Contribution of expatriates

By Shahid Javed Burki


CONTINUING the discussion of the positives in the Pakistani economy begun in this space several weeks ago, I come to the role of Pakistanis living abroad in the economic life of the country of their origin.

This is the fourth element in what I have called the “positives” in the Pakistani economy. Dispersed over three continents — in the Middle East, Britain and North America — there are some five to six million people of Pakistani descent closely engaged, in some way or other, with the homeland.

The reference here is not to the involvement of some members of the expatriate community in acts of terrorism such as those committed in London on July 7, 2005 that resulted in the deaths of more than 50 people, or to those who were participants in the alleged plan in which American jumbo airliners flying from London to various points in the United States were to be the targets. My concern and interest, instead, are the growing economic links between the Pakistani expatriate communities and the homeland.

However in discussing these I will have to rely on informed guesses and estimates since no serious academic, analytical or policy work has been done in recent years to develop a good and reliable picture of these communities and their economic roles. There are a number of unanswered questions. For instance, exactly how many people from Pakistan or of Pakistani origin live outside the country? My guess is that they number about five to six million. At six million, they represent more than 3.5 per cent of the Pakistani population. This makes the combined Pakistani communities living outside the country among the largest diasporas in the world.

The proportion of the Pakistani population resident abroad is somewhat less than the total for the Chinese diasporas but is perhaps more than that of India’s. As such this community has begun to attract notice, some of it not favourable. How are the people belonging to these communities dispersed in various parts of the globe; what are their numbers in the UK, the Middle East and North America? What is their total annual income and how does that compare with the homeland’s gross domestic product? I can provide some tentative answers to these questions in order to underscore one important point: in Pakistani communities abroad, the country has an important source of capital and talent available to be tapped provided public policy can be designed to facilitate these roles. Staying with the upper end of the estimate for the size of the Pakistani expatriate communities and assuming that their members earn considerably less than the national average in the Middle East, a bit less than the average for Britain, and considerably more than the average for North America, the income per head of the six million Pakistanis living abroad would be of the order of $20,000. This means a combined income of $120 billion, about the same as the revised estimate of Pakistan’s gross domestic product.

How much of their incomes do the members of the diaspora save? This is an important question since it is the amount that is being saved that creates future wealth and therefore the future economic strength of the community. It also provides a source from which investments could be made in the homeland.

Again, since no studies have been done in this area, one can only make guesses based on the experiences of other communities that have attracted serious research.

It is well known that the newly arrived immigrants save much more than host populations among which they get located. If we assume that the people of Pakistani origin save about 20 per cent of their total income, the combined saving would be of the order of about $25 billion a year, much more than Pakistan’s gross domestic savings. What have these savings been used for and how much of these could become available for investment in the homeland? Again, following the pattern of behaviour of the more-studied immigrant communities, one would imagine that the sector of housing would be the first one to attract the pool of savings. Once a roof over the head is acquired, the saver would begin to look at other investment and business opportunities.

How large is the asset base of expatriate community? In the absence of hard data, I can make some guesses about the accumulated wealth of the Pakistani community in the United States and Canada. Some 800,000 strong, this community was formed over a period of 30 years. It was only in the early 1970s that Pakistanis began to arrive in large numbers to this part of the world. The asset base began to be created a few years after the arrival of large numbers of Pakistanis — mostly professionals — who constituted the first phase of immigration into the United States.

The rate of asset accumulation continued to increase with time and should have reached $12 to $15 billion a year in the early 2000s. I would imagine that the total amount of wealth at the command of the community at this time is of the order of $200 billion. A significant proportion of this should be in housing, mostly self-occupied residences. In addition, there are perhaps $50 billion worth of income yielding assets that should produce some five billion dollars’ annual return. In other words, we should expect a steady increase in the amount of income accruing to the members of the diaspora.

It is only when there is an assured stream of income available to them that these communities normally turn towards the homeland. This pattern was followed by other expatriate communities and is beginning to happen for the Pakistanis living abroad as well. But the amount of flow remains small given the wealth and income of the community. The fact that the diasporas, for purposes of investment, have placed homeland relatively low on the list of priorities does not reflect loss of affection for the country of origin. It is a question of tolerance of risk. Diasporas were formed mostly as a result of economic difficulties at home and that means that the element of risk would continue to be paramount in determining the types of investment these communities make.

“Country risk” — the term used by the financial markets to indicate how they view the risks involved in investing in a particular market — remains high for Pakistan. This does not reflect Pakistan’s reality; it is largely an indication of the poor view the West has about the country. This view rubs on the people of Pakistani origin. In fact, some of the negative perceptions that exist about Pakistan have been created by some members of the Pakistani community abroad through newspaper columns they contribute to the western press. On September 19, 2006, on the eve of President Pervez Musharraf’s address to the United Nations General Assembly, The Wall Street Journal carried a very negative article titled ‘Musharafistan’ on its editorial page. The writer is an active player in New York’s financial markets and is of Pakistani descent.

The fact that Pakistan keeps figuring in all high profile acts of terrorism committed or alleged to be at the planning stage does not help this perception. The financial markets, therefore, don’t seem to think that they are in a position to offer a reasonable sense of security to potential investors. In changing the perception about country risk, Islamabad needs to focus a fair amount of attention on the various diasporas that have reached the stage of maturity at which homeland has begun to appear as a real alternative for placing investments.

How do these communities normally get engaged with the economies of the homeland? There is a distinct pattern. The first flow usually takes the form of what are usually referred to as “remittances”. This is the money sent to families and friends who need — sometimes desperately — whatever the earner working abroad could possibly spare. The second stage is charitable giving. This, in turn, takes two forms. Initially, expatriate communities give charities that use informal channels.

Later, as they mature and become more affluent, contributions to charitable institutions become more common. The Pakistani community has reached this stage of development in the United States at which it has begun to make sizable contributions to organised charities that are working in various sectors in the homeland. Support of education — not just primary but also university — is receiving a great deal of attention in this context.

An important positive development for Pakistan is the fact that the three large diasporas — in the Middle East, Britain and North America — are now old enough economically mature enough, and convinced enough about the economic potential of their country of origin to begin to seriously contemplate investing in Pakistan. In moving investment resources to Pakistan, this community would follow more or less the same strategy it adopted for creating an asset base in the adopted homeland. It has already begun the process by investing in Pakistan’s real estate.

This is one reason why the prices of plots and houses in cities such as Islamabad and Lahore increased sharply in 2003-2006. Diaspora money is also going into the Karachi stock market and may have been the reason for the increase in the value of capitalisation of the stocks listed in the market. Some well-to-do members of the community have taken prominent positions in the enterprises privatised by the state in the last few years. A London based businessman of Pakistani origin took a major position in the United Bank Ltd. privatised in 2004. Few private equity funds with funds raised from the members of the expatriate communities have also begun to invest in the unlisted companies in the various sectors of the economy.

A number of medical professionals working abroad have invested large amounts in building hospitals and clinics in the country. A modern hospital in Islamabad, one in Lahore and a number of clinics in Karachi were established by these professionals. Along with finance, they have also provided their skills for the benefit of the institutions they have set up.

That the expatriates’ financial resources are flowing to Pakistan is reflected in the change in the composition of the remittances the country receives. This change happened since 9/11. It was not necessarily the consequence of the strict regulatory controls imposed by the US on flows of funds from America to other countries. The events of 9/11 may have contributed to creating an environment of insecurity among the communities so much so that that they may have begun to look for alternative sources of income outside the United States.

But the structural change that occurred in the flows of money originating with the expatriates reflects a different development. It is my belief that the Pakistani community in America is now in a position to develop its relationships with its own homeland. It has begun to get seriously interested in making investments for profit in the homeland. It should be an important part of publ ic policy to sustain this interest.


Reference: DAWN Opinion, 17/10/2006