Thursday, June 18, 2015

Karachi Shipyard to Get Boost From Pak Navy Modernization

Pakistan is launching domestic construction of warships, submarines and missile boats as part of its ambitious naval modernization program in collaboration with China, according to media reports.

Karachi Shipyard 

Chinese media reports have described a building program involving six of eight S-20 AIP-equipped variants of the Type-039A/Type-041 submarine under negotiation; four "Improved F-22P" frigates equipped with enhanced sensors and weaponry (possibly including the HQ-17 surface-to-air missile developed from the Russian Tor 1/SA-N-9); and six Type-022 Houbei stealth catamaran missile boats, to be built by Pakistan's state-owned shipbuilder Karachi Shipyard and Engineering Works (KSEW), according to DefenseNews.

Pakistan is expanding and modernizing its underwater fleet with 8 additional AIP-equipped submarines jointly built with China.  Mansoor Ahmed of Quaid-e-Azam University told Defense News that AIP-equipped conventional submarines "provide reliable second strike platforms, [and] an assured capability resides with [nuclear-powered attack and nuclear-powered ballistic missile submarines], which are technically very complex and challenging to construct and operate compared to SSKs, and also very capital intensive."

Expansion of KSEW in Karachi includes a new foundry, fabrication facilities to cover all aspects of ship construction, berthing facilities, and two graving docks of 26,000 and 18,000 dead weight tons, spread over 71 acres. A 7,881-ton ship lift transfer system will be completed next year. KSEW will expand to occupy facilities vacated by the Navy as it transfers from Karachi to Ormara. The Pakistan Navy Dockyard, which is adjacent to KSEW, already has facilities upgraded by the French during construction of Agosta-90B submarines.

The Pakistan Navy modernization efforts further expands existing China-Pakistan military manufacturing collaboration at Pakistan Aeronautical Complex (PAC) which has resulted in design and manufacturing of JF-17 fighter jets for Pakistan Air Force.

JF-17 Fighter Jet
In addition to designing and building military hardware together, Pakistan and China are also increasingly collaborating on manufacturing consumer appliances and products. The Pakistan-China economic corridor project includes setting up of several special economic zones for this purpose. A good example of this cooperation is Haier-Ruba special economic zone in Lahore.  Haier-Ruba joint venture in Pakistan has announced plans to start manufacturing laptops and smartphones in Lahore this year, according to the JV chairman Shah Faisal Afridi. The Haier-Ruba group is one of the largest manufacturers of polyester yarn and home appliances in the country.

The growth of both military and civilian manufacturing industries is helping to develop Pakistan's human capital and creating job opportunities for engineers, technicians and other workers.

Pakistan has taken a page from China's industrialization playbook which shows that the Chinese People's Liberation Army (PLA) led the nation's industrial growth, first with military hardware and then expanding into consumer and industrial product manufacturing.

Related Links:

Haq's Musings

Pakistan to Deploy AIP Subs For 2nd Strike

Pakistani Military Pushing Industrialization

IDEAS 2014: Pakistan's Arms Bazar

Pakistan-China Industrial Corridor to Boost FDI, Manufacturing and Exports

Haier Pakistan to Expand to Consumer Electronics

India's Israel Envy: What If Modi Attacks Pakistan?

Pakistan's Human Capital

Tuesday, June 16, 2015

Obama Trade Deals TPP and TISA Are Good For Pakistan

US President Barak Obama is pushing legislation to gain fast track authority to negotiate Trans Pacific Partnership (TPP) and Trade in Services Agreement (TISA) as part of his pivot to Asia. TISA faces stiff opposition from Obama's fellow Democrats and organized labor who fear significant loss of American service sector jobs to other TISA member nations. Pakistan is one of the countries that will likely benefit from these trade deals.  President Obama is expected to get the authority he seeks because TPP and TISA are both supported by the pro-business Republicans who now control both houses of  the US Congress.
Member Nations of Trade in Services Agreement (TISA)


Trans Pacific Partnership is crucial for America's Pivot to Asia which is aimed at checking China's rise and maintaining America's continued relevance in Asia. It is part of America's answer to Chinese-led Asian Infrastructure Investment Bank and Silk Road fund to promote Chinese trade with Asia and Europe. China-Pakistan Economic Corridor is the first major piece of this Chinese plan. Pakistan's inclusion in TPP and TISA confirms America's continued interest in maintaining close ties with its old Cold War ally in South Asia.

Trade in Services Agreement is being negotiated among United States, European Union, Australia, Canada, Chile, Hong Kong, Iceland, Israel, Japan, South Korea, Liechtenstein, New Zealand, Norway, Switzerland, Taiwan, Uruguay, Colombia, Costa Rica, Mexico, Panama, Peru, Turkey, Pakistan and Paraguay. These countries make up about two-thirds of the global GDP.

Trade in service is being more and more important with rapid growth in services sector of the world economy. Services now account for nearly two-thirds (64%) of the world GDP with the rest coming from manufacturing (30%) and agriculture (6%). Services account for even higher percentages of GDP in US (80%) and EU (73%).

Service sector is also the largest and fastest growing sector of Pakistan's economy. Services account for nearly 60% of Pakistan's GDP while manufacturing and agriculture each contribute about 20%. It therefore makes sense for Pakistan to join multilateral trade in service deals like TISA.

A key TISA provision likely to benefit Pakistanis is ease of visa restrictions for “Movement of Natural Persons” among member nations which include the United States, the European Union, Japan, South Korea, Australia and Canada. This section discusses commitments by the parties not to place undue burdens on visas and singles out face-to-face interviews as an example of “overly burdensome procedures.” Even before this agreement is in place, there has been a growing ravel from Pakistan to US with 78,000 Pakistanis traveling to the United States on various non-immigrant visas in 2013, the most recent year for which data is available.

Other provisions of TISA would ease outsourcing of a variety of services from America and Europe to Pakistan. These include information technology services, back office services, medical, engineering, legal and accounting services. These outsourced services will help create job opportunities for hundreds of thousands of college grads pouring into the job market every year.

The US-China competition appears to be quite beneficial to Pakistan as both great powers continue to court the country through trade and investment deals. I hope Pakistani leaders will play their cards well to get the maximum help they can to build the country's human resources, infrastructure and economy.

Related Links:

Haq's Musings

Pakistan Third Most Popular Destination For Online Outsourcing

How Will Robots Impact Late Industrializers?

Pakistan Ranks in the Middle For Infrastructure and Logistics in 2014

Pak-China Industrial Corridor

India-Pakistan Economic Comparison 2014

Pakistan's Infrastructure

State Bank Says Pakistan's Official GDP Under-estimated

Pakistan's Growing Middle Class

Pakistan's GDP Grossly Under-estimated; Shares Highly Undervalued

Fast Moving Consumer Goods Sector in Pakistan

3G-4G Roll-out in Pakistan




Tuesday, June 2, 2015

Impact of Robots On Job Creation in Bangladesh, India and Pakistan

Export oriented manufacturing industries have helped a succession of newly industrialized countries like Indonesia, Japan, Hong Kong,  Malaysia, South Korea, Taiwan and China create more and better jobs and rise from low-cost manufacturing base to more advanced, high-end exports.  



As a country's labor gets too expensive to be used to produce low-value products, some poorer country takes over and starts the climb to prosperity.  Will this formula help create more and better jobs in late industrializing countries like Bangladesh, India and Pakistan? Will programs like Indian Prime Minister Narendra Modi's "Make in India" help create more and better manufacturing jobs to bring prosperity to his country? To answer this question, let's look at a recent World Bank report. 

World Bank Report:

A 2015 World Bank report titled "Manufacturing Conundrum" says this formula of creating more manufacturing jobs for greater prosperity is unlikely to continue to work in the future. Here are two reasons it offers:

1. Labor productivity has risen faster in manufacturing than in the wider economy. Higher levels of manufacturing output are now compatible with lower levels of manufacturing employment. the following figure confirms this, showing that peak manufacturing employment shares have fallen over time. Peak output shares have not.



2. Manufacturing activity is now more apt to leave for other countries as labor costs rise. Therefore deindustrialization kicks in at lower income levels. Moreover, this premature deindustrialization is more apparent in employment than in output data. Output can be sustained in the face of rising labor costs by replacing workers with machinery. (Arvind Subramaniam and Amrit Amirapu show similar trends in industrial (manufacturing plus mining, utilities and construction) employment using repeated cross-sections of countries.)

Rise of the Robots:

A key factor this report does not fully acknowledge is the dramatic advance in artificial intelligence (AI) leading to the rise of much more capable robots.

To put this in perspective, let's understand that the industrial revolution in the West moved a lot of jobs and people from farms to factories beginning in the 18th century.  As a lot of low-cost, low-value manufacturing has moved to cheaper locations in the developing countries,  there has been a major transition from manufacturing jobs to service sector jobs in the industrialized nations. Now the application of robots on the factory floors is putting pressure on manufacturing jobs everywhere---in developed as well as developing nations.

Low-Cost Manufacturing Jobs:

Even low-cost manufacturing jobs in garment industry are being challenged by highly capable sewing robots from companies like SoftWear Automation, a textile-equipment manufacturer based in Atlanta in the American state of Georgia. Here's how Economist Magazine describes it: "The company is developing machines which tackle the problems of automated sewing in a number of ways. They use cameras linked to a computer to track the stitching. Researchers have tried using machine vision before, for instance by having cameras detect the edge of a piece of fabric to work out where to stitch".

Service Sector Jobs:

Even the service sector jobs are now threatened with increasing capacity of the robots. Following are examples of robots intended to replace service sector workers that have been described Martin Ford in a recent NPR interview to promote his book "Rise of the Robots":

Loading-Unloading Robot:

There's a company in Silicon Valley called Industrial Perception which is focused specifically on loading and unloading boxes and moving boxes around. This is a job that up until recently would've been beyond the robots because it relies on visual perception often in varied environments where the lighting may not be perfect and so forth, and where the boxes may be stacked haphazardly instead of precisely and it has been very, very difficult for a robot to take that on. But they've actually built a robot that's very sophisticated and may eventually be able to move boxes about one per second and that would compare with about one per every six seconds for a particularly efficient person. So it's dramatically faster and, of course, a robot that moves boxes is never going to get tired. It's never going to get injured. It's never going to file a workers' compensation claim.

Hamburger Making Robot:

Essentially, it's a machine that produces very, very high quality hamburgers. It can produce about 350 to 400 per hour; they come out fully configured on a conveyor belt ready to serve to the customer. ... It's all fresh vegetables and freshly ground meat and so forth; it's not frozen patties like you might find at a fast food joint. These are actually much higher quality hamburgers than you'd find at a typical fast food restaurant. ... They're building a machine that's actually quite compact that could potentially be used not just in fast food restaurants but in convenience stories and also maybe in vending machines.

News Writing Robot:

Essentially it looks at the raw data that's provided from some source, in this case from the baseball game, and it translates that into a real narrative. It's quite sophisticated. It doesn't simply take numbers and fill in the blanks in a formulaic report. It has the ability to actually analyze the data and figure out what things are important, what things are most interesting, and then it can actually weave that into a very compelling narrative. ... They're generating thousands and thousands of stories. In fact, the number I heard was about one story every 30 seconds is being generated automatically and that they appear on a number of websites and in the news media. Forbes is one that we know about. Many of the others that use this particular service aren't eager to disclose that. ... Right now it tends to be focused on those areas that you might consider to be a bit more formulaic, for example sports reporting and also financial reporting — things like earnings reports for companies and so forth.

What's Next:

Farm and factory jobs have dramatically declined forcing workers to move into the service sector. So what will happen when the service sector jobs decline? What will people do? Here are some possible answers:

Peer-to-peer economy: In a return to the era of barter economy, people will share what they have for a price. It could be a car, a room, a meal, a basic chore etc. Examples include AirBnB.com, Getaround, Etsy, Lyft, TaskRabbit

Shorter work-week: A shorter work week will alllow more people to be gainfully employed. Example: 35-hour work-week in France

Basic income guaranteed for all: First proposed by Richard Nixon in 1969 as “Family Assistance Plan”. Government will collect taxes and distribute basic assistance to allow people to subsist. If they choose to work, they can earn more money to have a higher standard of living.

Summary:

People have moved from agriculture to manufacturing to service jobs over the last two centuries. Now highly-capable robots are threatening to replace workers in all sectors. Major disruptions are likely to occur to build a new economic order that offers everyone a dignified existence in future. Such an order could be a combination of peer-to-peer economy, work-sharing through shorter work weeks and basic guaranteed income for all.  French philosopher Voltaire said: “Work saves a man from three great evils: boredom, vice and the need”. Basic guaranteed income only takes care of “the need”, not “boredom, vice”.

Related Links:

Haq's Musings

Robotics in Pakistan

Pakistan-China Industrial Corridor

Industrial Revolution Triggered Major Power Shift From East to West

Pakistan Led South Asian Job Growth 2001-2010

Silicon Valley Pakistani-Americans Enabling 2nd Machine Revolution

Pakistan 2.0: Technology Driving Productivity

3D Printing Revolution Comes to Pakistan

Is Modi's Honeymoon Over?

Friday, May 29, 2015

Heat Deaths: S&P Says India Among Most Vulnerable to Climate Change

Over 1,800 people have so far died as a result of a severe heatwave sweeping across India, according to government officials and media reports. The highest death toll is in southern India with 1,700 heat-related deaths in the worst-hit states of Telangana and Andhra Pradesh, where temperatures rose above 45C (113F).

Other parts of the country have been hit by high temperatures ranging between 44 degrees Celsius (111 degrees Fahrenheit) and 46 degrees Celsius (115 degrees Fahrenheit) with 43 heat deaths reported in the eastern state of Orissa, 12 in West Bengal and 7 in the Ahmedabad city in the western state of Gujarat, according to state officials. Most of the deaths were caused by heat stroke and dehydration.

Pakistan and Afghanistan are also hot with temperatures exceeding 100 degrees Fahrenheit, but India is suffering far worse, due in part to its many densely populated areas, according to a CNN report.

As expected, India has blamed Pakistan for heat-related deaths. “In Pakistan’s Sindh, temperatures have shot up to 49, even 50 degrees. Westerly winds are bringing with them this extreme, dry heat through a process called advection (transport),” said BP Yadav, director India Meteorological Department (IMD).

As longer, more severe heat waves become increasingly frequent globally, India appears to be the most affected. Thousands of people died across India during heat waves in 2002 and 2003.  In 2010 around 300 people were killed by intense temperatures, according to media reports of the period.

Bangladesh and India, along with several South East Asian and African nations, are the most vulnerable to climate change, while the United States, Canada and Western Europe are the least vulnerable, according to an assessment by Standard and Poor credit rating service.  The rich industrialized nations which have contribute the most to climate change are the least vulnerable to its disastrous effects now. The report says Pakistan and China are relatively less vulnerable than India and Bangladesh.

Source: Standard and Poor Global Portal


There are two basic reasons why poor countries are bearing the brunt of climate change: geography and poverty. Most of the red countries on the Standard and Poor map lie near the equator, where climate change-caused storms, flooding, and droughts will be more intense, according to media reports.  India is particularly vulnerable because of its rising population and depleting resources.

India is ranked 33rd and Pakistan 39th among the most overcrowded nations of the world by Overpopulation Index published by the Optimum Population Trust based in the United Kingdom. The index measures overcrowding based on the size of the population and the resources available to sustain it.

India has a dependency percentage of 51.6 per cent on other nations and an ecological footprint of 0.77. The index calculates that India is overpopulated by 594.32 million people. Pakistan has a dependency percentage of 49.9 per cent on other nations and an ecological footprint of 0.75. The index calculates that Pakistan is overpopulated by 80 million people. Pakistan is less crowded than China (ranked 29), India (ranked 33) and the US (ranked 35), according to the index. Singapore is the most overcrowded and Bukina Faso the least on a list of 77 nations assessed by the Optimum Population Trust.

Standard and Poor has ranked 116 nations according to their vulnerability across three indicators: proportion of population living lower than 5 meters (16 feet) above sea-level, share of agriculture in economic output and a vulnerability index compiled by Notre Dame University. It ranks India at 101 and Pakistan at 94 while Bangladesh is ranked at 114 along with Vietnam at 115 and Cambodia at 116 as the most vulnerable among 116 countries. China is ranked at 82. Among African countries listed as most vulnerable are Senegal (113), Mozambique (112) and Nigeria (109).

Standard and Poor's analysts led by Moritz Karemer warned that global warming “will put downward pressure on sovereign ratings during the remainder of this century,” “The degree to which individual countries and societies are going to be affected by warming and changing weather patterns depends largely on actions undertaken by other, often far-away societies.”

Both India and Pakistan have seen recurring droughts and massive flooding in recent years which have resulted in large numbers of deaths and injuries in addition to property losses. India has seen one farmer commit suicide every 30 minutes over the last two decades.

The fact is that the developing countries facing huge costs from climate change can do little to control it without significant help from the rich industrialized nations most responsible for it.  The World Bank is warning that this could lead to massive increases in disease, extreme storms, droughts, and flooding. Unless concerted action is taken soon, the World Bank President Jim Kim fears that the effects of climate change could roll back "decades of development gains and force tens of more millions of people to live in poverty."

Related Links:

Haq's Musings

Climate Change Worsens Poverty in India

India's Rising Population and Depleting Resources

Recurring Droughts and Flooding in Pakistan

An Indian Farmer Commits Suicide Every 30 Minutes 

Growing Water Scarcity in Pakistan

Political Patronage in Pakistan

Corrupt and Incompetent Politicians

Pakistan's Energy Crisis

Culture of Tax Evasion and Aid Dependence

Climate Change in South Asia

US Senate Report on Avoiding Water Wars in Central and South Asia

Thursday, May 14, 2015

Has PM Modi Turned Indian Economy Around?

Things are not looking so rosy at home for Indian Prime Minister Narendra Modi as he continues his world tour with the latest stop in Beijing, China.


Is Modi government's honeymoon already over on its first anniversary at the helm? Has the Indian economy really turned around? Is it really growing faster than China? Are Indian businesses doing better under the new government? Are investors more excited about India's prospects? Has Indian currency recovered to levels before its collapse in 2013? Is India any cleaner than it was last year? To answer these questions, let's look at some data:

1. Revision of GDP methodology by India's Central Statistical Office (CSO) to show it is growing faster than China has drawn serious skepticism, even derision by serious economists around the world. While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".

2. India's exports are continuing to drop. The trade data shows a sharper slowdown (21%) in exports than in imports (13%,  due to lower oil prices) for March, 2015.  Exports are down another 13.96% in April 2015. There is an overall decline in both for the year too, according to Seeking Alpha.

3. Large scale manufacturing in India continues to disappoint. Growth slowed in April 2015, according to HSBC India Manufacturing Purchasing Managers Index (PMI) data. At 51.3 in April, down from 52.1 in March, the headline PMI points to slowing demand.

4. Mumbai stocks are among the worst performing in emerging markets. FII (foreign institutional investments) net outflows gave been of the order of Indian Rs 125 billion (about US$ 2 billion) over the past month. The stock market index has seen the biggest correction of 10 per cent in a short time, according to India's First Post.

5. In spite of Prime Minister Modi's high-profile campaign to improve hygiene,  India has been ranked near the bottom on access to clean water and sanitation. India has ranked 92 on Water, Sanitation and Hygiene  (WASH) Index developed by The Water Institute at the University of North Carolina at Chapel Hill's Gillings School of Global Public Health in the US, far below Pakistan which ranked near the top in 5th position.

India's Economic Times has recently reported results of a survey of top CEOs.  Majority of them say that demand is depressed. "The bonhomie and cheer that greeted the arrival of the Modi government is replaced by a sombre mood and a grim acknowledgement of the realities of doing business in India," reports ET, as it captures the sentiment of the CEOs. The largest engineering conglomerate L and T has said some of its plants are idle as demand for capital goods is very weak. The Aditya Birla Group had deferred its revenue target of $65 billion by 3 years, to 2018.

A recent piece titled "Why India is Not A Buy in Current Environment" published by Seeking Alpha summarizes the current Indian situation as follows:

"While there are some who consider India to be the best emerging market and recommend it as such, my own assessment is different. Whether it's relatively high valuations, weak fundamentals with persistent deficits, government bonds under pressure, weakening currency, rebounding oil prices, declining confidence in the government and so on, India is facing a ton of headwinds going forward. Far too many to be a number one pick among emerging markets."

Modi government has to turn some of its election promises into action. Mr. Modi cannot rely on the benefit of the doubt because his honeymoon period is now over. He will be judged on what he is able to accomplish.

Related Links:

Haq's Musings

Can India Survive Without Western Money Inflows?

Modi's Pakistan Policy

India's Soaring Twin Deficits

Xi Jinping's Pakistan Visit

How Strategic Are China-Pakistan Ties?

India Pakistan Economic Comparison in 2014

Pakistan's KSE-100 Outperforms India's Sensex

India's IT Exports Highly Exaggerated