Sunday, January 31, 2010

Competence and Honesty in Pak Leadership

"It has been my experience that folks who have no vices have very few virtues" is a quote often attributed to Abraham Lincoln, also known as Honest Abe.

I do not entirely agree with Honest Abe, but what does it mean in Pakistan's context, given the extraordinary and often hypocritical incessant demands for honesty by the nation's TV talking heads? Is competence not as big or bigger virtue than honesty? Is it not Utopia to expect angels to rise to leadership positions in a nation that generally scores badly at all levels on corruption indexes? Is it not better to elect and expect greater competence from the leaders in Pakistan? The kind of competence that delivers good governance for the greater good of society?

Since the beginning of Pakistan's existence as an independent nation in 1947, there has been constant repetition of slogans about piety and honesty by invoking the name of Islam, and its early legendary leaders, particularly great Caliphs like Omar. What is often overlooked is that Caliph Omar was not just impeccably honest; the key reason for his tremendous success as a great leader and highly respected ruler was his extraordinary competence in governance. Can we find a leader like Caliph Omar today? I think it's highly unlikely. However, I do think it is possible to find people who are reasonably competent amongst Pakistanis to help lead the nation to a better future.

Looking around at the recent history of successful leaders in the Islamic world, like Malaysia's Mahathir Mohammad and Indonesia's Suharto, there have been serious allegations of corruption and abuse of power against them. And yet, it is their sufficient competence in delivering good governance to their people that has brought great economic success and remarkable human development to their nations, and ultimately a greater measure of competent democratic governance to their highly literate electorates.

Beyond the Islamic world, there are various levels of corruption found in both developed and developing nations. But many of them have made significant strides in recent years, mainly because the leaders whom they have elected have been far more competent those in Pakistan. Even in Pakistan, whenever the military rulers have brought in technocrats and professionals to help develop and execute good policies, there have been periods of rapid growth. It is their competence, not their unassailable honesty, that has helped them deliver significant economic growth.



Pakistan's average economic growth rate was 6.8% in the 60s (Gen. Ayub Khan), 4.5% in the 70s(Zulfikar Bhutto), 6.5% in the 80s (Gen. Zia ul-Haq), and 4.8% in the 90s (Benazir Bhutto and Nawaz Sharif). Growth picked up momentum in the 21st Century under General Musharraf, and from 2000-2007, Pakistan's economy grew at an average 7.5%, making it the third fastest growing economy in Asia after China and India. There were 2-3 million new jobs created each year from 2000-2007, which significantly enlarged the middle class, and helped millions escape poverty.

Unfortunately, there is a troubling history of the democratic process in Pakistan resulting the election of leaders who are demonstrably both corrupt and incompetent. After surviving the lost decade of the 1990s under such leaders, and then thriving in this decade under a more competent dictator until 2007, Pakistan has once again returned to the bad old days of the 1990s. The economy is stagnating, inflation is high, there are shortages of everything from food to water and power and security, unemployment is rising, and many are slipping back into poverty.

It would be great if Pakistanis can have both competence and honesty in their leaders. However, I would personally insist on competence to deliver good governance as a minimum criterion for leadership positions, if I can't have both.

Here is my incomplete wish list for the kind of competencies desirable in governing Pakistan at this critical juncture in its life:

1. Motivational Competency: The leadership needs to sell a vision of a secure, peaceful, stable and prosperous Pakistan, and motivate the people to work toward achieving it. It's not going to be easy, but strong motivational skills can help inspire the nation, in spite of the deep skepticism and toxic cynicism that pervades the nation's discourse today.

2. Security Competency: What the leadership needs is a comprehensive strategy using a mix of intelligence capability, political dialog, military force and close monitoring to isolate and defeat those who continue to perpetrate murder and mayhem on the streets of Pakistan. Such a policy must be developed, debated, sold to the people, and constantly refined to produce results.

3. Human Development Competency: No nation can achieve greatness unless its human resource potential is developed and utilized to the fullest. It is a challenge that will require a team of committed and competent professionals with the full backing and the resources of the state to build a public-private partnership for mass literacy campaigns and to provide access to food and health care. Beyond that, there will be a serious focus required to build great institutions of higher learning to develop knowledge based economy for the twenty-first century.

4. Economic Competency: There is a need to build a non-partisan economic leadership team with the best available talent and experience in Pakistan. Such a team should be chartered to come up with policies and programs to spur nation's economic growth to create opportunities for the tens of millions of young people, and to generate the national resources for funding ambitious programs in human and economic development of the nation.

Can our current leadership do it? Their past record is not reassuring. However, if they make a serious effort toward it, and start to show some results, I am confident they will find real support for their efforts in Pakistan. Results from good governance by the politicians will be the best guarantee for the survival of democracy in Pakistan.

Related Links:

Pakistan's Decade of 1999-2009 in Review

ASEAN Architect Suharto Passes On

NRO and Corrupt Democracies in South Asia

Malaysia National Front Suffers Setback

Musharaf's Economic Legacy

Pakistan's Corruption Indexes

Return to Bad Old Days in Pakistan

Shaukat Aziz's Economic Legacy

Daily Carnage in Pakistan

Thursday, January 28, 2010

Carbon Trade to Fund Energy in Pakistan

Cash poor and energy-starved Pakistan should consider tapping into the London-based global carbon trading market to fund its renewable energy projects. The carbon market is about $6 billion now, and it is projected to exceed 50 billion dollars after the US joins carbon trading. Here is how I understand it:


Let's take the example of a hypothetical big European company XYZ faced with the problem of large carbon emissions that must be reduced or offset by one million ton under the Kyoto protocol. To satisfy the international treaty requirements, XYZ company has the option of either installing carbon-capture equipment to reduce its emissions by a million ton, or retrofit the plant to cut its carbon emissions or buy carbon offsets from a carbon trader for a project in a developing country like Pakistan that offsets its emissions by a million ton. It is a business decision that often leads companies such as XYZ to fund cost-effective carbon offsets in developing nations by buying carbon credits on the open market. Such carbon offset projects could vary from planting mango orchards in Pakistan to absorb a million ton of carbon, or it could be a hydroelectric dam or a wind farm or solar electricity project that replaces a planned fossil fuel project.

This is not just a fantasy. The carbon offset market is real. Major investment bankers, including Goldman Sachs and Citibank, are already heavily involved in the business through their carbon trading desks in London. And new players, such as Eco securities, are being formed to take advantage of this new opportunity.

The industry to generate and verify carbon offsets has seen explosive growth in recent years largely because of the Kyoto treaty, under which nations agreed to impose limits on carbon emissions. The treaty allows United Nations regulated companies to purchase credits produced from these offset projects to meet a portion of their emissions-reductions targets set by the international program. More than 300 million credits, each representing the equivalent of one metric ton of carbon dioxide, have so far been created, and these credits are traded on commodities markets. In February, 2010 issue of Harper magazine, Mark Shapiro, of Berkeley, Calif.’s Center for Investigative Reporting, says up to 2 billion new credits could be drawn from offset projects if a cap-and-trade program similar to the proposals now before U.S. Congress were to become reality. Though the carbon price is determined by market and it is always changing, the current price is about $20 per metric ton. At this price, the expected 2 billion new credits would create an additional $40 billion global carbon trading market.

There are successful examples of the use of trading to cut acid rain from sulfur emissions in the United States. The program allows polluters to figure out their own way to cut emissions rather than mandating a particular kind of technology to reduce emissions like a scrubber on a power plant, rather than forcing them to stop burning coal. It gives the companies a yearly target.

The proposed U.S. House of Representatives bill cuts carbon emissions by 17 percent in the United States by 2020, and it's up to the corporations to figure out how to do it. They can do it by buying offsets from other companies, or by shutting down coal plants, or by efficiency measures, etc.

Carbon credits trading reinforces the idea that pollution in one part of the world affects all of the inhabitants of the planet. And any measures taken in one part of the world, such as planting of trees or building renewable energy projects instead of fossil fuel based plants, help the entire globe. This realization is expected to help transfer billions of dollars in funds from the rich to the poor nations to deal with the common threat of the global climate change. But these funds will only help those who proactively seek them, and build renewable projects to effectively cut global carbon emissions.

As a signatory of the Kyoto Protocol, Pakistan is eligible to benefit from any project under Clean Development Mechanism (CDM) and exploring carbon credit potential in different industries. Pakistan's ministry of environment is the Designated National Authority for CDM tasked with raising awareness and participation by Pakistani companies in CDM. At least one Pakistani company, Pak-Arab Fertilizers (Pvt.) Ltd., Multan, has earned $ 13 million through the sale of CERs (Certified Emission Reductions) in 2008, the first year of the launch of CDM. The total cost of the project is $18 million, according to a report published in The Nation newspaper.

Several cities, including Islamabad, are launching carbon credit projects such as greenhouse gas emission reduction s from sources ranging from landfills to vehicles. Seoul City in Korea will begin test-operating a carbon emission trading system in April in a bid to reduce greenhouse gas emissions. Malaysia is planning carbon-neutral cities. Asia is the center of a lot of activity with CDM projects registered with the United Nations Framework Convention on Climate Change (UNFCCC).

In neighboring India, Delhi Metro became the first rail network in the world to get a UN certificate for cutting over 90,000 tonnes of carbon dioxide release into the atmosphere. The certification report, given by Germany-based validation organization TUV NORD which conducted an audit on behalf of the UN Framework Convention on Climate Change (UNFCCC), found that the DMRC stopped the emission of 90,004 tonnes of carbon dioxide from 2004 to 2007 by adopting regenerative braking systems in the metro trains. Media reports indicate that India is emerging as the one of the most active seller of carbon credits worldwide, with many of the country's firms investing in green projects. India currently has close to 500 projects registered with the United Nations, second only to China's 680. However, in terms of CERs, India's share is just 11.63 per cent, while China's is 58.75 per cent. The Indian government has approved more than 1,455 CDM projects which can potentially make Rs. 28,000-30,000 crore in export earnings, according to a Rediff report. With only a few dozen CDM projects approved to date, Pakistan is significantly behind India and China in taking advantage of the opportunity offered by Kyoto.

A number of consulting companies, such as Carbon Services and Carbon Asset Management in Pakistan, are claiming to guide clients through the process of selling carbon credits to set up clean energy projects. There have been some allegations that middlemen are ending up with huge chunks of the proceeds from carbon credit sales.

Carbon services has arranged seminars with Pakistan's Ministry of Environment to educate businesses about what CDM is, what projects are being done and what can be done within their countries, according to a report in Computerworld. "We try and bring in examples from India, China, Brazil etc about what their industries have done and disseminate that information to local industries," Omer Malik of Carbon Services told Rabia Garib of Computerworld. "The Ministry of Environment's department that looks after this is Designation National Authorities (DNA) is extremely active and very proactive towards promoting CDM in Pakistan"

This is an opportunity for Pakistani government, businessmen and entrepreneurs to seriously pursue creative ways of financing renewable energy projects in Pakistan, including sales of carbon credits, to effectively deal with the current crippling energy crisis in the country. It is also an opportunity to help reduce the impact of climate change on Pakistan. At 8 feet below sea level, Pakistan's financial capital Karachi shows up on the list of world's mega-cities threatened by global warming. Other South Asian cities likely to come under rising sea water in the next 100 years include Mumbai, Kolkata and Dhaka. And it's not just the big cities in South Asia that will feel the brunt of the climate change. The rural folks in India are already seeing rising crop failures, increasing poverty and frequent farmer suicides.

Addressing a regional conference in Islamabad last year, Dr Rajendra Kumar Pachauri, chairman of the Inter-governmental Panel on Climate Change (IPCC), said Pakistan was witnessing severe pressures on natural resources and environment.

He said: “Climatic changes are likely to exacerbate this trend. Water supply, already a serious concern in many parts of the country, will decline dramatically, affecting food production. Export industries such as fisheries will also be affected, while coastal areas risk being inundated, flooding the homes of millions of people living in low-lying areas.”

“The fact that global warming was unequivocal and there is no scope for scientific questioning, Pakistan faces potential environmental catastrophe,” said Dr Pachauri, who has been awarded the Nobel Peace Prize (on behalf of the IPCC) along with former US vice-president Al Gore.

Pakistan's participation in the carbon market is a win-win for Pakistan and the buyers of carbon credits in the West. It helps Pakistan deal with its energy and climate crises, and helps the western companies meet their goals of cutting global carbon emissions. The best way to make it happen is for the government, educational institutions and industry groups to educate the candidates about going through the United Nations CDM process set up under the Kyoto Protocol.

Related Links:

Going Through the CDM Process

Pakistan's Energy Crisis

Renewable Energy for Pakistan

Pakistan Inks Hydroelectric Power Deals

Carbon Offsets Under Fire

The Politics of Climate Change

Cap and Trade and The New Carbon Economy

Electric Power Crisis Worsens in Pakistan

Light a Candle, Don't Curse Darkness

Social Entrepreneurs Target India and Pakistan

Grameen Shakti Solar For Pakistan

Climate Change Worsens Poverty in India

Carbon Trading: Opportunity For Pakistan

Pakistani Entrepreneurs Survive Downturn

Water Scarcity in Pakistan

Factor AG and Carbon Services Pakistan Presentation

Wednesday, January 27, 2010

Karachi Achieves Top Spot Among World's Cities

With rapid urbanization in Pakistan, Karachi has become the world's biggest city with a metro area population of 18 million people, according to Citymayors stats published recently.

Karachi (Urdu: کراچی, Sindhi: ڪراچي, Karāchi) is followed by Mumbai, Delhi, Buenos Aires, Seoul, Jakarta, Manila, Sao Paulo, Shanghai and Istanbul making up the top 10 list. Bangladesh capital Dhaka is at number 12, barely missing a top 10 slot. Of these, Mumbai, Dhaka and Delhi also have the dubious distinction of making Mercer's list of world's dirtiest cities. In another survey, Mercer has ranked Karachi as the fourth cheapest city for expatriates.

The list of the world’s largest cities, by land area, is headed by New York Metro, with a total area of 8,700 square kilometers. Tokyo/Yokohama is in second place with almost 7,000 square kilometers, followed by ten cities from the United States. Mumbai (Bombay), with a population density of almost 30,000 people per square kilometer, is the world’s most crowded city. Kolkata (Calcutta), Karachi and Lagos follow behind.



In 2008, the US based NPR radio did a series on Karachi titled "Karachi: The Urban Frontier". It highlighted the following facts about Karachi:

1. Karachi is built along a natural harbor facing the Arabian Sea, and this central location between the Middle East and India has made Karachi an important trading port for hundreds of years.

2. Karachi encompasses both its old seafront district and a sprawling web of commercial and residential development that covers almost 1,400 square miles. Its contemporary landscape spans skyscrapers, posh golf resorts, congested roadways and sprawling squatter colonies.

3. The Port of Karachi handles 60 percent of Pakistan's cargo, and the Karachi Stock Exchange is one of Asia's most active trading markets (The data for 1999-2009 shows that Karachi share market significantly outperformed Hong Kong, Mumbai and Shanghai markets). The city's main industries include shipping, trade, finance, banking, information technology, manufacturing, real estate, media and education.

4. Like any big city, it has its share of problems. Pollution, crime, corruption and political volatility are just some of the issues confronting the 12 million to 18 million "Karachiites" who call this overcrowded city home. Karachi is 60 times larger than it was when Pakistan was created in 1947. And with the population growing at an annual rate of 6 percent, one of the biggest challenges for city officials is managing the tensions and violence that often flare along ethnic and religious lines.

5. Karachi is growing so fast that estimates of its population range from 12 million to 18 million. The country's financial capital is also a city where about half the population lives in illegal houses.

Here are some figures for Karachi population I received from the editors of citymayors.com:

YEAR Urban Population
1856 56,875
1872 56,753
1881 73,560
1891 105,199
1901 136,297
1911 186,771
1921 244,162
1931 300,799
1941 435,887
1951 1,068,459
1961 1,912,598
1972 3,426,310
1981 5,208,132
1998 9,269,265
2006 13,969,284
2007 14,500,000

Since Karachi population has been growing at about 4-6% a year recently, the 18 million figure for Karachi in 2009 makes sense.

The mayors of the world’s twenty largest cities are each responsible for more people than most national prime ministers. For example, London, ranked 20th in the world, has more residents than nations like Paraguay, Denmark, New Zealand or Ireland, and if Karachi, globally the largest city, was a country it would rank above Greece, Portugal or Hungary. The combined population of the world’s eight megacities - cities with more than 10 million inhabitants - comfortably exceeds that of Germany.



Urbanization is not just a side effect of economic growth; it is an integral part of the process, according to the World Bank. With the robust economic growth averaging 7 percent and availability of millions of new jobs created between 2000 and 2008, there has been increased rural to urban migration in Pakistan to fill the jobs in growing manufacturing and service sectors. The level of urbanization in Pakistan is now the highest in South Asia, and its urban population is likely to equal its rural population by 2030, according to a report titled ‘Life in the City: Pakistan in Focus’, released by the United Nations Population Fund. Pakistan ranks 163 and India at 174 on a list of over 200 countries compiled by Nationmaster. The urban population now contributes about three quarters of Pakistan's gross domestic product and almost all of the government revenue. The industrial sector contributes over 27% of the GDP, higher than the 19% contributed by agriculture, with services accounting for the rest of the GDP.



A 2008 report by UN Population Fund says the share of the urban population in Pakistan almost doubled from 17.4 percent in 1951 to 32.5 percent in 1998. The estimated data for 2005 shows the level of urbanization as 35 per cent, and CIA Factbook puts it at 36% in 2008. An expected positive consequence of the increasing urbanization of society in Pakistan will be the creation of over 100 million strong middle class by 2030, making Pakistan's grass roots democracy more viable and responsive to the needs of the people. This large urban population will not only create a domestic market for goods and services, but it can create a skilled work force that can be the engine of economic growth and source of innovation.

According to the 1998 census, Sindh is the most urbanized province with 49 percent percent of the population living in urban centers. NWFP is the least urbanized province with only 17 percent of its population living in urban areas.

With Pakistan already the most urbanized country in South Asia, Karachi's population has been growing at a rate of over 4 percent a year for decades, according to the editors at Citymayors.com. Karachi now accounts for about 12 percent of the nation's population, and Mustafa Kamal as its mayor is accountable to a larger population than the presidents or prime ministers of many nations of the world. As the nation continues to experience increasing rural-to-urban migration, the jobs of the big city mayors in Pakistan, particularly Karachi and Lahore, are becoming significantly more important and challenging than generally recognized. How these mayors deal with these challenges will largely determine the fate of the nation, in terms of education, health care, housing, transportation, industrial and service sectors' growth, job growth and overall economic activities, as well as the future of democracy.

When visitors see a squatter city in India or Pakistan or Bangladesh, they observe overwhelming desperation: rickety shelters, little kids working or begging, absence of sanitation, filthy water and air. However, there are many benefits of rural to urban migration for migrants' lives, including reduction in abject poverty, empowerment of women, increased access to healthcare and education and other services. Historically, cities have been driving forces in economic and social development. As centers of industry and commerce, cities have long been centers of wealth and power. They also account for a disproportionate share of national income. The World Bank estimates that in the developing world, as much as 80 percent of future economic growth will occur in towns and cities. Nor are the benefits of urbanization solely economic. Urbanization is associated with higher incomes, improved health, higher literacy, and improved quality of life. Other benefits of urban life are less tangible but no less real: access to information, diversity, creativity, and innovation.

In a recent interview published by Wired Magazine, Stewart Brand, "the pioneering environmentalist, technology thinker", and founder of the Whole Earth Catalog focused on the positive aspects of urban slums. Brand also made a counterintuitive case that the booming slums and squatter cities around the major urban centers in the developing world are net positives for poor people and the environment. Brand's arguments make a lot of sense, as long as there are representative city governments responsive to the growing needs of the new and old city residents.

Related Links:

Karachi Tops Mumbai in Stock Performace

Eleven Days in Karachi

Citymayors website

Pakistan Most Urbanized in South Asia

Karachi: The Urban Frontier

Do Asia's Urban Slums Offer Hope?

Orangi is Not Dharavi

Climate Change Could Flood Karachi Coastline

Karachi Fourth Cheapest For Expats

Karachi City Government

Monday, January 25, 2010

Cell Phones Boost Pakistan's Literacy, Economy

A pilot program in Pakistan has demonstrated the effectiveness of pushing mass literacy through the use of cell phone text messaging capability. The five-month experiment, initiated by United Nations Educational, Scientific and Cultural Organization (UNESCO), targeted 250 females aged 15 to 24 years old in three districts of Pakistan's Punjab province. In this pilot project which successfully concluded last month, the participant who have just completed the basic literacy course, were given a mobile phone each. They received three text messages a day in the local language. They were required to practice reading and writing the messages in their work book and reply to their teachers by text.



The success of this mass literacy initiative augurs well in a country like Pakistan, where the mobile phone penetration is among the highest in the developing world, and the number of mobile subscribers has rocketed from less than 2 million to more than 94 million (58% penetration) from 2002 to 2009. It is also significant because Pakistan also has the dubious distinction of having the fourth largest number of illiterate adults in the world, after India, China and Bangladesh, according to a recently released UNESCO report. India and Pakistan also have the worst gender gaps in literacy rates, exceeding 22%.



The Daily Galaxy website has reported that a project, called Celedu, is starting its work in some rural villages in India, but hopes to expand far beyond that. Its initial offerings include cellphone-based games and quizzes that can teach basic literacy skills. For example, a child in India can play a game of Snakes and Ladders on the phone by answering multiple-choice questions about which words begin with a particular letter in the Hindi alphabet. Each correct answer allows the child's marker to advance through the game board, providing a fun and competitive approach to learning the written language.

"The biggest disease in India is illiteracy," which affects 400 million people there, says team member Rafael de Cardenas of Sloan. A PC-based version of the program, called Tele Akshar, "has already taught 54,000 women in 300 villages," he says, and the cellphone version should be able to reach far more people, according to Daily Galaxy.

In addition to education and healthcare, access to financial services has been fairly limited in Pakistan, particularly for the rural poor. 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. Well regulated banking and microfinance sectors are, therefore, absolutely necessary to give hope to the poor in breaking the vicious cycle of dependence and poverty.

Now, a number of telecom operators have now joined hands with financial institutions to extend the reach of financial services to the previously un-served masses, according to Babar Bhatti who operates "State of Telecom Industry" website. A successful example is Easypaisa, a telenor and Tameer Microfinance Bank joint offering that offers quick and easy remittance capability for the migrant workers wanting to send money to their loved ones.

The dramatic growth of cell phone usage in the developing world has created tremendous opportunities to deliver some of the basic ingredients of human development to the people, including education and health care. It has spawned a whole new field of research called "Information and Communication Technologies For Development" abbreviated as ICT4D. The UNESCO female literacy pilot helps establish some credibility for the advocates of ICT4D.

At MIT's Legatum Center, whose director Iqbal Quadir was the founder of Bangladesh's GrameenPhone, improving the delivery of health care in rural areas has been one major focus of their research efforts. Patients in a remote village, for example, now may have to spend a whole day or more traveling to the nearest clinic in order to be tested, diagnosed and receive treatment or a prescription drug for their health problems. But a new open-source software system developed by students who formed a nonprofit company called Moca could provide a faster way, according to a report in Daily Galaxy.

Using a menu of questions downloaded to a cellphone - and, if necessary, a picture taken with the phone's built in camera - a patient can transmit enough information to a doctor or nurse in a remote location to get a preliminary diagnosis, and to find out whether the condition warrants a trip to the clinic or not. "In developing countries, 80 percent of all physicians are in urban areas," while most of the people live in the countryside, according to Moca team member Richard Lu, an MIT graduate student in biomedical informatics.

A GSM Association study conducted by Deloitte and Touche in 2007 estimated that the mobile industry created 220,000 high-paying jobs in Pakistan and accounted for 5% of its Gross Domestic Product (GDP) and approximately 6% of the total taxes collected by the Central Board of Revenue. The study also found that Pakistan’s economy and society is benefiting from rising mobile phone usage and low tariffs, which lowers the cost of doing business and improves productivity, while helping families and friends to connect to each other at home and abroad.



Several studies by ICT4D researchers in Pakistan and other developing nations have concluded that the use of cell phones have helped reduce poverty and improve incomes of small vendors and service providers, such as beauticians, fishermen, taxi drivers, delivery people and small shopkeepers.

As the mobile broadband roll-out with WiMax, 3G and EVDO takes off in Pakistan, the mobile internet can become a reality, opening up vast opportunities for delivering more advanced capabilities for education, health care and business for the ordinary people. The availability of more powerful and inexpensive entry level smart phones and applications will help as well.

One example of telemedicine efforts is a Cisco project in Pakistan, where a trial combines satellite and WiMAX connectivity to mobile units to provide earlier cancer screening to rural patients.

Many critics and cynics have long dismissed the growing use of cell phones in Pakistan as just a waste of time and money. Based on the efforts of ICT4D believers, however, it is becoming increasingly clear that the mobile phone in developing world could prove to be a an extremely useful tool providing a huge boost for human development, productivity and prosperity of the people at the bottom of the pyramid.

Related Links:

Poverty Reduction Through Telecom Access

Pakistan's Telecom Boom

Pakistan Tops Text Message Growth

WiMax Rollout in Pakistan

Mobile Internet in Pakistan

Low Literacy Threatens Pakistan's Future

Gender Gap in South Asia

Mobile Financial Services in Pakistan

Financial Services in Pakistan

Distance Learning in Pakistan

Top 5 ICT4D Trends in 2010

ICT4D in Pakistani Hospital

Saturday, January 23, 2010

Defense Economics: Guns or Bread in India and Pakistan?

I have just published on my blog, Haq's Musings, a guest post by Colonel Pavan Nair, a retired Indian Army officer, a detailed analysis of the Indian defense spending in the context of the nation's growing needs for social spending on food, education and health care. Col Nair prefaces his analysis by lamenting that "defense economics has not been a subject for serious study or debate in Indian academic or military circles. Little or no literature is available with the exception of a few books in the area of defense accounts. Economists and activists have long argued that defense related expenditure needs to be curtailed. Opinion is clearly divided between the developmental lobby and strategic thinkers who wield influence with the political leadership."

Nair then goes on to accept the challenge of defense economics in India by laying out his case with lots of data and sources, and concludes with the following:

Besides external defense, internal security and human-development form a vital part of the overall security and well-being of the nation. Is the rupee being spent wisely? The answer is in the negative both in terms of quantum and efficacy. DE has risen to unsustainable levels in the last decade primarily on account of dependence on imports and nuclearization. There is a trade-off between defense and developmental spending specifically in the area of health which becomes visible in poor human-development parameters like infant mortality rates and child malnutrition. Bangladesh is well ahead of India in these parameters. Internal security has been neglected for too long. There is a need to balance overall expenditure to meet the challenge of the emerging economic and strategic scenario. Force levels need to be reviewed. Like obsolete equipment, obsolete organizations should be dispensed with. The army has become equipment and staff oriented. It also remains manpower-intensive with too few junior officers and a large tail. The Thirteenth Finance Commission could look into aspects of internal and external security to come to a reasonable limit for both. It would also be expedient if the Commission specifies what constitutes defense spending and whether Defense Services Civil Estimates should form part of defense expenditure. DE must be capped at current levels.

I agree with Col Nair's conclusion, and would like to see similar detailed analysis of Pakistan's defense expenditures. Though the problems of poverty and hunger in Pakistan are a bit less serious than in India, Pakistan suffers from high illiteracy and low levels of human development that pose a serious threat to its future.

India has the dubious distinction of being among the top ten on two very different lists: It ranks at the top of the nations of the world with its 270 million illiterate adults, the largest in the world, as detailed by a just released UNESCO report on education; India also shows up at number four in military spending in terms of purchasing power parity, behind United States, China and Russia.

Not only is India the lowest among BRIC nations in terms of human development, India is also the only country among the top ten military spenders which, at 134 on a list of 182 nations, ranks near the bottom of the UNDP's human development rankings. Pakistan, at 141, ranks even lower than India.

India also fares badly on the 2009 World Hunger Index, ranking at 65 along with several sub-Saharan nations. Pakistan ranks at 58 on the same index.

Access to healhcare in South Asia, particularly due to the wide gender gap, presents a huge challenge, and it requires greater focus to ensure improvement in human resources. Though the life expectancy has increased to 66.2 years in Pakistan and 63.4 years in India, it is still low relative to the rest of the world. The infant mortality rate remains stubbornly high, particular in Pakistan, though it has come down down from 76 per 1000 live births in 2003 to 65 in 2009. With 320 mothers dying per 100,000 live births in Pakistan and 450 in India, the maternal mortality rate in South Asia is very high, according to UNICEF.

The reality of grinding poverty in resurgent India was recently summed up well by a BBC commentator Soutik Biswas as follows:

A sobering thought to keep in mind though. Impressive growth figures are unlikely to stun the poor into mindless optimism about their future. India has long been used to illustrate how extensive poverty coexists with growth. It has a shabby record in pulling people out of poverty - in the last two decades the number of absolutely poor in India has declined by 17 percentage points compared to China, which brought down its absolutely poor by some 45 percentage points. The number of Indian billionaires rose from nine in 2004 to 40 in 2007, says Forbes magazine. That's higher than Japan which had 24, while France and Italy had 14 billionaires each. When one of the world's highest number of billionaires coexist with what one economist calls the world's "largest number of homeless, ill-fed illiterates", something is gravely wrong. This is what rankles many in this happy season of positive thinking.

It is time for major South Asian nations to deal with the urgent need for careful balancing of their genuine defense requirements against the need to spend to solve the very serious problems of food, education, health care and human resource development for securing the future of their peoples.

Related Links:

UNESCO Education For All Report 2010

India's Arms Build-up: Guns Versus Bread

South Asia Slipping in Human Development

World Hunger Index 2009

Challenges of 2010-2020 in South Asia

India and Pakistan Contrasted 2010

Food, Clothing and Shelter in India and Pakistan

Introduction to Defense Economics

Thursday, January 14, 2010

Pakistani Stocks Beat BRIC Shares in 1999-2009

Karachi shares market significantly outperformed Mumbai in the last ten years. But this fact is not enough to get any positive attention from Fareed Zakaria, India's best-known cheerleader in the West.

As expected, Fareed Zakaria's discussion of "The Rise of the Rest" sings praises of the BRIC nations, particularly mentioning his native India in the most glowing terms. There is nothing wrong with that, except that Zakaria omits any positive mention of India's neighbor Pakistan in the context of economic performance in the decade of 1999-2009, and chooses to strike familiar themes of "Islamic jihadists" and "terrorism" when he does make any references to Pakistan.



What Zakaria has omitted is the story of the extraordinary returns Pakistan has produced for investors. Pakistan's key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at over 9727.40 on Dec 31, 2009. Pakistan rupee remained quite stable at 60 rupees to a US dollar until 2008, slipping only recently to about 80 rupees to a dollar. In spite of the currency decline, Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms. During the same period of 1999-2009, Mumbai Sensex index moved from just over 5000 points to close at 17,464.81. If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $900 today, while $100 invested in the Mumbai's Sensex stocks would be worth $274. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999, would get you about $262 today, while $100 invested in the S&P500 would be worth $91.

Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms, in a year that also saw the South Asian nation wracked by increased violence and its state institutions described by various media talking heads as being on the verge of collapse. Even more surprising is the whopping 825% increase in KSE-100 from 1999 to 2009, which makes it a significantly better performer than the BRIC nations. BRIC darling China has actually underperformed its peers, rising only 150 percent compared with energy-rich Brazil (520 percent) and Russia (326 percent) or well-regulated India (274 percent), which some investors see as a safer and more diverse bet compared with the Chinese equity market, which is dominated by bank stocks. This is the kind of performance that has got the attention of some of the top investors and investment firms around the world.

Unlike Zakaria and his fellow media Indophiles in the West, however, the smart investors are paying attention to the outsized returns produced by the Karachi Stock Exchange listed companies. Not only has Goldman Sachs reaffirmed Pakistan's place on the list of its top 15 emerging economies for 2010, smart international investment gurus are investing in Pakistan. For example, Mark Mobius of Franklin Templeton International Funds recently said he is "overweight compared with everyone else" in Pakistani stocks.

In late 2008, Pakistan asked for IMF's help in recovering from a severe economic crisis resulting from political turmoil and a balance of payment crisis. The Letter of Intent that Pakistan's PPP-led government signed with the IMF for the $7.6 billion bailout acknowledged that Pakistan's GDP jumped "from $60 billion in 2000-01 to $170 billion in 2007-08 with per capita income rising from under $500 to over $1000". The LOI with IMF also acknowledged that "Pakistan attracted over $5 billion in foreign direct investment in the 2006-07 fiscal year, ten times the figure of 2000-01. The government's debt fell from 68% of GDP in 2003-04 to less than 55% in 2006-07, and its foreign-exchange reserves reached $16.4 billion as recently as in October (2008)."

Pakistan's KSE-100 shares trade well below the price-earnings of Mumbai or Shanghai, and its KSE's market cap is only a fraction Pakistan's GDP, which is a healthy sign for future increase in valuation. By contrast, the Indian stock market capitalization already exceeds India's total GDP. That's the sign of a bubble that can not be sustained for long.

Lower current valuation relative to BRIC markets means that there is greater potential for growth and higher returns on investments in Pakistan in the future. That's what many smart professional investment firms such as Franklin-Templeton and Goldman Sachs are expecting by being bullish on Pakistan.

Pakistan has defied low expectations repeatedly in the past. Let me quote what Mark Bendeich of Reuters wrote on Jan 10, 2008:

"A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
They should have. Their clients could have made a fortune. Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.
As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."


Pakistan is just too big to fail. In spite of all of the serious problems it faces today, I remain optimistic that country will not only survive but thrive in the coming decades. With a fairly large educated urban middle class, vibrant media, active civil society, assertive judiciary, many philanthropic organizations, and a spirit of entrepreneurship, the nation has the necessary ingredients to overcome its current difficulties to build a strong economy and a democratic government accountable to its people.

Related Links:

Is Pakistan Too Big to Fail?

India and Pakistan Contrasted 2010

Goldman, Franklin-Templeton Bullish on Pakistan

The Rise of the Rest by Fareed Zakaria

Why Colombia's Stock Market Beat China's?

Goldman Sachs "Next 11"

Emerging Markets Expert Investing in Pakistan

Who Are the Next 11?

GS Next 11 and Pakistan in 2050

Karachi Stock Exchange

Pakistan FDI Survey Report 2009

Emerging Markets: Brazil, China---and Pakistan?

Templeton's Asian Growth Fund

Pakistan Economic Survey 2008-2009

Pakistan's Infrastructure

Karachi Fashion Week

Is Pakistan Too Big to Fail?

How To Invest in Pakistan?

Karachi Fashion Week Goes Bolder

More Pictures From Karachi Fashion Week 2009

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antarctica

Pakistan's Multi-billion Dollar IT Industry

Pakistan's Telecom Boom

Pakistan Telecom Sector Investment Prospects

ITU Internet Data

Eleven Days in Karachi

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Infrastructure and Real Estate Development in Pakistan

Pakistan's International Rankings

Foreign Direct Investments in Pakistan 1999-2009

Pakistan's Financial Services Sector

Assessing Pakistan Army Capabilities

Pakistan's Auto Industry

Pakistan is not Falling

Jinnah's Pakistan Booms Amidst Doom and Gloom

Pakistan's Higher Education Reform

The Next 11 Emerging Economies--Euromonitor

Karachi Stock Exchange Presentation

Is KSE Poised For Major Crash?

Dalal Street Call: Keep the Faith

Tuesday, January 12, 2010

Worsening Gas and Electricity Crises in Pakistan

Hagler Bailly, a global management consulting firm with an office in Islamabad, warned in a 2006 study that Pakistan is going to witness gas shortage starting in 2007, and the imbalance will grow every year to cripple the economy by 2025, when shortage will be 11,092 MMCFD (Million standard cubic feet per day) against total 13,259 MMCFD production. The Hagler Bailly report added that Pakistan's gas shortage would get much worse in the next two decades if it did not manage any alternative sources. It appears that we are seeing the beginning of the crisis that HB predicted back in 2006.

Recent Growth in Gas Demand:

Demand for natural gas in Pakistan increased by almost 10 percent annually from 2000-01 to 2007-08, reaching around 3,200m cubic feet per day (MMCFD) last year, against the total production of 3,774 MMCFD, according to Pakistani official sources. But, during 2008-2009, the demand for natural gas exceeded the available supply, with production of 4,528 MMCFD gas against demand for 4,731 MMCFD, indicating a shortfall of 203 MMCFD. This winter, Sui Northern Gas sources have reportedly told the media that the company is dealing with a shortfall of 700 MMCFD of gas due to increasing use of heaters and geysers.



Energy Shortages:

The potentially devastating effect of the gas shortage on the nation can be gauged by the fact that Pakistanis heavily depend on gas for their energy needs, much more so than neighboring Indians. With a gas pipeline network stretching around 56,400 km, pipeline density of 1044 km/mmscmd (million metric standard cubic meter per day) and a 31,000 km distribution network to serve its domestic and commercial consumers and nearly 3000 CNG stations, the gas consumption in Pakistan is much higher than its bigger South Asian neighbor. India relies more heavily on its vast coal reserves for energy.

According to BMI, gas is the dominant fuel, accounting for 47.5% of Pakistan's primary energy demand (PED) in 2007, followed by oil at 30.7%, hydro-electric energy at 12.9% and coal with a 7.9% share. Regional energy demand is forecast to reach 4,859 million tonnes of oil equivalent (toe) by 2013, representing 24.9% growth from the estimated 2008 level. Pakistan’s estimated 2008 market share of 1.52% is set to ease to 1.45% by 2013. The country’s estimated 2.5TWh of nuclear demand in 2008 is forecast to reach 5.0TWh by2013, with its share of the Asia Pacific nuclear market rising from 0.49% to 0.75% over the period.

In terms of overall energy requirements, here is a more complete picture for per capita energy consumption in South Asia and China, using Nationmaster, with 2006-2007 figures and rankings:

Pakistan per capita gas consumption 187 cu meters(ranked 73)
India per capita gas consumption 36 cu meters (ranked 99)
China per capita gas consumption 53 cu meter (ranked 95)

India per capita electric consumption 466 KWhr (ranked 160)
Pakistan per capita electric consumption 430 KWhr (ranked 164)
China per capita electric consumption 2,179 KWhr (ranked 91)

India coal consumption per capita 0.3 ton (ranked 23)
Pakistan coal consumption per capita 0.03 ton (ranked 35)
China coal consumption per capita 1 ton (ranked 16)

India oil consumption per day per 1000 people 2.4 barrels (ranked 165)
Pakistan oil consumption per day per 1000 people 2.2 barrels (ranked 169)
China oil consumption per day per 1000 people 5.7 barrels (ranked 144)

There is strong correlation between energy availability and level of any nation's development. The nations topping the list of human development rankings are also the largest per capita consumers of energy.

Per capita energy consumption in Pakistan is estimated at 14.2 million Btu, which is much higher than Bangladesh's 5 million BTUs per capita but slightly less than India's 15.9 million BTU per capita energy consumption. South Asia's per capita energy consumption is only a fraction of other industrializing economies in Asia region such as China (56.2 million BTU), Thailand (58 million BTU) and Malaysia (104 million BTU), 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. With 40% of the Pakistani households that have yet to receive electricity, and only 18% of the households that have access to pipeline gas, the energy sector is expected to play a critical role in economic and social development. With this growth comes higher energy consumption and stronger pressures on the country’s energy resources. At present, natural gas and oil supply the bulk (80 percent) of Pakistan’s energy needs. However, the consumption of those energy sources vastly exceeds the supply. For instance, Pakistan currently produces only 18.3 percent of the oil it consumes, fostering a dependency on imports that places considerable strain on the country’s financial position. On the other hand, hydro and coal are perhaps underutilized today, as Pakistan has ample potential supplies of both.

Energy Projects:

Pakistan and Germany have initiated serious discussions of German funding of eight ongoing and new hydropower projects worth billions of dollars. These talks have takien place in Islamabad between German Minister for Economic Co-operation and Development Ms. Heidemaire Wiegoreak Zeul and Pakistani Prime Minister's Adviser on Finance Mr. Shaukat Tarin, according Business Recorder newspaper.

In addition to megaprojects such as 1000 MW Neelum-Jhelum hydropower project, 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.

Pakistan has vast reserves of coal. But there is very little energy produced by burning coal. China has now agreed to invest about $600 million for setting up an integrated coal mining-cum-power project in Sindh. The project will produce 180 million tons of coal per year, which is sufficient to fuel the proposed 405 MW power plant. Pakistan is currently world's seventh largest coal-producing country, with coal reserves of more than 185 billion tons, ranking as the fourth of fifth largest coal reserves in the world. Almost all (99 percent) of Pakistan's coal reserves are found in the province of Sindh. Pakistan's largest coal field is Thar coal field which is spread over an area of 9100 square kilometers, and contains 175 billion tons of coal. So far this coal field has not been developed but efforts are underway.

In addition to the coal project, China has agreed to build several other power plants in Pakistan to help the South Asian nation deal with its worsening electricity crisis. When completed over the next several years, these plants, including Nandipur (425 MW, Thermal), Guddu(800 MW, Thermal) and Neelam-Jhelum(1000 MW, Hydro), Chashma (1200 MW, Nuclear) will add more than 3000 MW of power generating capacity for the energy-hungry country. Pakistan is currently facing a deficit of 4,000 to 5,000 megawatts, resulting in extensive load-shedding (rolling blackouts) of several hours a day.

China has already installed a 325-megawatt nuclear power plant (C1) at Chashma and is currently working on another (C2) of the same capacity that is expected to be online by 2010. The agreements for C3 and C4 have also been signed. The United States has objected to China supplying C3 and C4 on the grounds that any Pak-China nuclear cooperation would require consensus approval by the NSG, of which China is now a member, for any exception to the guidelines. The US is applying double standards since it supported and got approval for such an exception from NSG for its own nuclear deal with India.

Beyond the power generation capacity expansion projects, Pakistan must also pay attention to modernizing its national grid. The country's creaky and outdated electricity infrastructure loses over 30 percent of generated power in transit, partly due to theft, more than seven times the losses of a well-run system, according to the Asian Development Bank and the World Bank; and a lack of spare high-voltage grid capacity limits the transmission of power from hydroelectric plants in the north to make up for shortfalls in the south.

In terms of the cost of renewable sources such as wind and solar, the cost of not empowering the poor rural communities is far greater than the cost of providing a Grameen Shakti type solar system, or Agha Khan Foundation's microhydro or the gearless wind microturbines that are beginning to show up on the rural landscape in Pakistan.

Given the unresponsive nature of "democracies" and incompetent and corrupt governance in India and Pakistan, many of the poor rural communities far away from the national grid will probably never be electrified unless there are community-based local green initiatives pursued with the help of NGOs.

Compressed Natural Gas (CNG) Industry Growth:

According to International Association of Natural Gas Vehicles, as of December 2008, Pakistan has the world’s highest number of vehicles running on compressed Natural Gas (CNG). The number is 2 million. Pakistan also has the World’s largest number of CNG refueling stations, 2941 as of July 29, 2009.

Just as the worst electricity crisis of its history is currently gripping the nation, it appears that the gas crisis has begun to rear it ugly head, with recurring reports of low gas pressure, CNG station closures and rationing, and gas "load shedding" for businesses and consumers. The blame game has already started and there appears to be little relief in sight on either the electricity or the gas fronts. One of the reported effects of the gas shortage is delay in the availability of power from the rental power plants which are expected to operate on gas. It appears that the attempt to solve the electricity crisis has made life even more difficult for the people by spawning a gas crisis at the same time.

Citizens and industries in Lahore have been particularly badly hit, resulting in angry protests widely reported in the media. The All Pakistan Textile Mills Association (APTMA), the textile industry group, has claimed that it suffered losses of about Rs 1 billion in December due to lack of smooth gas supply to the industry. Pakistan's CNG industry is also feeling the pinch after rapid growth in the last few years.

Rental Power Plants (RPPs):

A story in Pakistani newspaper the News is alleging that "these expensive rental power plants, which were being installed with tall claims to address the energy crises in the country, were said to have now become one of the major reasons behind a new sorts of energy crises in Pakistan, as their gas requirements are bound to hit other sectors of economy running on gas supplies".

Solutions For Gas Shortage:

The best solution to alleviate the gas shortage is to build a pipeline to import over a billion cubic feet of gas a day from Iran, but such a project will take many years to implement even on an accelerated schedule. In the meantime, Pakistan's Sui Southern Gas Company (SSGC) is working on completing a project, dubbed Mashal LNG Project, that was started three years ago to import 500 MMCFD of LNG from Qatar by 2010. But even that won't happen till October 2011. The second phase of this project will add an additional 500 MMCFD of LNG by 2013.

In response to the alarming gas situation, there are reports that Pakistan is finally going ahead with the multi-billion dollar Iran-Pakistan Gas Pipe Line Project and has initiated the process of arranging financing of US $1.245 needed for laying 800 Km long pipe line from Pakistan-Iran border to Nawab Shah. Pakistan will also import 1.05 billion cubic feet of gas per day from Iran at 78 percent of crude oil parity price. Pakistan and Iran have already signed Gas Sales Agreement (GSPA) for importing 750 million cubic feet gas per day which will be used to generate 4500 MW of electricity and would be a cheaper alternative to the presently expensive imported furnace oil used in the existing thermal power houses. Another 250 million cubic feet of Gas per day is also envisaged to the purchased for development projects at Gawadar in Balochistan. Considering the magnitude and strategic nature of the Gas Line Project, the government has adopted a private-public partnership approach for financing the project with debt equity ratio of 70:30 under which the Pakistan government will provide 51 per cent equity. This equity financing would be provided upfront through selected Public Sector Entities like OGDCL, Pakistan Petroleum Limited , Government Holding Private Limited, Employees Old Age Benefits Institution and State Life Insurance Corporation. The debt will be sourced from the market backed by the government guarantees for transportation tariff. Any gap in raising the required debt from the market, the funds will be available by PDSP allocations.

The current completion date for Iran-Pakistan gas pipeline project is June, 2014, if things go smoothly. There is significant investor interest. Russia's Gazprom is very keen on the project. "We are ready to join the project as soon as we receive an offer," Russia's deputy energy minister Anatoly Yankovsky has been quoted as saying by the media. Another top Russian government official has said Moscow sees the pipeline as a means to divert Iranian gas from competing with Russian exports on the European market.

Iranian Consul General in Pakistan, Masoud Mohammad Zamani has told Pakistani news site the Dawn that Iran has completed major portion of work on Iran-Pakistan gas pipeline project and within couple of months the pipeline will be at Iran-Pakistan border. Hopefully, by 2013 Iran gas will be used in Pakistan, Iranian envoy explained during a meeting with members of Karachi Chamber of Commerce and Industry.

India, too, needs to import gas to meet its growing energy needs. But it pulled out of the pipeline project after the US-India nuclear deal. If and when India does come back to the table, the pipeline built from Iran to Nawabshah in Pakistan can be extended to support additional capacity for India.

Current Issues:

As the nation's attention turns to the gravity of the worsening gas energy crisis, the growing supply-demand gap for electricity is still unaddressed. The government's attempts to fill the gap with rental power have raised many questions and drawn serious corruption charges from the opposition parties and the media. Analysts at Center for Research and Security Studies are asking why have some private power producers completely shut down? And why are other private power producers operating well below their full capacity? It is being alleged that the reasons for buying rental power to fill the electricity gap rather than pay the outstanding dues of the independent power producers (IPPs) to fully utilize exiting installed capacity have to do with the kickbacks offered by the rental power operators. According to Reuters, Finance Minister Shaukat Tarin almost resigned after failing to persuade the cabinet against renting, an option he considered expensive and inefficient.

There have been widespread complaints in Islamabad, including by Mr. Tarin, that the government had solutions to improve the power output but was refusing to implement them in order to benefit a handful of power plant operators, such as those supplying rental power, while the IPPs are not being paid for supplying power from currently underutilized installed capacity. Requests for information by Transparency International Pakistan regarding rental power contracts have been ignored by the Ministry of Water and Power. There are widespread corruption allegations against President Asif Ali Zardari personally who has allegedly influenced the award of the 783 MW rental power contracts to a former governor of Oklahoma and his Pakistani partner.

Rental power is not an issue by itself. While it does provide some relief, it does not address the core problem of making sure that government departments, politicians, businesses and all consumers pay for power they use to make it attractive for private investments in the power sector.

Currently, most IPPs in Pakistan are operating well below capacity because they are not being paid billions of rupees owed to them. Paying them should be the first step toward filling the supply-demand gap by fully utilizing current capacity, and restoring order in the power market. Unless this done, the electricity rates will keep rising because the honest consumers end up footing the power bill for the many deadbeats and power thieves.

Meeting Energy Demand Growth:

BMI forecasts Pakistan real GDP growth averaging 3.98% a year between 2009 and 2013, with the 2009 estimate at 2.50%. The population is expected to expand from 161mn to 177mn, with per capita GDP and electricity consumption increasing by 20% and 11% respectively. Power consumption is expected to increase from an estimated 81TWh in 2008 to 99TWh by the end of the forecast period, which provides are relatively stable theoretical generation surplus (before transmission losses, etc.), assuming 4.3% annual growth in electricity generation.


Between 2008 and 2018, BMI is forecasting an increase in Pakistani electricity generation of 59.2%,which is mid-range for the Asia Pacific region. This equates to 27.2% in the 2013-2018 period, up from25.1% in 2008-2013. PED growth is set to increase from 19.1% in 2008-2013 to 25.8%, representing 49.9% for the entire forecast period. An increase of 49% in hydro-power use during 2008-2018 is a key element of generation growth. Thermal power generation is forecast to rise by 52% between 2008 and2018, with nuclear usage up 380% from a low base.

Summary:

The failures of successive Pakistani governments in tackling the growing energy crisis are shameful. Inaction at this point would be criminal. The Iran-Pakistan gas pipeline project has to be accelerated to avoid significant further harm to the country. At the same time, the shortages of electricity and gas need to be managed actively and fairly to minimize the impact on the consumers and the businesses to help the economy recover from the current slump. The issue of unpaid electricity bills and the rampant power theft should be confronted head-on to restore investor confidence in long-term energy projects in the country. Since the federal government is the biggest dead beat, followed by the four provincial governments, FATA, the KESC and the KW&SB, it is an opportunity for the current leadership in Islamabad to lead by example by paying off their outstanding utility bills, and resolving the circular debt issue in energy sector expeditiously.

Related Links:

Pakistan's Electricity Crisis

Pakistan's Gas Pipeline and Distribution Network

Pakistan's Energy Statistics

US Department of Energy Data

China Signs Power Plant Deals in Pakistan

Pakistan Pursues Hydroelectric Projects

Water Scarcity in Pakistan

Energy from Thorium

Comparing US and Pakistani Tax Evasion

Zardari Corruption Probe

Pakistan's Oil and Gas Report 2010

Circular Electricity Debt Problem

International CNG Vehicles Association

Lessons From IPP Experience in Pakistan

Correlation Between Human Development and Energy Consumption

BMI Energy Forecast Pakistan

Thursday, January 7, 2010

Goldman Sachs Bullish on Pakistan

Pakistan's KSE-100 stock index surged 55% in 2009, a year that also saw the South Asian nation wracked by increased violence and its state institutions described by various media talking heads as being on the verge of collapse. Even more surprising is the whopping 825% increase in KSE-100 from 1999 to 2009, which makes it a significantly better performer than the BRIC nations. BRIC darling China has actually underperformed its peers, rising only 150 percent compared with energy-rich Brazil (520 percent) and Russia (326 percent) or well-regulated India (274 percent), which some investors see as a safer and more diverse bet compared with the Chinese equity market, which is dominated by bank stocks. This is the kind of performance that has got the attention of some of the top investors and investment firms around the world. Not only has Goldman Sachs reaffirmed Pakistan's place on the list of its top 15 emerging economies for 2010, smart international investment gurus are investing in Pakistan. For example, Mark Mobius of Franklin Templeton International Funds recently said he is "overweight compared with everyone else" in Pakistani stocks.

Ron Rowland, a researcher at Weiss Research, believes that the world is going to hear a lot more about the "Next 11", a group of 11 nations beyond the four "BRIC" nations of Brazil, Russia, India and China. Goldman Sachs "Next 11" group includes Mexico, Nigeria, Egypt, Turkey, Iran, Pakistan, Bangladesh, Indonesia, Vietnam, South Korea and Philippines. Like BRICs, the rationale for the selection of N-11 is a good-size and growing population with a modern industrial base for a critical mass: The ability to produce consumer goods, and the consumers who can afford to buy them. Having natural resources, such as oil, in your back yard helps too. All of this creates the potential for major consumer and business growth. And the investment opportunities — for those who are patient and do their homework — could be enormous!



However, except for population and good economic potential, the N-11 are a diverse group in terms of their level of economic and market development as well as integration in the world economy. As in the case of BRICs, the authors of the concept, Goldman Sachs Consulting Group, have used variables grouped under Macroeconomic stability, Macroeconomic conditions, Technological capabilities, Human capital and Political conditions to determine the speed with which N-11 will be able to converge or catch up with the developed economies. Indonesia, Mexico and Turkey are three of the N 11 nations are already members of the Group of 20 (G20) nations. The rest of the N11 have the potential to join the group of the twenty largest economies of the world in the next few decades.

Comparing Pakistan with other N-11 countries in 2009, we find that it is only second to Indonesia in terms of population. However, in terms of the size of GDP, it is in the middle of pack, ahead of Bangladesh, Egypt, Nigeria, Philippines and Vietnam. All of this points to the potential Pakistan has to become a major economy based on its population size and demographics in the years to come.

Goldman Sachs report on "Next 11" projects Pakistan's rank moving up from the 26th largest now to the 18th largest economy in the world by 2025. In this context of Pakistan's tremendous economic potential as outlined in the report, there is considerable interest among individual US investors looking for opportunities to invest in Pakistan stocks. Unfortunately, there are no pure-play mutual funds investing exclusively in Pakistan. However, in addition to Franklin Templeton Funds, there are at least two other companies specializing in Asian economies that invest part of the portfolio in Pakistan along with India, Sri Lanka and other countries in Asia. These companies are Matthews Funds and Eaton Vance Funds.

Eaton Vance has Eaton Vance Greater India A Fund(ETGIX) that describes itself as follows: The investment seeks long-term capital appreciation. The fund normally invests at least 80% of net assets in equity securities of companies in India and surrounding countries of the Indian subcontinent. At least 50% of total assets will be invested in equity securities of Indian companies, and no more than 5% of total assets will be invested in companies located in countries other than India, Pakistan or Sri Lanka. The fund invests in companies with a broad range of market capitalizations, including smaller companies.

Matthews Asia Funds has Matthews Asia Pacific Equity Income Fund (MAPIX) which describes its geographic focus as follows: The Asia Pacific Region, which includes Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

It is heartening to see that top international investment professionals and firms continue to have faith in Pakistan's growth potential. To sustain and increase investor interest, it is absolutely essential that Pakistanis strive for a measure of peace and stability. The nation must also continue to increase the necessary investments in developing its human capital and infrastructure to support continued expansion of the economy and to realize the full potential of the country.

Related Links:

Goldman Sachs "Next 11"

Emerging Markets Expert Investing in Pakistan

Who Are the Next 11?

Is Pakistan Too Big to Fail?

GS Next 11 and Pakistan in 2050

Karachi Stock Exchange

Pakistan FDI Survey Report 2009

Emerging Markets: Brazil, China---and Pakistan?

Templeton's Asian Growth Fund

Pakistan Economic Survey 2008-2009

Pakistan's Infrastructure

Karachi Fashion Week

Is Pakistan Too Big to Fail?

How To Invest in Pakistan?

Karachi Fashion Week Goes Bolder

More Pictures From Karachi Fashion Week 2009

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antarctica

Pakistan's Multi-billion Dollar IT Industry

Pakistan's Telecom Boom

Pakistan Telecom Sector Investment Prospects

ITU Internet Data

Eleven Days in Karachi

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Infrastructure and Real Estate Development in Pakistan

Pakistan's International Rankings

Foreign Direct Investments in Pakistan 1999-2009

Pakistan's Financial Services Sector

Assessing Pakistan Army Capabilities

Pakistan's Auto Industry

Pakistan is not Falling

Jinnah's Pakistan Booms Amidst Doom and Gloom

Pakistan's Higher Education Reform

The Next 11 Emerging Economies--Euromonitor

Karachi Stock Exchange Presentation