Saturday, May 23, 2009

Aid versus Trade, Investments, Remittances

Relief organizations have calculated that as much as 75% of foreign aid by industrialized nations is directly tied to promoting exports of goods and services that support jobs in donor nations, achieving greater trade access in receiving countries or other economic and political strategies. Some of the aid comes with so many strings attached, including preferential tendering on contracts and the hiring of expensive consultants, that only 30-40% of dollar value is ever realized for the intended recipients. Then the rampant official corruption in the developing world further eats away at a big chunk of what is left. To make matters worse, the increasing percentages of budgets and GDP claimed by debt repayments take away money needed for basic human development needs, such as education and healthcare, in the developing world.



In the United States for example, most of the food aid, including the additional $770m food aid last year, for the poor countries requires the aid recipients to purchase food from the US agribusiness. These funds do not help the farmers in the poor nations grow food for the countries to become less dependent on foreign help. The US farm lobby continues to flex its muscle and enrich itself, without regard for the severity of the hunger crisis in the poor nations resulting from sharp increase in food prices. Three years ago, farmers and their allies in Congress effectively destroyed an effort by the Bush administration to begin the switch to untied food aid. The current composition of US Congress is no different, as far as the overwhelming power of the farm lobby is concerned.

European governments switched to giving all-cash donations for food in the mid-1990s, arguing that cash allows more flexibility in responding to crises and that the U.S. uses its food aid as a form of farm subsidy. But the Europeans also continue to erect various barriers to food imports from poor nations that could improve the viability of agriculture in many Asian and African countries.

Private donations abroad by Americans, including pledges to charities and churches and disbursements from corporate foundations, now are three times as large as America's official development assistance of $20 billion, and there is every indication this trend will continue. Washington's contribution looks even more miserly when the ODA data are broken down. Here are some basic facts about US foreign assistance:

1. Less than half of aid from the United States goes to the poorest countries.

2. The largest recipients are strategic allies such as Egypt, Israel, Russia, Pakistan, Afghanistan and Iraq.

3. Israel is the richest country to receive the highest per capita U.S. assistance ($77 per Israeli compared to $3 per person in poor countries).

4. Even after the planned tripling of the US aid to $1.5 billion a year to Pakistan, it still amounts to about $8 per Pakistani.



According to Asia Times, last year only five of the 22 countries considered industrialized - Norway, Denmark, the Netherlands, Luxembourg and Sweden - achieved the donor benchmark of allocating 0.7% of GNP to ODA. The benchmark was adopted at the Earth Summit in Rio de Janeiro in 1992 under the UN Agenda 21 program for eradicating poverty through development assistance. No other countries have even come close to meeting the target.

France managed 0.41% of GNP last year, the United Kingdom 0.34%, Germany 0.28%, Canada 0.26%, Spain 0.25% and Australia 0.25%. Japan, the only Asian participant, came in a lowly 19th with a paltry 0.2%, maintaining a reduced ODA commitment that dates back to 2001.

Dambisa Moyo, a former economist at Goldman Sachs, and the author of "Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.", recently argued in a Wall Street Journal OpEd that "money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty. Cutting off the flow would be far more beneficial."

She goes on to say, "Giving alms to Africa remains one of the biggest ideas of our time -- millions march for it, governments are judged by it, celebrities proselytize the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for doubling the roughly $50 billion of international assistance that already goes to Africa each year.

Yet evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster."

Last year, remittances to developing nations grew by 8.8% to $305 billion, more than three times the official development aid, according to World Bank.



Official development assistance received by Pakistan has not been particularly effective, according to media reports attributed to UN findings. A United Nations report titled "U.N. reforms and civil society engagements" in 2008 claimed that Pakistan has received 58 billion dollars in foreign aid from 1950 to 1999, however it systematically underperformed on most of the social and political indicators. The report further added, "If Pakistan had invested all the ODA (official development assistance) during this period at a real rate of six percent, it would have a stock of assets equal to 239 billion dollars in 1998, many times the current external debt."



At the end of calender year 2008 in Pakistan, remittances topped 7 billion dollars, an increase of 17 per cent year over year, led by higher remittances from oil-rich GCC countries, which grew by 30 per cent year on year. Similarly, FDI inflows jumped 100 per cent year over year to 708 million dollars in December, 2008, as the telecom, oil and gas, and financial-services sectors continued to attract foreign inventors, according a report in the Nation newspaper. Annual cash remittances from overseas Pakistanis and foreign direct investments (FDI) in Pakistan earlier this decade have been far larger and much more significant in its rapid growth than all of the foreign aid put together.


Last year, remittances to various other Asian countries were as follows: $8.9 billion for Bangladesh, $27 billion for China, $30 billion for India, $6.5 billion for Indonesia, $2.2 billion for Nepal, $1.8 billion for Malaysia, $16.4 billion for the Philippines, $2.7 billion for Sri Lanka, $5.5 billion for Vietnam and $1.8 billion for Thailand, according to International Labour Organization estimates.

While recognizing that there is no one silver bullet to alleviate poverty, microfinancing, along with social entrepreneurship, is becoming an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people toward self-reliance by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. Supported by private foundations working in Pakistan, all efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance.

While government and multilateral financial institutional programs do help to some extent, it is the privatization of aid, trade, remittances and investments for the poor through various investors and donors, such as private corporation, foundations and the immigrants working in the rich countries, that provides the best hope to ensure that the funds and the practical benefits reach the intended recipients. Such a strategy minimizes the role of the politicians and the corrupt officials in both the donor and the recipient nations.

Related Links:

Microfinance in Pakistan

PIDE Report on FDI in Pakistan

Foreign Remittances Help Developing World
Foreign Aid Continues to Pour in Resurgent India
US Food Aid and the Farm Lobby

Dambisa Moyo: Aid to Africa

Rampant Corruption in Construction Industry

Obama's Farm Subsidy Cuts Meet Stiff Resistance

Global Slowdown Hits Foreign Workers

Thursday, May 21, 2009

Can Indian Democracy Serve Its People?


With the clear mandate for his Congress Party in recently concluded general elections, Indian Prime Minister Mr. Manmohan Singh has won the right and responsibility to deal with huge challenges in front of him. In addition to the well-known social problems of hunger, poverty, lack of sanitation and poor infrastructure, Mr. Singh has to contend with the effects of the oppressive and ingrained caste system and religious intolerance as well as the growing nexus between crime and politics in Indian democracy. The new parliament has elected 153 tainted members, some of whom have been convicted or accused of serious crimes, including murder and rape.

Nexus of Crime and Politics:

About 153 members of the new Indian parliament have either been convicted and appealed or currently accused of various crimes. A major problem is that individuals charged with even the most serious crimes are allowed to stand if they have been convicted but their cases are under appeal, according to Times Online. “The speed of the Indian judicial system means it can take 30 years to complete a case – easily long enough to live out a full political career,” Mr Himanshu Jha, of the National Social Watch Coalition, said to the Times Online recently.

This nexus of crime and politics in India developed in two stages - in the first stage, Indian politicians used criminal elements and gangsters to control polling stations and intimidate their rivals; this gave legitimacy to these people and they decided to contest elections for themselves rather than merely act as mussel men (baahubali) for other politicians. There are many examples of this pattern, such as Munna Shukla and Shahabudin in Bihar, Raju Bhaiyya in U.P and Arun Gawli of Mumbai.

Most Indian politicians have used their election wins to significantly enrich themselves, according to their own pre-election declarations of assets. For example, the comparison of assets of candidates who won in 2004 and sought re-elections in 2009 shows that the wealth of UP politicians has grown by 559%, over five times, in five years, second only to their Karnataka counterparts who registered a growth of 693% in the same period, according to Sulekha.com.

The Caste System:

The entire culture and governance of India is heavily influenced by the caste system that legitimizes abuse and exploitation of one group of people by another. It plays a significant role in voting patterns as well. Indians usually vote their caste rather than cast their votes. There is a counter argument to this concept of oppression: What about the lower caste politicians who also have risen to authority? The response is: Can they be different from the social milieu they belong to? Other issues include the lack of democratic structures inside India’s political parties and a culture of corruption fostered by a stifling level of bureaucracy.

Social Deprivation:

India, often described as peaceful, stable and prosperous in the Western media, remains home to the largest number of poor and hungry people in the world.
The UN Millennium Develop Goals listed below remain distant for the Indian people:

1 Eradicate extreme poverty and hunger
2 Achieve universal primary education
3 Promote gender equality and empower women
4 Reduce child mortality
5 Improve maternal health
6 Combat HIV/Aids, malaria, and other diseases
7 Ensure environmental sustainability
8 Develop a global partnership for development

About one-third of the world's extremely poor people live in India. More than 450 million Indians exist on less than $1.25 a day, according to the World Bank. It also has a higher proportion of its population living on less than $2 per day than even sub-Saharan Africa. India has about 42% of the population living below the new international poverty line of $1.25 per day. The number of Indian poor also constitute 33% of the global poor, which is pegged at 1.4 billion people, according to a Times of India news report. More than 6 million of those desperately poor Indians live in Mumbai alone, representing about half the residents of the nation's financial capital. They live in super-sized slums and improvised housing juxtaposed with the shining new skyscrapers that symbolize India's resurgence. According to the World Bank and the UN Development Program (UNDP), 22% of Pakistan's population is classified as poor.

There is widespread hunger and malnutrition in all parts of India. India ranks 66th on the 2008 Global Hunger Index of 88 countries while Pakistan is slightly better at 61 and Bangladesh slightly worse at 70. The first India State Hunger Index (Ishi) report in 2008 found that Madhya Pradesh had the most severe level of hunger in India, comparable to Chad and Ethiopia. Four states — Punjab, Kerala, Haryana and Assam — fell in the 'serious' category. "Affluent" Gujarat, 13th on the Indian list is below Haiti, ranked 69. The authors said India's poor performance was primarily due to its relatively high levels of child malnutrition and under-nourishment resulting from calorie deficient diets.

India might be an emerging economic power, but it is way behind Pakistan, Bangladesh and even Afghanistan in providing basic sanitation facilities, a key reason behind the death of 2.1 million children under five in the country.

Lizette Burgers, chief of water and environment sanitation of the Unicef, recently said India is making progress in providing sanitation but it lags behind most of the other countries in South Asia. A former Indian minister Mr Raghuvansh Prasad Singh told the BBC that more than 65% of India's rural population defecated in the open, along roadsides, railway tracks and fields, generating huge amounts of excrement every day.

Comparison with Pakistan:

Unlike Indian democracy where middle class has a bigger role, Pakistani democracy remains largely dominated by the feudal class. Pakistani parliament is dominated by big landowners who have a sense of entitlement to rule, even though they pay no taxes on their farm income. They routinely escape prosecution for the crimes they commit against their own people. When they do get caught and charged with serious crimes, they use political influence and their deal-making power to beat the rap. Musharraf's US-sponsored amnesty (dubbed NRO) for late Benazir Bhutto, her widower Asif Zardari and other political leaders now in power offers a prime example of how the politicians are not held to account for serious crimes of corruption and murder. Some of the Taliban in Swat used the widespread grievances of the tenant farmers against their landlords as justification for Shariah-based Nizam-e-Adl to provide speedy justice.

Future of Indian Democracy:

Majority of the poor and rural Indians are sustaining democracy at a great cost to themselves in terms of the grinding poverty that defines their meager existence. Contrasting Indian democracy with Chinese one-party rule, a British minister recently said that the number of poor people had dropped in the one-party communist state by 70% since 1990 but had risen in the world's biggest democracy by 5%. No one knows how long will the average Indian have to wait before the fruits of democracy to reach him or her. In the meanwhile, Maoists (and other revolutionaries) are gaining momentum and threatening a revolution to bring about a visible improvement in the lives of the poor.

At a minimum, Indian government should make the necessary investments to meet the UN Millennium Development Goals. As the UNICEF said last year, unless India achieves major improvements in health, nutrition, water and sanitation, education, gender equality and child protection, the global efforts to reach the MDGs will fail.

Related Links:

Is Indian Democracy Overrated?

Mumbai's Slumdog Millionaire

Can India Do a Lebanon in Pakistan?

Poor Sanitation in India

UN MDGs in Pakistan

Stable, Peaceful, Prosperous India

No Toilet, No Seat in India

Poverty Tours in India, Brazil and South Africa

South Asia's War on Hunger Takes Back Seat

Grinding Poverty in Resurgent India

Pakistani Children's Plight

Poverty in Pakistan

Monday, May 18, 2009

Indian Stock Market Celebrates Congress Victory


In a resounding vote of confidence for Prime Minister Manmohan Singh's continuing leadership, Indian and international investors are celebrating with 17% jump in the 30-share BSE index, or 2,110.79 points, to 14,284.21 points, for its highest close since Sept. 11. Trade was finally halted for Monday before noon.

Here are the key headlines from Reuters about strong and positive investor reaction in Mumbai:

* Stocks jump 17 pct, biggest rise in 17 years

* Circuit breakers halt trade twice; markets closed early

* Rupee up 9 percent from low in early March

* Morgan Stanley raises stock, growth projections

* Bond yields drop, stake sales seen to fund deficit

Next door in Pakistan, the investor reaction to news of the day was muted and the KSE-100 remained essentially flat. Karachi Stock Exchange (KSE) was up in the morning but then the sellers came in on Monday and the benchmark KSE-100 Index closed 5 points down to 7,172.

Amidst major counterinsurgency operations in and around Swat Valley and growing refugee crisis, there are signs of optimism by investors and bond holders in Pakistan's economy. The KSE-100, Karachi's stock index, is up 27 percent this year, compared with a 12 percent gain in MSCI’s emerging-market stock index of 26 emerging economies, including Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela. The Pakistani rupee, which declined 22 percent against the dollar last year, the second-worst performer in Asia, fell 1.8 percent this year.

Currently, KSE-100 companies are trading at a forward price-earnings multiple of about 5 versus Mumbai Sensex PE ratio of over 10. So a lot of the worst case pessimism is already reflected in the share prices of some of the high-quality blue-chip companies trading at Karachi stock exchange. Could it get worse? It's possible but not likely. There appears to be a lot more upside than downside at this time. Between 2001 and 2007, as Western governments fretted about Pakistan's nuclear weapons falling into the hands of militants, the KSE-100 rose risen more than 10-fold. It is capable of repeating the same performance from the lows of this year.

According to Pakistaniat website, Pakistan’s trade deficit narrowed by almost 50% in March, as imports declined faster than exports. In the same month, worker remittances were a record high at US$743 million an increase of 23% over last year. While Japan’s exports plummeted by 50%, China’s by 26% and India’s by 33%, Pakistan’s exports were down by 25%. Even though, the competitive peer group is formidable, Pakistan is the best performer.

On the corporate profitability front, during the worst global down turn in a century, Pakistan’s corporate profitability of listed companies declined by a mere 3% in aggregate in the 3rd quarter of 2009.

At the end of calender year 2008, remittances topped 7 billion dollars, an increase of 17 per cent year over year, led by higher remittances from oil-rich GCC countries, which grew by 30 per cent year on year. Similarly, FDI inflows jumped 100 per cent year on year to 708 million dollars in December, 2008, as the telecom, oil and gas, and financial-services sectors continued to attract foreign inventors, according a report in the Nation newspaper.

Pakistani military's robust response to the rising militancy appears to be backed by a significant majority of the people. If the Pakistani political leadership can deal with its fall-out, such as the humanitarian crisis, and sustain the popular support for the ongoing military action, and the government executes a rational set of economic policies, it is quite reasonable to expect an economic rebound within a year.

Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis should be temporary as well. A relatively rapid rebound can be expected in 2010, with a projected revival of GDP growth to 7 per cent, spurring job growth again.

Related Links:

Can Congress Deliver in India?

Is Pakistani Economy Poised For Rebound?

Is Indian Democracy Overrated?

Mumbai's Slumdog Millionaire

Can India Do a Lebanon in Pakistan?

Poor Sanitation in India

Stable, Peaceful, Prosperous India

No Toilet, No Seat in India

Poverty Tours in India, Brazil and South Africa

South Asia's War on Hunger Takes Back Seat

Grinding Poverty in Resurgent India

Pakistani Children's Plight

Poverty in Pakistan

Sunday, May 17, 2009

Can Congress Rise to the Challenge in India?


The convincing victory of Congress party in India has been an embarrassment for the pollsters and the pundits. They predicted a close contest between the Congress-led UPA and BJP-led NDA coalitions. With all but two results declared, the Congress-led alliance is projected to win 260 seats with the BJP on 157. They also said that the Third Front of regional and caste-based parties would determine the ultimate winners in Delhi. In fact, the Third Front has fallen apart, with its main components, the leftists, suffering a huge defeat, according to media reports. The BJP leadership has gracefully conceded defeat and congratulated Prime Minister Manmohan Singh on his party's success in the world's largest democracy.

Congress routed BJP in the major cities of Delhi and Mumbai while the states of Karnataka and Gujarat remained in the BJP column, indicating a split verdict from India's middle class. Unlike Pakistan's ruling PPP whose vote bank is almost entirely rural, it seems that Congress has succeeded in putting together an effective coalition of the urban middle class and rural voters.

Congress made significant gains in the Hindi heartland of Uttar Pradesh, where Nehru dynasty's heir apparent Rahul Gandhi campaigned energetically, winning plaudits and establishing his credentials as the next leader of Congress party. But UP Chief Minister Ms. Mayawati's Bahujan Samaj Party is still ahead of Congress. Her BSP remains a powerful force as it came in a close second for as many as 50 seats in UP.

Voters appear to have backed Congress for pro-farm policies like the $5bn rural work scheme and a waiver of loans for indebted farmers. Five consecutive year of good monsoons, a booming rural market and pay increases for millions of government workers seem to have swung both the urban and rural voters towards the party that led India to its independence. As analysts and Congress party workers point out, there have been no major religious riots in the past five years, and so a vote for the party seemed to be a "vote for peace and harmony".

While Prime Minister Manmohan Singh and his party engaged in angry rhetoric and issued verbal threats to Pakistan after Mumbai attacks, they did not act hastily in spite of the hostile Indian media and the BJP's attempts to take political advantage of the situation. Hopefully, the election results will also mean continuity in India's relations with its neighbors and the US, and early resumption of dialog with Pakistan to ensure peace and stability in South Asia. This is specially important as Pakistani military is in the middle of an offensive against the Taliban.

With a strong mandate in hand, Congress faces a serious challenge in delivering to its urban middle class and rural constituents in the midst of global economic slowdown. According to an OECD report published in 2007, India generated 11.3 million new jobs per year on an average during 2000-2005.

India’s phenomenal growth and job creation of the last five years were fueled in large part by huge inflow of cash and investment. Investment accounted for about 39 percent of the country’s gross domestic product in fiscal year 2008, up from 25 percent five years ago. At its peak, more than a third of investment came from abroad, according to Credit Suisse. But in the last three months of last year, foreign loans and direct investment fell by nearly a third, to their lowest level in more than two years, according to a report in New York Times.

The decline in foreign investment has taken a big toll on sectors like real estate, manufacturing and infrastructure. In the last quarter of 2008, the economy’s growth rate plummeted to about 5.3 percent, the lowest in five years. While consumer demand has kept the economy growing so far, the sudden slowing in the flow of foreign funds and rising unemployment will make it harder for the country to grow fast enough to pull hundreds of millions of people out of grinding poverty. Widespread poverty, chronic hunger, non-existent sanitation facilities, poor infrastructure and lack of opportunity continue to be a cause for serious alarm for India's democracy.

India, often described as peaceful, stable and prosperous in the Western media, remains home to the largest number of poor and hungry people in the world. About one-third of the world's poor people live in India. More than 450 million Indians exist on less than $1.25 a day, according to the World Bank. It also has a higher proportion of its population living on less than $2 per day than even sub-Saharan Africa. India has about 42% of the population living below the new international poverty line of $1.25 per day. The number of Indian poor also constitute 33% of the global poor, which is pegged at 1.4 billion people, according to a Times of India news report. More than 6 million of those desperately poor Indians live in Mumbai alone, representing about half the residents of the nation's financial capital. They live in super-sized slums and improvised housing juxtaposed with the shining new skyscrapers that symbolize India's resurgence. According to the World Bank and the UN Development Program (UNDP), 22% of Pakistan's population is classified as poor.

There is widespread hunger and malnutrition in all parts of India. India ranks 66th on the 2008 Global Hunger Index of 88 countries while Pakistan is slightly better at 61 and Bangladesh slightly worse at 70. The first India State Hunger Index (Ishi) report in 2008 found that Madhya Pradesh had the most severe level of hunger in India, comparable to Chad and Ethiopia. Four states — Punjab, Kerala, Haryana and Assam — fell in the 'serious' category. "Affluent" Gujarat, 13th on the Indian list is below Haiti, ranked 69. The authors said India's poor performance was primarily due to its relatively high levels of child malnutrition and under-nourishment resulting from calorie deficient diets.

India might be an emerging economic power, but it is way behind Pakistan, Bangladesh and even Afghanistan in providing basic sanitation facilities, a key reason behind the death of 2.1 million children under five in the country.

Lizette Burgers, chief of water and environment sanitation of the Unicef, recently said India is making progress in providing sanitation but it lags behind most of the other countries in South Asia. A former Indian minister Mr Raghuvansh Prasad Singh told the BBC that more than 65% of India's rural population defecated in the open, along roadsides, railway tracks and fields, generating huge amounts of excrement every day.

With the economy expected to slow to about 5%, employment generation in India has fallen by 49 percent during January-March this year, largely due to a slow growth of services industries like IT and banking, according to an industry lobby survey.

"The Assocham placement parameter (APP) Index (the body’s index for measuring employment generation) has shown a steep fall of 49 percent and has came down to 509.72 from the base value of 1,000," the Associated Chambers of Commerce and Industry (Assocham) said in a statement.

The APP index Series consist of 26 sectoral indices and a composite index giving an overall picture. The composite index is developed on the principle of weighted average quarterly job creation and has a base value of 1,000.

The study, which tracked employment generation across various sectors throughout metro and non-metro cities, said most of the highest employment generating sectors have curtailed their hiring.

The worst performer in terms of job creation is the IT sector, with its share in the overall index falling to 34 percent from 41 percent, the original allocation for the segment in the base value.

"The IT sector is facing major challenges with contracted demand due to recession in the primary client countries of the US and Europe. The value of the APP IT index has substantially declined by 50.8 percent," the report said.

The sectors that have recorded maximum decline in employment generation include education, hospitality, IT and IT enabled services, real estate, banking, media, textiles, auto, construction, and engineering.

However, some sectors like telecom and fast moving consumer goods (FMCG) have bucked the trend and created more jobs during the same period.

The telecom sector was a leading job generator with its share in the composite index rising from 3 percent to 3.35 percent during the period.

"The pressure on employment, confidence and price levels would be more burdensome than in the past... Moreover, India could be impacted by the return of migrant workers or declining remittances," Citigroup India economist Rohini Malkani said in a recent report.

Citi further said that the Ministry of Labor has indicated that over 5,00,000 jobs were lost during October-December 2008, with export-oriented sectors such as gems and jewelery, autos, and textiles being most impacted.

However, the Citi report stated that this statistic only covers the organized sector, which comprises just 10 per cent of the country's workforce of close to 385 million.

Pakistan, too, has a huge youthful population as India: roughly 105 million out of 170 million Pakistanis are under 25 years old. It will be these people who drive Pakistan's economy in the decades ahead, according Pakistani economist Salman Shah, who talked with the Wall Street Journal recently.

Like India, Pakistan had an economic boom led by construction, manufacturing, telecom, banking and consumers during 2001-2007, under Musharraf-Aziz administration. With annual economic growth approaching 7-8%, it created about 2.5m jobs a year during this period. Talking about foreign direct investment (FDI) in emerging economies, former US Federal Reserve Chief Alan Greenspan said in his book titled "The Age of Turbulence" : “But clearly the Licence Raj (in India) has discouraged foreign direct investment. India received $7 billion in FDI in 2005, a sum dwarfed by China’s $72 billion. India’s cumulative stock of FDI at 6 per cent of GDP at the end of 2005 compares with 9 per cent for Pakistan, 14 per cent for China, and 61 per cent for Vietnam. The reason FDI has lagged badly in India is perhaps no better illustrated than by India’s unwillingness to fully embrace market forces. That is all too evident in India’s often statist response to economic problems. Faced with rising food inflation in early 2007, the response was not to allow rising prices to prompt an increase in supply, but to ban wheat exports for the rest of the year and suspend futures trading to ‘curb speculation’ — the very market forces that the Indian economy needs to break the stranglehold of bureaucracy.” (p. 322 of "The Age of Turbulence" by Alan Greenspan.)

While Indian economy has experienced strong growth during this decade, the majority of its people have not been touched by it. Recently, British Minister Alexander contrasted the rapid growth in China with India's economic success - highlighting government figures that showed the number of poor people had dropped in the one-party communist state by 70% since 1990 but had risen in the world's biggest democracy by 5%.

In spite the recent Congress efforts in rural areas, the rural landscape in India still remains troubled. On its inside pages, the Times of India in 2007 reported Communist Party leader Sitaram Yechury's as saying that "on the one hand, 36 Indian billionaires constituted 25% of India’s GDP while on the other, 70% of Indians had to do with Rs 20 a day". "A farmer commits suicide every 30 minutes. The gap between the two Indias is widening," he said. Over 1500 farmers committed suicide last year in the central state of Chhattisgarh alone.

According to the new UN-HABITAT report on the State of the World's Cities 2008/9: Harmonious Cities, China has the highest level of consumption inequality based on Gini Coefficient in the Asia region, higher than Pakistan (0.298), Bangladesh (0.318), India (0.325), and Indonesia (0.343), among others." Gini coefficient is defined as a ratio with values between 0 and 1: A low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient indicates more unequal distribution. 0 corresponds to perfect equality (everyone having exactly the same income) and 1 corresponds to perfect inequality (where one person has all the income, while everyone else has zero income).

Violence is rising in India because of the growing rich-poor gap. Prime Minister Manmohan Singh himself has called the Maoist insurgency emanating from the state of Chhattisgarh the biggest internal security threat to India since independence. The Maoists, however, are confined to rural areas; their bold tactics haven't rattled Indian middle-class confidence in recent years as much as the bomb attacks in major cities have. These attacks are routinely blamed on Muslim militants. How long will Maoists remain confined to the rural areas will depend on the response of the Indian government to the insurgents who exploit huge and growing economic disparities in Indian society.

With the clear mandate for his Congress Party, Prime Minister Manmohan Singh has huge challenges in front of him. Being a sincere man of intelligence and integrity, I expect him to make a serious effort to confront those challenges. I congratulate him and wish him well. If Mr. Singh succeeds, a prosperous, self-confident India under his leadership can become a positive example in South Asia that India's neighbors can look up to and follow.

Related Links:

Mumbai's Slumdog Millionaire

Can India Do a Lebanon in Pakistan?

Poor Sanitation in India

Stable, Peaceful, Prosperous India

No Toilet, No Seat in India

Poverty Tours in India, Brazil and South Africa

South Asia's War on Hunger Takes Back Seat

Grinding Poverty in Resurgent India

Pakistani Children's Plight

Poverty in Pakistan

Saturday, May 16, 2009

"Loose NBCs" in Pakistan?


"Imagine if the (swine flu) spread were intentional, not natural, and the virus’ lethality had been artificially enhanced. Pakistan has many dangerous diseases and pathogens under its control. The Nunn-Lugar program can help secure the pathogen strains to ensure they do not fall into the wrong hands. Equally important, the U.S. can assist Pakistan in establishing a system designed to detect, characterize and respond to outbreaks of infectious diseases," US Senator Richard Lugar, ranking member of the US Senate's foreign relations committee, said last week.

While Pakistan's nuclear weapons capability is well known, the country has had no publicly known chemical warfare (CW) program in the past. Pakistan has also signed and ratified the 1993 Chemical Weapons Convention (CWC) and remains a member of the Organization for the Prohibition of Chemical Weapons (OPCW) in good standing, according to NTI. Pakistan is self-sufficient in the production of chemicals such as sulfuric acid, caustic soda, soda ash, and chlorine. However, it relies on imports for most of the raw materials and intermediates for dyes, pigments, paints, varnishes, pesticides, plastics, and fertilizers. Although Pakistan likely has the technical capability to produce choking, blood, blister, and nerve, agents for use in chemical warfare, the Pakistani government is legally committed to refrain from developing, manufacturing, stockpiling, or using chemical weapons.

Although allegations have been leveled against Pakistan for conducting research into biological warfare since the early 1990s, Pakistan is not suspected of either producing or stockpiling biological weapons (BW). However, it is generally believed that Pakistan has a well developed bio-technology sector that is capable of supporting limited biological warfare-related research and development. In 1996, the U.S. Department of Defense stated that Pakistan "had the resources and capabilities appropriate to conducting research and development relating to biological warfare," and "was conducting research and development with potential biological warfare applications." But the U.S. government has not presented any evidence to corroborate its assertions, according to NTI.

Raising alarm about Pakistan's weapons of mass destruction and NBC weapons capability, Senator Lugar is advocating extending the 18-year-old Cooperative Threat Reduction (CTR) program to secure and eliminate nuclear materials and other potential WMD ingredients in Pakistan.

"Initially, Nunn-Lugar was restricted to the former Soviet Union. In 2003, I wrote legislation, signed into law by the president, authorizing the Nunn-Lugar program to operate outside the former Soviet Union," Lugar said in a statement. "This authority can and should be used to expand significantly our cooperation with Pakistan in the nuclear arena as well as in other critical areas."

Lugar is not alone in sounding the alarm about Pakistan. The French officials have also chimed in. "Today the Taliban are making progress not just in Afghanistan but in the Pakistani interior itself, and at the end of this road there's a stock of nuclear weapons," said Pierre Lellouche, France's special envoy to Pakistan.

Taliban militants "are nibbling away and fear is settling into people's hearts," Lellouche said. "We shouldn't think of columns of Taliban descending on the capital. It's more complicated than that. We are seeing the rampant Talibanization of areas close to the capital, a mental Talibanization".

It appears from the increasing discussions in the West that many Pakistanis' fears about attempts to denuclearize Pakistan are no longer seen as just baseless propaganda or extreme paranoia. Some of the popular conspiracy theorists believe that the US and its western allies are deliberately trying to create the nuclear "threat perceptions" as an excuse to take away Pakistan's nuclear arsenal. Speculations are rampant about Pakistan's denuclearization efforts by the West. Pervez Hoodbhoy, a professor of physics at Quaid-e-Azam University in Islamabad and one of the few open critics of Pakistan’s nuclear program in the country, told DW-World that many argue that the Americans are exaggerating the Taliban issue: “There are growing conspiracy theories here that actually the Taliban have been put up by the Americans so that the country is destabilized and, looking at the destabilization, well, then it becomes logical and necessary for the Americans to come in and seize our nuclear weapons.”

At a White House press conference earlier this month, US President Barack Obama said that he feels confident that Pakistan's nuclear arsenal will remain out of militant hands.

According to The Times of India, a reporter insisted on a more precise reply, asking if in the worst case scenario, the US military could secure the nuclear weapons. Obama responded, "I'm not going to engage in hypotheticals of that sort. I feel confident that nuclear arsenal will remain out of militant hands. Okay?"

During his recent US visit, Pakistan President Asif Ali Zardari said Islamabad is not adding to its nuclear arsenal as it does not need any more, but it would not disclose the location of its weapons to the US. Pakistan is "not adding to our stockpile as such", Zardari said on NBC's Meet the Press host. "Why do we need more?"

India's interest in disarming Pakistan is also raising concerns in Pakistan. Respected American South Asia expert Stephen Cohen of Washington's Brookings Institution has recently told his audience: "Not a few Indian generals and strategists have told me that if only America would strip Pakistan of its nuclear weapons then the Indian army could destroy the Pakistan army and the whole thing would be over."

Based on the the ongoing expression of fear in America and Europe, it seems almost certain that the US has contingency plans in place to relieve Pakistan of its nuclear weapons if Washington feels that the Islamic nation's nuclear arsenal is about to fall into the militant hands. According to Fox News, the US commando units in Joint Special Operations Command (JSOC) have been training in Nevada desert to carry out President Obama's order to secure Pakistani nukes. "We have plans to secure them ourselves if things get out of hand," Fox quoted a U.S. intelligence source who has deployed to Afghanistan as saying. "That is a big secondary mission for JSOC in Afghanistan." JSOC is made up of three main elements: Army Delta Force, Navy SEALs and a high-tech special intelligence unit known as Task Force Orange. JSOC was instrumental in Iraq in finding and killing Abu Musab Zarqawi, the deadly and most prominent Al Qaeda leader in the Middle East.

Many Pakistanis are hearing echoes of the pre-Iraq war WMD propaganda to justify the US invasion of the Muslim Middle Eastern country in 2002. The continuing U.S. media campaign about Pakistani nukes are likely to further alarm people in Pakistan and reinforce their suspicions about the real US intentions in the region.

Here is a video about US WMD concerns in Pakistan:



Related Links:

Lugar Urges CTR Expansion to Pakistan

Cooperative Threat Reduction Program

Propaganda Recycled: US Report Blames Pakistan For Future WMD Attack

Obama Confident on Pakistani Nukes?

US Plans to Secure Pakistani Nukes

India-Pakistan Military Balance

Pakistan Questions Safety of US Nukes

Are US Gentlemen Attempting to Annex Islamic Pakistan?

Indian Hostility Toward Pakistan

US Alarmed About Pakistani Nukes

Pakistan's Defense Production

Thursday, May 14, 2009

Optimistic Signs For Pakistan's Economy

Amidst major counterinsurgency operations in and around Swat Valley and growing refugee crisis, there are signs of optimism by investors and bond holders in Pakistan's economy. The KSE-100, Karachi's stock index, is up 27 percent this year, compared with a 12 percent gain in MSCI’s emerging-market stock index of 26 emerging economies, including Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela. The Pakistani rupee, which declined 22 percent against the dollar last year, the second-worst performer in Asia, fell 1.8 percent this year.

Pakistan’s 6.875 percent dollar bond maturing in June 2017 yielded 18.62 percent last month, versus a record high of 26.30 percent on Nov. 3, 2008, according to data compiled by Bloomberg. The price has climbed to 52 cents on the dollar, from as low as 35 cents last year. “Broadly, we believe that it definitely doesn’t look as bleak for Pakistan,” said Joel Kim, who helps oversee $433 billion globally as head of Asian debt at ING Investment Management in Hong Kong. “They’ve passed the worst point. The IMF money has helped stabilize things.” But Pakistan's bond risk still remains high: Five- year credit default swaps based on Pakistan’s bonds show investors need to pay $2.2 million annually to protect $10 million of Pakistan’s debt for five years, the third-highest in the world, according to CMA Datavision. As recently as June of last year, Pakistan sovereign debt credit default swaps (CDS) traded at 530 basis points in Hong Kong, meaning it cost $530,000 a year to protect $10 million of Pakistan's debt from default for five years.

Terrorism has cost Pakistan $35 billion in economic losses and damage to infrastructure, according to a statement given to reporters by President Asif Ali Zardari’s aide on April 17. More than 3,500 terrorist incidents have occurred since 2007, killing an average of 84 people per month this year, the aide said.

In addition to the $7.6 billion loan from IMF, Pakistan has been promised $5.3 billion in aid by more than 20 countries to help shore up its economy and combat al-Qaeda and Taliban militants. While the political risk in the country remains high, the flow of loans and aid is helping shore up the nation's economy. Pakistani business officials say the perception of political risk is overstated and international investors are starting to return.

Strong growth and job creation in both India and Pakistan over the last five years were fueled in large part by huge inflow of cash and investment. Investment accounted for about 39 percent of India's gross domestic product in fiscal year 2008, up from 25 percent five years ago. At its peak, more than a third of investment came from abroad, according to Credit Suisse. But in the last three months of last year, foreign loans and direct investment in India fell by nearly a third, to their lowest level in more than two years, according to a report in New York Times. Foreign direct investment in Pakistan fell to $5.19 billion in the year ending June 30, 2008, from a record $8.43 billion a year earlier, government data show.

“There is now very early signs of portfolio investment starting to come back,” Asad Umar, the president of Karachi- based Engro Chemical Pakistan Ltd., told Bloomberg TV in a recent interview in New York. “Pakistan is going to come out of it earlier than the rest of the globe.”

Pakistan’s trade deficit narrowed by almost 50% in March, as imports declined faster than exports. In the same month, worker remittances were a record high at US$743 million an increase of 23% over last year. While Japan’s exports plummeted by 50%, China’s by 26% and India’s by 33%, Pakistan’s exports were down by 25%. Even though, the competitive peer group is formidable, Pakistan is the best performer.

On the corporate profitability front, during the worst global down turn in a century, Pakistan’s corporate profitability of listed companies declined by a mere 3% in aggregate in the 3rd quarter of 2009.

At the end of calender year 2008, remittances topped 7 billion dollars, an increase of 17 per cent year over year, led by higher remittances from oil-rich GCC countries, which grew by 30 per cent year over year. Similarly, FDI inflows jumped 100 per cent year over year to 708 million dollars in December, 2008, as the telecom, oil and gas, and financial-services sectors continued to attract foreign inventors, according a report in the Nation newspaper.

The IMF forecasts the economy will expand 2.5 percent in the 12 months ending June 30, the slowest pace in eight years, after growing at an average annual pace of 6.8 percent since 2002. The State Bank of Pakistan forecast in April that economic growth for the year through June will slump to between 2.5 percent and 3.5 percent, far below the 5.5 percent the government has projected -- and too slow to create the 2.5m jobs a year for its fast-growing population of about 170 million people. During 2002 to 2007, Pakistan's economy grew at an average rate of 7% annually, creating about 2.5m jobs a year, barely keeping up with the number of young people ready to join the work force each year, according to Salman Shah, senior economic adviser to former President Musharraf of Pakistan. However, the current economic slowdown has resulted in significant job losses in almost all private sectors of the economy, increasing visible signs of poverty. According to a BBC report last year, three times a day, hundreds of men, women and children line up outside dozens of Karachi restaurants for meals which are paid for by philanthropists and charity donors. These lines were considerably shorter, or non-existent until early 2008. Many of those lining up are industrial workers who have lost their jobs.

Pakistan's future, as India's, lies in the nation's ability to move workers from farms to manufacturing and in engaging more with the world rather than retreating from it. Pakistan, like India, also is relatively light on exports as a part of the overall economy. In Pakistan, exports account for less than 15% of gross domestic product, according to Shah, compared with about 25% in India and 40% in China. While India's economy must create 11-12 million new million jobs a year, Pakistan's economy needs to add 2.5-3 million jobs annually to employ all the young people entering the job market each year.

Ms. Ann Patterson, the US ambassador to Pakistan, believes that ultimately the security will depend on economic growth in Pakistan. She is working on a U.S.-sponsored investment-aid-trade based economic revival that would help offset the resentment created by America's "12- year divorce" from the region after the first Afghan War. "We're trying to get people to see that we're committed by helping with investment, Patterson told Forbes magazine, "because you meet older people and they will say to you, "Oh, I remember dam such-and-such, and the Americans built that." That's the kind of synergy we look for, because it builds goodwill for both of us."

Regardless of the foreign assistance to deal with the current crisis, I think all Pakistanis must demonstrate their care and concern by donating and volunteering to help the refugees. The key for Pakistani military's success in defeating the Taliban is in how well Pakistani government can maintain public support for the military action.

Pakistani military's robust response to the rising militancy appears to be backed by a significant majority of the people. If the Pakistani political leadership can deal with its fall-out, such as the refugee crisis, and sustain the popular support for the ongoing military action, and the government executes a rational set of economic policies, it is quite reasonable to expect an economic rebound within a year. Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis should be temporary as well. A relatively rapid rebound can be expected in 2010, with a projected revival of GDP growth to 7 per cent, spurring job growth again.

Related Links:

Declining Economy Hurts Pakistani Workers

Global Slowdown Hits Foreign Workers

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antartica

Pakistan's Telecom Boom

ITU Internet Data

NEDUET Progress Report 2008

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Should Pakistanis be Proud of Their Country?

Wednesday, May 13, 2009

Poverty Alleviation and Microfinancing in Pakistan

During 2002 to 2007, Pakistan's economy grew at an average rate of 7% annually, creating about 2.5m jobs a year, barely keeping up with the number of young people ready to join the work force each year, according to Salman Shah, senior economic adviser to former President Musharraf of Pakistan. However, the current economic slowdown has resulted in significant job losses in almost all private sectors of the economy, increasing visible signs of poverty. According to a BBC report last year, three times a day, hundreds of men, women and children line up outside dozens of Karachi restaurants for meals which are paid for by philanthropists and charity donors. These lines were considerably shorter, or non-existent until early 2008. Many of those lining up are industrial workers who have lost their jobs. Credit crunch has taken its toll on all businesses and consumers, even the microfinance sector helping small entrepreneurs has not been spared. There were about 1.8 million beneficiaries of the microfinance institutions during the financial year 2008. They lent more than Rs. 21 billion to the poor people. The number of active borrowers of microloans has dropped by 7%, while the gross loan portfolio (GLP) has fared even worse, declining by 12%, according to the most recent Microwatch newsletter for the last quarter of 2008. Credit has not been extended to a significant number of previous borrowers as the lenders have not been able to roll-over existing lines of credit.

In response to these declines in small loans, the State Bank of Pakistan has acted to help recapitalize the microlenders in Pakistan. According to a recent report by Microcapital, Pakistan's central bank has launched three microfinance initiatives: the Microfinance Credit Guarantee Facility, the Institutional Strengthening Fund, and Improving Access to Finance Services Fund. The initiatives are part of $75 million Financial Inclusion Program (FIP), a joint venture between SPB and the UK Department for International Development. The objective of the three microfinance initiatives is to provide liquidity to the microfinance providers in response to tighter liquidity conditions and a sudden spike in inflation. In 2008, Pakistan’s inflation rate reached 20.8 percent, primarily due to rising world fuel and commodity prices. The announced initiatives are also in line with the aggressive goals outlined in the Pakistani government’s Poverty Reduction Strategy Paper. In the paper, the government has laid out an evidence based policy and set a target of reaching out to three million microfinance borrowers by the end of 2010 and 10 million borrowers by 2015.

The history of microfinance activities in Pakistan started with the launch of Orangi Pilot Project (OPP) in kutchi abadies (shanty towns) of Karachi in early 1980’s, according to a paper published by Abdul Qayyum and Munir Ahmed. In the late 1960s, prior to OPP, a few NGOs in the rural areas of Pakistan began to experiment with microcredit by offering subsidized loans. However, they mostly failed to reach the poor due to abuse and corruption. Now there are more than sixteen Micro Finance Institutions working in Pakistan. The MFIs in Pakistan can be divided into different groups based on their uniqueness that separates them from other financial institutions and makes them similar in terms of the way they function.

The first group consists of financial institutions with microfinance as a separate product line. The share of microfinance related activities of these institutions is up to 10 percent. This group includes Orix Leasing and the Bank of Khyber –both are profit making organizations and consider microfinance as a separate product line.

The second group refers to the specialized MFI’s, which includes two microfinance banks - The Khushhali Bank and First Microfinance Bank Limited (FMBL) - and two NGOs - KASHF Foundation and ASASAH. All these institutions completely focus on provision of financial services and also have commercial focus as well.

Third category MFIs related to activities of the Rural Support Programs which deals with integrated Rural Development Programs with microfinance as one of its activities. These organizations are National Rural Support Programs (NRSP), Punjab Rural Support Programs (PRSP) and Sarhad Rural Support Programs (SRSP). The last group consists of private NGOs. These NGOs are basically integrated development organizations with microfinance as one of their activities. These include Orangi Pilot Project, Sungi Foundation, Taraqee Foundation, Development Action for Mobilization and Emancipation (TRDP), Sindh Agricultural & Forestry Workers Coordinating Organization (SAFWCO) and Development Action for Mobilization and Emancipation (DAMEN), among others.

Khushhali Bank was established in August 2000 as part of the Government of the Islamic Republic of Pakistan's Poverty Reduction Strategy. The Pakistan Microfinance Sector Development Program (MSDP) was developed with the technical assistance and funding of the Asian Development Bank, which provided a US$150 million loan to the government of Pakistan, US$70 million being used for micro-loans provided by KB. Headquartered in Islamabad, KB operates under the central bank's supervision (State Bank of Pakistan) with several commercial banks operating as its primary shareholders.

The First Microfinance Bank, established by Agha Khan Foundation in 2002 as the first private sector micro-finance bank in Pakistan, is a premier non-commercial bank licensed by the State Bank of Pakistan under the regulatory framework of the Microfinance Institutions Ordinance 2001, issued by President Musharraf. It was created through a structured transformation of the credit and savings section of the Aga Khan Rural Support Program (AKRSP), an institution that had laid the foundations of the microfinance sector in the country in 1982, beginning in the Northern Areas and Chitral.

To highlight the positive impact of microfinancing on the lives of poor people in Pakistan, Microfinance Connect website has a number of success stories. For example, a Kashf Foundation customer Shehnaz tells the story of how she was able to keep the the business running while dealing with her husband's illness because of health insurance provided through the foundation's microinsurance program. Rashida Bibi, an Asasah customer, succeeded in doubling her dairy business revenue because of the microloan she received. Shopkeeper Mohammad Aijaz tells a similar story of increased business during the holiday season made possible by a Rs. 35000 loan from Tameer.

In Pakistan, the total banking sector serves around 6 million borrowers and 25 million depositors, implying a penetration rate of 3.6 percent and 15 percent respectively. In terms of access to microfinance, which means the availability of small loans, micro deposits and micro-insurance services to low income households, the current penetration rate is only 10 percent. In other words, 85 percent of Pakistan's population does not have access to any financial services at all, which inherently creates an uneven and an inequitable economic world, where the majority of people are financially marginalized. This situation drives the poor to rely on informal sources of funding like the unscrupulous moneylender, where the calculus of the relationship works to the detriment of the borrower. A well regulated and highly effective microfinance sector is, therefore, absolutely necessary to give hope to the poor in breaking the vicious cycle of dependence and poverty.

In addition to microlending for the traditional small businesses, there is a need in Pakistan to expand this effort by emulating the work of Grameen Shakti to empower villagers with electricity, water, sanitation and other necessities. It is one of more than two dozen organizations within the Grameen family of enterprises that is dedicated to improving the quality of rural life in Bangladesh. The lack of electricity results in low levels of human development, low productivity and widespread poverty in the developing world, including Pakistan. The governments of most developing nations, particularly in South Asia, have miserably failed in providing such a basic necessity as electricity to their people. About 40% of the people in both India and Pakistan have no access to electricity, the percentage lacking access in Bangladesh is even higher.

Microfinancing, along with social entrepreneurship, should be an essential component of non-government efforts in Pakistan and other developing nations to empower ordinary people to become self-reliant by lifting them out of poverty and teaching them the right skills to help themselves. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb has guided the efforts of late Dr. Akhtar Hameed Khan, acclaimed Pakistani social scientist and founder of Orangi Pilot Project. All efforts at alleviating poverty should be guided by this proverb that captures the essence of self-reliance.

Here is a Kashf Foundation video clip explaining how microfinance works in Pakistan:



Related Links:

Microfinance Connect

Microfinance in Pakistan: A Silver Bullet for Development?

Microfinance Industry Overview

Pakistan Financial Sector Risks

Akhtar Hamid Khan's Vision

Grameen Foundation in Pakistan

Pakistan's Poverty Reduction Strategy

Grameen Shakti Solar Model For Pakistan

Job Losses Hit India and Pakistan

MicroCapital in Pakistan

Monday, May 11, 2009

Can Shakti Solar Success Inspire Pakistanis?

Reliable 24X7 availability of electricity is taken for granted in most of the developed world. Whenever consumers plug their favorite gadgets into the wall socket, it is assumed that the power will be there. Everyone has access to it. Electrical power outages are extremely rare.

Electricity empowers consumers by enhancing their lives through better learning and entertainment, higher productivity and income, greater comfort, increased safety, superior health, and improved economy. People in the developed world live with the benefits of electricity everyday. While most people give little thought to where electricity comes from, there are many different ways to generate electricity - including coal, oil, gas, hydroelectric, nuclear, wind and solar. It is delivered to individual homes by extensive national grid systems.

In most of the developing nations, however, the availability of electricity to majority of the population is either unreliable or non-existent. The lack of such an essential energy source results in low levels of human development, low productivity and widespread poverty in the developing world, as evident from the chart above. The governments of most developing nations, particularly in South Asia, have miserably failed in providing such a basic necessity as electricity to their people. About 40% of the people in both India and Pakistan have no access to electricity, The percentage lacking access in Bangladesh is even higher. Socially-oriented enterprises such as Grameen Shakti and D.light are offering poor communities an affordable alternative to kerosene, which is ubiquitous but hazardous. The quality of the kerosene lamp light isn't good, it emits pollutants, and it's just plain dangerous. "You travel around these villages, and everyone has a story of a child being burned or a house destroyed by fire," says Nedjip Tozun of D.light, speaking to Fortune by phone from his office in Shenzhen, China. "And yet in some places we found that people were spending 15% to 20% of their income on light." The world's poor spend about $38 billion a year on kerosene for lighting, according to the International Finance Corp.

Pakistan's current installed capacity is around 19,845 MW, of which around 20% is hydroelectric. Much of the rest is thermal, fueled primarily by gas and oil. Per capita energy consumption of the country is estimated at 14 million Btu, which is about the same as India's but only a fraction of other industrializing economies in the region such as Thailand and Malaysia, according to the US Dept of Energy 2006 report. To put it in perspective, the world average per capita energy use is about 65 million BTUs and the average American consumes 352 million BTUs.

Extended electricity load shedding in Karachi's five major industrial estates is causing losses in billions of rupees as the production activity has fallen by about 50 per cent. KESC, Karachi's power supply utility, is dealing with with a shortfall of around 700MW against a total demand of 2200MW. Almost all forms of power generation from fossil fuel-fired thermal to hydroelectric to nuclear are down from a year ago. As a result of the daily rolling blackouts, the economy, major exports and overall employment are also down and the daily wage earners are suffering. The KESC and PEPCO owe more than Rs. 10b to the independent power producers (IPPs) and paying them will help bring them into full operation and ease the crisis at least partially.

The electric power situation in India is not much better. The country is suffering its worst electricity crisis. Maharashtra, Uttar Pradesh, West Bengal and Haryana are the worst hit by the ongoing crisis and they are facing power gaps of about 5,000MW, 1,000MW, 2000MW, 1,500MW respectively. Some major cities in India are facing alarming situations; continuous load shedding in Bangalore has led to diesel shortage as people are using diesel generators to deal with the crisis. Times of India has reported student protests against power cuts affecting their studies. Textile and jute mills in West Bengal have been badly hit by unscheduled power cuts. In Tamil Nadu, severe power shortage has hit industrial production, according to MSN India. Companies said production could be down as much as 30 per cent. Sectors like textile, leather and salt appear to be among the worst hit. Industry associations put the loss in production at around Rs 4,000 crore. In Maharashtra, state officials are asking industrial consumers to lower their demand by 10% or be ready to face forced load shedding (rolling blackouts). Last year, IBN reported that New Delhi, the capital, faced 30 percent shortage in power. Maharashtra on an average had 8 to 10 hours of load shedding every day. Madhya Pradesh had 26 percent power deficit. In Gujarat, while the requirement is 5,500 Mega Units, availability is 4,780 Mega Units. Andhra Pradesh, Karnataka and Tamil Nadu are facing 2000 Mega Units of energy deficit and Bihar and Jammu and Kashmir have 1,500 and 1000 Mega Units of power shortages respectively. Cities and towns are facing 7 to 13 hours blackouts.

To empower people and communities in some of the developing nations, social entrepreneurs are stepping in to fill the large gap between supply and demand for electricity. In Bangladesh, for example, Grameen Shakti is a social enterprise selling home solar electricity systems to families that do not have access to electricity otherwise, which includes more than 70% of the country’s population. It is an enterprise that demonstrates the success of a densely networked approach involving mutually reinforcing investments in human, social, ecological and financial capital by a number of organizations.

Solar energy makes much sense for Pakistan for several reasons: firstly, majority of the population lives in 50,000 villages that are far away from the creaking old national grid, according to a report by the Solar Energy Research Center (SERC). Connecting these villages to the national grid would be very costly, thus giving each house a solar panel would be cost efficient and would empower people both economically and socially.

To draw inspiration for empowering Pakistani villagers with solar energy, Pakistanis don't have to look far. In Bangladesh, Grameen Shakti (GS) is demonstrating that it can be done. GS was founded by Bangladeshi Nobel Laureate Mohammad Yunus in 1996 as part of the Grameen Bank’s family of enterprises. Shakti is attempting to rescue the rural people from energy poverty which hampers their social and economic development. Shakti's unique program has taken the first step to break the social and economical divide between those who have energy and those who do not.

The Grameen Bank, based in Dhaka, Bangladesh, was started in 1976 and officially founded in 1983; it operates on a model of providing small loans without collateral to the rural poor in Bangladesh. Grameen Shakti is one of more than two dozen organizations within the Grameen family of enterprises that is dedicated to improving the quality of rural life in Bangladesh. Although registered as a not-for-profit organization, Grameen Shakti is run like a business. In the face of persistent market challenges, the organization achieved profitability in 2000, after only four years of operation. Grameen Shakti has installed more than 40,000 individual solar energy systems that have provided more than 100,000 lower-income individuals with access to reliable electricity.

GS’s solar program mainly targets those areas, which have no access to conventional electricity and little chance of getting connected to the grid within 5 to 10 years. It is one of its most successful programs. Currently, GS is one of the largest and fastest growing rural based renewable energy companies in the world. GS is also promoting Small Solar Home System to reach low income rural households.

Solar Home Systems(SHSs) can be used to light up homes, shops, fishing boats etc. It can also be used to charge cellular phones, run televisions, radios and cassette players. SHSs have become increasingly popular among users because they present an attractive alternative to conventional electricity such as no monthly bills, no fuel cost, very little repair, maintenance costs, easy to install any where etc.

Grameen Shakti has a micro-utility model for some very poor rural consumers who cannot afford a complete solar home system. Under this model, one entrepreneur installs the system at his own premise and share the load with some of his neighbors. Owner of the system is responsible for making installment payments to GS, more than 50% of which is covered by the rents he collects from the users of his system. Micro-utility model has become very popular in the rural market places and has helped to increase business turnover by extending business hours. More than 1000 micro-utility systems are operating in the rural market places.

GS installed SHSs have made a positive impact on the rural people. GS has introduced micro-utility model in order to reach the poorer people who cannot afford a SHS individually. Another successful GS venture is Polli Phone which allows people is off grid areas the facilities of telecommunication through SHS powered mobile phones.

Pakistani blog Pakistaniat has reported practical examples of the use of solar energy as seen in some villages of Pakistan where each house has been provided with a solar panel that’s sufficient to run an electric fan and two energy saving bulbs. Prior to this arrangement, the whole village used to go dark at night. In Narian Khorian, a village about 50 kilometers from Islamabad, 100 solar panels have been installed by a local firm, free of cost, to promote the use of solar energy. With these panels, the residents of 100 households are enjoying light and fan facilities. This would not have happened for decades as the supply of electricity from the national grid would be difficult and costly due to the mountainous terrain.

Dawn newspaper recently reported that the Alternative Energy Development Board is planning electrification of 6968 remote villages through solar photovoltaic (PV) systems in the next 20 years. All the renewable energy projects, being undertaken by AEDB in the country, are financed by federal government through public sector development program (PSDP) allocation and funding from international multi-lateral institutions.

Among private non-government initiatives, a number of community-based micro hydro projects are being executed with the help of the Agha Khan Foundation in Pakistan's Northern Areas and NWFP. Within this region, out of a total of 137 micro-hydro plants, the AKRSP has established 28 micro-hydros with an installed capacity of 619kW. Initially, in 1986, these plants started as research and demonstration units. These projects were extended to Village Organizations (VOs) and became participatory projects. A Village Organization (VO) is a body of villagers who have organized themselves around a common interest.

Shakti Solar offers a very good model for organizing and funding a larger, nation-wide effort to empower Pakistanis with electrical energy to improve their lives.

Last February, I wrote an article "Solar Energy For Sunny Pakistan" suggesting that Pakistanis should seriously pursue the solar energy option. Many of the comments on the post were quite skeptical, some even cynical. But one particular response elated me. It was posted by someone with initials SK, who wrote as follows: "I am a consultant for the World Bank and I work on energy and infrastructure development issues. I am in the process of leaving and starting a non-profit organization to replicate the Grameen Shakti solar pv model in Pakistan because it is the only project I ever reviewed that seemed to make a bit of difference in actually alleviating poverty".

I do hope SK is out there now trying to light up a few homes in Pakistan to empower people. I wish SK, and others like him, great success as social entrepreneurs in Pakistan. It is indeed better to light candles than to curse darkness.

Here is a video on Grameen Shakti Solar:




Related Links:

Energy Shortage

Electric Power Crisis Worsens in Pakistan

Light a Candle, Don't Curse Darkness

Social Entrepreneurs Target India and Pakistan

Solar Energy For Sunny Pakistan

UN Millennium Goals in Pakistani Village