charity raised money to help rebuild it.

Walsall-based Midland International Aid Trust raised £113,000 to help the 20 million people thought to be affected by the monsoon floods last year.

The village of Lal Pir, now named Midlands, had been cut off by water.

Mohammed Aslam MBE, the trust's founder, has been visiting the country to oversee how the aid is spent.

Mr Aslam, 71, originally from Kashmir, said he wanted to make sure every penny of aid went to the people living in the region.

He said in August he could only reach Lal Pir by boat.

Now all 36 homes which were destroyed have been rebuilt, at a cost of £2,000 each, after the charity provided the villagers with materials and tools.

The floods struck the north of the country in August. At least 1,500 died in the deluge."

Riaz Haq said...

Here's an interesting CGAP report on the use of technology to aid Pakistan's flood victims in 2010:

CGAP’s partner in Pakistan, Tameer Microfinance Bank, and their parent company, Telenor Pakistan, have made it possible for people in Pakistan who may not have internet access to make donations to relief organizations using their EasyPaisa mobile banking platform and have removed the usual transfer fees. EasyPaisa account holders can make donations direct from their mobile wallets and anyone can walk into one of 6,000 agents to contribute to the work of organizations including the Pakistan Red Crescent Society and SOS Children’s villages. They are also in discussion with a number of NGOs about using EasyPaisa to help them to distribute payments to people who have lost their homes or their livelihoods and Telenor themselves have pledged over Rs 213 million (USD 2.5 million) to flood relief efforts.

UBL Bank has won a contract from the Government of Pakistan to make electronic payments of Rs 100,000 (USD 1,170) each to 2 million households – the vast majority of whom will never have set foot in a bank. UBL plan to use their Omni Branchless Banking platform to deliver payments to recipients via Visa debit cards. They will open accounts and distribute cards so that recipients can spend their money at stores or withdraw their cash at ATMs or agents that have been specially set up to deal with the post-flood situation. In post-disaster situations, being able to access cash becomes a life or death issue and from the provider perspective it’s also a major challenge. UBL has 1,800 agents at present and they plan to set up 3,000-4,000 more over the next 3-4 months to cope with the increased demand, according to Abrar Mir, Executive Vice-President of Branchless Banking, who hopes that the people that they reach will continue to use their accounts long after the floods have subsided.

Other organizations are using mobile phones in innovative ways that are not related to branchless banking. Ushahidi, an open source project that allows users to crowdsource crisis information via mobile, have set up pakreport.org a mapping service that allows anyone in the country to text information about the flood. Information is collated and made available to the emergency services and disaster response organizations and NGOs via a web-based interface.

The presence of two branchless banking services in Pakistan (EasyPaisa and UBL Omni) may play an important part in the response to the flood in Pakistan. In Haiti, where no branchless banking solutions exist, the Bill & Melinda Gates Foundation and USAID set up a prize for the first organization to launch a branchless banking solution earlier this year that could be used to make payments to those affected by the earthquake. Although there are some encouraging signs, the prize has yet to be claimed. The response in Pakistan has been much faster due to the presence of existing systems.

Disasters are a fact of life in many countries, and disproportionately affect the poor. Branchless banking will never be able to prevent disasters, but it has the potential to dramatically improve the way in which we can respond to them.

Riaz Haq said...

Here's a piece on "strategic philanthropy" in Pakistan as presented at Asian Philanthropy Conference:

Zubair Bhatti’s conference paper for the APPC Hanoi Conference shows many optimistic signs for the future of strategic philanthropy in Pakistan. Of the estimated six million Pakistanis living outside Pakistan, around 3.9 million sent home a total of US$5.5 billion from 2006 to 2007—through formal banking channels. The Ministry of Labor and Overseas Pakistanis even placed the estimated remittances at some US$8 billion—contributed by around 7 million persons “of Pakistani origin.”

And this isn’t even the good news yet. Even more positive is the observation that these remittances, and the philanthropic purposes for which they are sometimes allocated, are beginning to be “aimed at long-term social change,” showing the relative maturity of overseas Pakistanis when it comes to strategic giving. According to Bhatti: “Strategic giving is not a new phenomenon in Pakistan. Among the Muslims of the subcontinent, a proud tradition of philanthropy as an instrument of social change has long co-existed with the dominant impulse of helping the poor.” At present, more signs are pointing towards the giving public’s preference for institutional, if not strategic, methods and channels for giving. These include the following:

• The rising number of NGOs, as well as the increasing visibility of their work and their fund-raising activities;
• The proliferation of major advertisements on billboards, newspapers, and TV screens showing charitable organisations and their campaigns;
• The increasing willingness of donors to allocate their donations, including Zakat, to organisations “rather than to the poor in the family or immediate locality according to the traditional interpretation of Zakat;”
• The growing interest in corporate social responsibility among wealthy businessmen;
• American Pakistanis’ utilisation of personal foundations and funding organisations in allocating and disbursing large sums of money toward charitable causes; and
• The large percentage of funds being raised by local Pakistani NGOs from the diaspora community.

Bhatti cites several “drivers of change” in this shift toward a more strategic philanthropic perspective in Pakistan. First is the observation that overseas Pakistanis “are more educated, more aware, more affluent... than Pakistanis back home... [They] have seen the role of strategic philanthropy in [more advanced] societies.”

Next is the aging population of first-generation Pakistani emigrants and their propensity to be involved in charitable activities given their affluence, their prominence, and the amount of free time they have on their hands. Related to this is the rise in status of medical professionals who left Pakistan in the 1970s to study in medical colleges, and who now find themselves in a position “where they can use their financial resources and contacts to mobilize funds for their alma mater and other related social causes.”

As the population of Pakistani professionals in other countries matures and reaches out, so does the maturity and reach of its professional associations. Bhatti shares that, in the United States, the Association of Physicians of Pakistani Descent in North America (APNAA)—a 10,000-strong organisation—supports strategic philanthropy through health and education initiatives in rural areas. Also in the Unites States, “the growing size of remittances... represents greater opportunities for organized fund-raising.”

Riaz Haq said...

Here's Maplecroft risk warning for investing in India, according to Times of India:

LONDON: The United Kingdom-based Global Risks Atlas 2011 on Friday described India as the 16th riskiest country to invest in for the security hazards it poses and rather embarrassingly clubs it with Niger, Bangladesh and Mali. The Atlas is published by Maplecroft, a consultancy founded by Alyson Warhurst, chair of strategy and international development at Warwick Business School.

The evaluation is structured on seven key global risks including macroeconomic risk and threats around security, governance, resource security, climate change, social resilience and illicit economies.

Maplecroft assessed India faces simultaneous threats of terrorist attacks from Islamists and Maoists. It also points at India's lack of social resilience despite a robust economic growth and cites its poor human rights record. It says large sections of the population lack access to basic services such as education, healthcare and sanitation, and highlights its less productive workforce, greater susceptibility to pandemics and susceptible to social unrest.


A press release by Maplecroft lumps Pakistan with Russia on investment risk:

Dynamic political risks constitute immediate threats to business and Maplecroft rates 11 countries as ‘extreme risk.’ Most significantly, the emerging economy of Russia has moved up five places from 15th to enter the top ten for the first time, whilst Pakistan has also moved two places up the ranking to 9th.

The ‘extreme risk’ countries now include: Somalia (1), DR Congo (2), Sudan (3), Myanmar (4), Afghanistan (5), Iraq (6), Zimbabwe (7), North Korea (8), Pakistan (9), Russia (10) and Central African Republic (11).

Russia’s increased risk profile reflects both the heightened activity of militant Islamist separatists in the Northern Caucasus and their ambition to strike targets elsewhere in the country. Russia has suffered a number of devastating terrorist attacks during 2010, including the March 2010 Moscow Metro bombing, which killed 40 people. Such attacks have raised Russia’s risk profile in the Terrorism Risk Index and Conflict and Political Violence Index. The country’s poor performance is compounded by its ‘extreme risk’ ratings for its business environment, corporate governance and the endemic nature of corruption, which is prevalent throughout all tiers of government.
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Jim O’Neil, Chairman of Goldman Sachs Asset Management, states: "Growth is happening where political risk is most challenging. So, meticulous monitoring and mitigation now will enable business to flourish and benefit from the opportunities presented by the future growth economies of the BRICs and Next 11".

Looking to the longer term, the BRICs countries are witnessing increasingly worse structural political risk trends for 2011. China (25), India (32) and Russia (51), rated ‘high risk’ and Brazil (97) medium risk, have all seen risks increase compared to scores from last year’s Atlas.

Riaz Haq said...

British Prime Minister David Cameron, now on a visit to Pakistan, has offered about $1 billion in aid for education, according to Financial Times:

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David Cameron offered Pakistan’s leaders up to £650m ($1,055m) of aid for schools and heaped praise on their “huge fight” against terrorism in a diplomatic gamble to end years of mutual mistrust with a gesture of goodwill.

During a confidence-building visit to Islamabad with an entourage of his most senior security advisers, Mr Cameron jettisoned the usual list of UK demands and instead gave Pakistan the benefit of the doubt over Afghanistan and its support for militant groups.

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Such optimism over Islamabad’s intentions marks a big break in British diplomacy, making a stark contrast with Mr Cameron’s description of Pakistan “looking both ways” on terrorism, a remark that triggered a serious diplomatic incident last year.

Rather than regarding Pakistan as a country that “can do more”, particularly on curbing Taliban activities, the British assumption is now that Islamabad’s security agencies have limited control over militant groups they once helped to create.

The big test for Mr Cameron is whether his expression of trust can generate better results than the more transactional approach adopted in the past. British officials say they are already seeing tangible improvements in intelligence co-operation and a greater willingness to discuss a political peace deal in Afghanistan.

Mr Cameron sought to demonstrate the breadth of the new partnership by offering funds for up to 4m school places by 2015. “I struggle to find a country that’s more in our interest to progress and succeed than Pakistan,” Mr Cameron said after a meeting with Yusuf Raza Gilani, Pakistan’s prime minister.

“If Pakistan succeeds then we will have a good story ... if it fails we will have all the problems of migration and extremism, all the problems.”

The package of up to £650m, which more than doubles previous education funding, forms part of an aid programme that is set to become Britain’s biggest.
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The centrepiece of Mr Cameron’s visit was a security round-table with Pakistan’s civilian leadership and General Ashfaq Kayani, its military chief. Sir John Sawers, head of the Secret Intelligence Service, MI6, and General Sir David Richards, chief of the defence staff, also attended, in their second visit to Islamabad in less than a month.

Mr Gilani later brushed aside questions over Pakistan’s willingness to combat terrorism. “We’ve the ability and we have the resolve and we are fighting and we’ve paid a very heavy price for that,” he said, citing the 30,000 casualties in Pakistan’s effort to quell an internal insurgency.

One senior Pakistani government official speaking after Mr Cameron’s meetings said closer security ties would take some more time to develop. “Clearly, the UK wants Pakistan to extend help to combat militant plots on British soil,” he said. “But the UK will also need to be much more forthcoming on helping Pakistan to go after members of its own militant groups from places like Baluchistan who have taken refuge in Britain.”

Riaz Haq said...

#Pakistan gets remittances of $18.4b from diaspora in 2014-15, yearly increase 16.5%

http://tribune.com.pk/story/920286/pakistan-pockets-remittances-amounting-to-18-4b/ …

KARACHI: Overseas Pakistanis sent remittances amounting to $18.4 billion in 2014-15, which translates into a year-on-year increase of 16.5%, according to data released by the State Bank of Pakistan (SBP) on Monday.

Remittances amounted to $15.8 billion in the preceding fiscal year. Pakistanis based in foreign countries sent home $1.8 billion in June, which is 9.5% higher than the remittances received in the preceding month of May.

Country-wise breakdown

Inflows from Saudi Arabia were the largest source of remittances in 2014-15. They amounted to over $5.6 billion in July-June, up 19% from the preceding 12 months.

Remittances received in July-June from the United Arab Emirates (UAE) increased 35.3% to $4.2 billion on a year-on-year basis. Inflows from the UAE registered the largest increase from any major remittance-sending country during 2014-15, SBP data shows.

Remittances from the United States and the United Kingdom remained $2.6 billion and $2.3 billion, respectively, in July-June. The year-on-year increase in remittances from the US and the UK has been 4.8% and 4.9%, respectively.

Remittances from Gulf Cooperation Council (GCC) countries, excluding Saudi Arabia and the UAE, clocked up at $2.1 billion in July-June, which is 15.6% higher than the remittances received from these countries in the preceding fiscal year. Remittances from Kuwait in 2014-15 equalled $748.1 million while those from Oman, Bahrain and Qatar amounted to $666.8 million, $389 million and $347.5 million, respectively.

This means the overall share of the oil-rich GCC countries in Pakistan is almost 65%. Many analysts fear remittances from these countries may dwindle going forward as their governments begin to scale back infrastructure spending in the wake of a sharp fall in global oil prices.

Oil and Pakistan

Any major fallout of the oil price slump on the remittance inflows will be detrimental for the Pakistani economy. Absent remittances, a perennial balance of payment crisis would be inescapable, as they cover up usually around 90% of the country’s trade deficit.

“The good news is that despite the oil slump, the GCC is still spending on infrastructure … there are no short-term concerns for remittances inflows into Pakistan from this region,” the SBP said in its second quarterly report.

Saying that the GCC governments’ spending plans have not been affected by declining oil prices due to the large sovereign funds, the SBP noted the status quo may not continue “much longer”.

“A continuous depletion of these reserves would eventually start biting into their fiscal spending if oil prices fail to recover. The pace of Pakistan’s remittance growth cannot remain immune to the oil slump indefinitely,” the SBP said.

Remittances received from Norway, Switzerland, Australia, Canada, Japan and ‘other countries’ during June amounted to $110.53 million, up 7.7% from the remittances received from these countries in the same month of 2013-14. The monthly average of remittances during 2014-15 remained $1.5 billion, up from the monthly average of remittances amounting to $1.3 billion received in July-June of 2013-14.

Remittances in the first six months of the current fiscal year increased regardless of the strong wave of political instability that began in August with sit-ins by opposition parties and fizzled out after the attack on Army Public School in December. Overseas Pakistanis sent remittances amounting to $8.98 billion in the first half of 2014-15, showing a year-on-year increase of 15.26%. Remittances had grown 13.7% in 2013-14, which means the year-on-year increase of 16.5% in 2014-15 was notably higher than preceding year.