Saturday, December 14, 2013

Could Pakistan Have Become a Prosperous Democracy Like Asian Tigers By Now?

Taiwan, Singapore and South Korea  experienced a dramatic rise under authoritarian regimes from 1960s through 1990s. The dictators who led these states also showed the way to fellow Asian dictators in Indonesia, Malaysia, Thailand and China who also industrialized and prospered using the same formula that rejected the Washington Consensus of democracy and free markets as the basis for development of all nations.

Per Capita GDP (Constant 2000 US$) Source: World Bank


East and Southeast Asia:

The Asian Tigers have managed their massive growth mainly through export-driven economies that catered to the industrialized West. Each of them has built huge trade surpluses to fund their growth. These countries have invested in  improving education and training to build significant human capital in a couple of decades.

The improved productivity of the workforce, coupled with relatively low wages in Asia's developing economies, have resulted in enormous foreign investments. The large amount of foreign capital has allowed for massive growth. Their export-driven industry has spawned finance and service based industries that we now see, allowing the Tigers to maintain their high GDP. With rapid economic growth and human development, each has built a large middle class, paving the way for democracy to take root. As a result, dictatorships have given way to democracy in recent decades in most of these nations.

South Asia's Performance:

South Asia has been a laggard in economic development when compared with countries in East Asia and South East Asia. No South Asian nation has seen comparable growth in human and economic development. China, a country of 1.4 billion people run by one-party system, is far ahead of India, an equally large country run as a multi-party parliamentary democracy.

Source: Where Are the Poor and Where Are the Poorest?
A billion people were lifted from abject poverty between 1980 and 2010. China accounts for nearly three quarters of these, or 680 million people brought out of misery, by reducing its extreme-poverty rate from 84% in 1980 to 10% now, according to a report in The Economist.  The report adds that with "poorer governance in India and Africa, the next two targets, means that China’s experience is unlikely to be swiftly replicated there".

India: 

As China's share of the world's extreme poor (living below $1.25 per day per person level) has dramatically declined, India's share has significantly increased.  India now contributes 33% (up from 22 % in 1981). While the extreme poor in Sub-Saharan Africa represented only 11 percent of the world’s total in 1981, they now account for 34% of the world’s extreme poor, and China comes next contributing 13 percent (down from 43 percent in 1981), according to the World Bank report titled State of the Poor.

The share of poverty in  South Asia region excluding India has slightly increased from 7% in 1981 to 9% now, according to the report. India now has the world's largest share of the world's poor, hungry, illiterate and sick who still lack access to very basic sanitation.

In a recent book "Street Smarts", a hedge fund Manager Jim Rogers makes some important points to explain how East Asians have succeeded in rapidly developing while others have failed:

 "Many Asians say that the Asian Way is first to open your economy, to bring prosperity to your country, and then, only after that, to open up your political system. They say that the reason the Russians failed is that did it the other way around. Russia opened up its political system in the absence of a sound economy, everybody bitched and complained, and chaos inevitably ensued. As an example of the Asian path to political openness, they point to South Korea and Taiwan, both of which were once vicious dictatorships supported by the United States. Japan was at one time a one-party state supported by the US military. Singapore achieved its current status under one-party, authoritarian rule. All these countries have since become more prosperous and more open. 

Plato, in The Republic, says that the way societies evolve is by going from dictatorship to oligarchy to democracy to chaos and back to dictatorship. It has a certain logic, and Plato was a very smart guy. I do not know if the Asians ever read The Republic, but the Asian way seems to suggest that Plato knew whereof he spoke." Not only is the Asian model different from that of the Soviets, it stands China in marked contrast to those thirty-year dictatorships previously mentioned. Chinese leaders have put a high premium upon changing the country's economy, presumably to seek prosperity for the 1.3 people who live there." 

"And yet,in 1947, when it achieved independence, India was one of the more successful countries in the world, a democratic country. But despite democracy, or maybe because of it, India has never lived up to its potential. China was a shambles as recently as 1980. India was far ahead of it. Bt since then China has left India, literally in the dust....As China rises, India continues to decline relatively. Its debt-to-GDP ratio is now 90 percent, making a strong growth rate virtually impossible."

1960s Pakistan:

Pakistan was on a similar trajectory as the Asian Tigers during 1960s under Gen Ayub Khan's rule. GDP growth in this decade jumped to an average annual rate of 6 percent from 3 percent in the 1950s, according to Pakistani economist Dr. Ishrat Husain. Dr. Husain says: "The manufacturing sector expanded by 9 percent annually and various new industries were set up. Agriculture grew at a respectable rate of 4 percent with the introduction of Green Revolution technology. Governance improved with a major expansion in the government’s capacity for policy analysis, design and implementation, as well as the far-reaching process of institution building.7 The Pakistani polity evolved from what political scientists called a “soft state” to a “developmental” one that had acquired the semblance of political legitimacy. By 1969, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined."




Bangladesh:

Some argue that it was Ayub Khan's rule in 1960s that resulted in the loss of Pakistan's eastern wing and the creation of Bangladesh. I strongly disagree with this view. I believe that ill-conceived general elections of 1970 gave the opportunity to Pakistani politicians to lie to mostly poor and illiterate electorate of the time to win their votes. Shaikh Mujib exploited normal regional economic disparities that can be found in any country, including India and US, to argue that Bengalis were unfairly treated. Just look at the income data for various states in US or in India and you'll see huge gaps in incomes and standards of living. Indian Punjab's per capita income of Rs. 88,783 is 1.4 times higher than West Bengal's Rs. 62,831. Bihar's per capita income of Rs. 28,317 is less than a quarter of Haryana's Rs. 122,660. New Jersey's per capita income of  $53,628 is much higher than Mississippi's $33,073. 

In the end, Zulfikar Ali Bhutto refused to sit down and talk with Shaikh Mujib and forced the split. Here's how one of Bhutto's friends late Gov Salman Taseer offered his view in his book "Bhutto: A Political Biography"

"Blame can never be satisfactorily or finally apportioned to the major players in this grisly drama, but that Bhutto, Mujibur Rahman and Yahya Khan share responsibility there can be no doubt. Many, indeed, are inclined to the view that Bhutto, as the most sure-footed politician of the three and thus the best equipped to assess the consequences of his actions, must accept the lion's share of the blame. Argument on this point will remain one of the central themes of Pakistani politics, perhaps for decades."

The fact is that economic gap between former East Pakistan and Pakistan has grown over the last 40 years, and the per capita income in Pakistan now stands at more than twice Bangladesh's in 2012 in nominal dollar terms,  higher than 1.6X in 1971.



 Here are some figures from Economist magazine's EIU 2013:

Bangladesh GDP per head: $695 (PPP: $1,830)

Pakistan GDP per head: $1,410 (PPP: $2,960)

Pakistan-Bangladesh GDP per head Ratio: 2.03 ( PPP: 1.62)

Pakistan's Economic History:

Since 1947, Pakistan has seen three periods of military rule: 1960s, 1980s and 2000s. In each of these decades, Pakistan's economy has performed significantly better than in decades under political governments.



In a 10/12/1988 interview with Professor Anatol Lieven of King's College and quoted in a book "Pakistan-A Hard Country", here is how eminent Pakistani economist Dr. Mabubul Haq explained lower economic growth under "democratic" governments:


"..every time a new political government comes in they have to distribute huge amounts of state money and jobs as rewards to politicians who have supported them, and short term populist measures to try to convince the people that their election promises meant something, which leaves nothing for long-term development. As far as development is concerned, our system has all the worst features of oligarchy and democracy put together.

That is why only technocratic, non-political governments in Pakistan have ever been able to increase revenues. But they can not stay in power for long because they have no political support...For the same reason we have not been able to deregulate the economy as much as I wanted, despite seven years of trying, because the politicians and officials both like the system Bhutto (Late Prime Minister Zulfikar Ali Bhutto) put in place. It suits them both very well, because it gave them lots of lucrative state-sponsored jobs in industry and banking to take for themselves or distribute to their relatives and supporters."
Human and Economic Development under Musharraf:

Pakistan saw yet another confirmation of accelerated economic and human development under military rule in years 2000-2007.
Pakistan's HDI grew an average rate of 2.7% per year under President Musharraf from 2000 to 2007, and then its pace slowed to 0.7% per year in 2008 to 2012 under elected politicians, according to the 2013 Human Development Report titled “The Rise of the South: Human Progress in a Diverse World”.

Source: Human Development Report 2013-Pakistan



 At 0.515, Pakistan's HDI is lower than the average HDI value of 0.558 for South Asia which is the second lowest among the various regions of the world tracked by UNDP. Between 2000 and 2012, the region registered annual growth of 1.43% in HDI value, which is the highest of the regions. Afghanistan achieved the fastest growth (3.9%), followed by Pakistan (1.7%) and India (1.5%), according to the United Nations Development Program.

Overall, Pakistan's human development score rose by 18.9% during Musharraf years and increased just 3.4% under elected leadership since 2008. The news on the human development front got even worse in the last three years, with HDI growth slowing down as low as 0.59% — a paltry average annual increase of under 0.20 per cent.

 Who's to blame for this dramatic slowdown in the nation's human development?  Who gave it a low priority? Zardari? Peoples' Party? Sharif brothers? PML (N)? PML (Q)? Awami National Party? Muttahida Qaumi Movement?  The answer is: All of them. They were all part of the government. In fact, the biggest share of the blame must be assigned to PML (N).



Sharif brothers weren't part of the ruling coalition at the center. So why should the PML (N) share the blame for falling growth in the nation's HDI? They must accept a large part of the blame because education and health, the biggest contributors to human development, are both provincial subjects and PML(N) was responsible for education and health care of more than half of Pakistan's population.

Pakistan R&D as Percentage of GDP Source: World Bank


Going further back to the  decade of 1990s when the civilian leadership of the country alternated between PML (N) and PPP,  the increase in Pakistan's HDI was 9.3% from 1990 to 2000, less than half of the HDI gain of 18.9% on Musharraf's watch from 2000 to 2007.



Acceleration of HDI growth during Musharraf years was not an accident.  Not only did Musharraf's policies accelerate economic growth, helped create 13 million new jobs, cut poverty in half and halved the country's total debt burden in the period from 2000 to 2007, his government also ensured significant investment and focus on education and health care. In 2011, a Pakistani government commission on education found that public funding for education has been cut from 2.5% of GDP in 2007 to just 1.5% - less than the annual subsidy given to the various PSUs including Pakistan Steel and PIA, both of which  continue to sustain huge losses due to patronage-based hiring.

Source: Pew Surveys in Pakistan

Summary: 

Looking at examples of nations such as the Asian Tigers which have achieved great success in the last few decades, the basic ingredient in each case has been large social sector investments they have made. It will be extremely difficult for Pakistan to catch up unless similar investments are made by Pakistani leaders.



Had Pakistan's development continued on the 1960s trajectory, it is quite conceivable that Pakistan would be a prosperous democracy like the Asian Tigers today.

Related Links:

Haq's Musings

Challenges of Indian Democracy

Pakistan's Economic History

Comparing Bangladesh with Pakistan

Economic and Human Development in Musharraf Years

India's Share of World;s Poor Up from 22% to 33%

Why is Democracy Failing in Pakistan?

Musharraf Era Higher Education Reforms in Pakistan

Comparing 30-Year Dictatorships in Indonesia and Pakistan

Wednesday, December 11, 2013

Pakistan Steps Up IT Projects Roll-Out in Public Sector

IT projects ranging from automated meter reading and computerized land records management to online education and mobile banking are now at various stages of implementation across Pakistan.  In a report released today, the World Bank calls these projects "unprecedented in the public sector in developing countries". The objective of these efforts is to reduce corruption, increase productivity and improve service delivery in both private and public sectors. Here's a brief description of five key areas where information technology penetration is visible:

1. Automated Meter Reading:

Automatic Meter Reading (AMR) project has been rolled out across the country with the help of United States Agency for International Development (USAID).  It is aimed at reducing power theft which accounts for 20-30% of all power generated in Pakistan. It will provide accurate electronic meter readings with little human intervention, using technology to transmit meter readings data via GSM/GPRS and Radio Frequency. It is expected to help power distribution companies (DISCOs) to monitor electricity consumption trends for different consumer categories, understand demand patterns, reduce electricity losses significantly and increase their revenues. Initial AMR pilots indicate significant reduction of power theft in Lahore.

In addition to automatic reading of consumer meters, smart meters have been installed with the support of USAID on incoming and outgoing feeders at all nine government-owned electric utilities. These will help move toward building of a smart national grid to better manage power generation, transmission and distribution in the country.

2. Mobile Governance:

The Punjab government is deploying smartphone applications to crack down on absentee mobile government workers and their corrupt practices. As part of this project, the government employee must send his or her picture and a report of interaction with citizens along with GPS coordinates. For example, a agricultural pest control official required to visit farmers must file reports of his findings and actions in real time via a smartphone app.

An agricultural field monitor uploads a picture of himself and spotted pests on crops using a smartphone. This data is used to ensure visits happen and create easily-accessible time and spatial data. Source: World Bank
An SMS soliciting feedback from citizens is sent out after each such visit or interaction. Responses from users are logged into a central database, and the data then analyzed and mapped. Call centers have also been trained to contact those who do not respond or are unable to read the text due to illiteracy.More than three million users of public services have so far been contacted since the summer of 2012, with both positive and negative feedback, according to the World Bank report. “Sir, we went to the hospital yesterday. They asked for 1500 rupees [in bribes]. We didn’t have the money so we left,” reads one of the reports about a hospital in Lahore, the provincial capital. The feedback is actively monitored by the office the Chief Secretary – the top civil servant in the province – to manage the performance of officials.

Results of Google-sponsored Survey in Pakistan Source: Express Tribune


3. Computerized Land Records:

Provincial land departments in Pakistan regularly show up as the most corrupt in Transparency International surveys conducted every year. In fact, most Pakistanis refer to the culture of corruption in Pakistan as "patwari culture". For the uninitiated, a patwari is a low level official in the land department responsible for keeping land title records. Corrupt patwaris either deliberately misplace such records or delay issuing land title papers when citizens refuse to pay bribes.  With digitization of such records, citizens will be able to check and confirm titles to lands on a computer screen by entering  their computerized national identity card (CNIC) number. Corrupt patwaris are trying to undermine the computerization project.

4. Education and Training:

Pakistan has been at the forefront of using information technology to increase literacy and offer higher education. A pilot program in the country has demonstrated the effectiveness of pushing mass literacy through the use of cell phone text messaging capability.

A UNESCO has recently also started a post-literacy project in Pakistan based on mobile technology. The Mobile Based Post Literacy program is targeted at young rural women, aged between 15 and 25, by keeping them interested in literacy through the mobile phone.

The concept of virtual instruction is finding its way to K-12 education as well. Increasing number of Pakistanis are drawn to various online sites. Silicon Valley NEDians have launched Learntive, an effort to offer digitized lessons in high-school courses.  Virtual Education for All is a local Pakistani initiative extending the concept to primary level.

Virtual University(VU) and Allama Iqbal Open University (AIOU) offer distance learning programs using information technology. Pakistan's Virtual University (VU) has won the Outstanding New Site Award 2012 for an Open CourseWare website which was created in 2011.

5. Mobile Banking:

Combination of growth of mobile phones and ease of mobile money transfers have enabled many Pakistanis to have access to financial services for the first time in their lives.

In a country where only 22% of the population owns bank accounts and more than 70% owns mobile phones, mobile banking is proving to be the fastest way to promote financial inclusion considered by experts to be essential to lift people out of poverty. Benefits include easy access for rural customers to banking services through agents in villages without bank branches, better documentation of the economy, enlarging of the tax-base and efficiency of economic transactions.

Summary: 

Increasing use of computers and mobile phones is enabling broad adoption of information technology in Pakistan. It has the potential to increase transparency, enhance individual productivity and improve standards of living of ordinary citizens.

Related Links:

Haq's Musings

Mobile Internet to Overtake Desktop in 2014 in Pakistan

Biometric Information Technology in Pakistan

Power Theft in Pakistan

Mobile Banking in Pakistan

Mass Literacy Through Mobile Phones

Online Education in Pakistan

Pakistan's Telecom Revolution

Wednesday, December 4, 2013

Drones Anger and Fascinate Pakistanis

Drone is now a household word in Pakistan. It outrages many Pakistanis when used by Americans to hunt militants and launch missiles in FATA. At the same time, it inspires a young generation of students to study artificial intelligence at 60 engineering colleges and universities in Pakistan. It has given rise to robotics competitions at engineering universities like National University of Science and Technology (NUST) and my alma mater NED Engineering University. Continuing reports of new civilian uses of drone technology are adding to the growing interest of Pakistanis in robotics.

Pakistani UAV Shahpar at IDS 2012 Show
Last week,  two indigenously built drones, named Burraq and Shahpar, were inducted into Pakistan Army and Air Force to deal with both internal and external threats. A press release by the military's Inter Service Public Relations (ISPR) announced that Pakistan had inducted its first fleet of “indigenously developed Strategic Unmanned Aerial Vehicles (UAVs), namely Burraq and Shahpar UAV Systems” for the Army and the Air Force. While the press release provided no other information, an photograph released by ISPR showed a model of a canard pusher UAV that appeared to be armed with two under-wing missiles.

Photo Released by ISPR
Shahpar is a tactical UAV is capable of carrying 50 Kg payload and stay aloft for 8 hours. Burraq has the capacity for 100 Kg payload with 12 hours endurance, according to Defense News. Initially, both will serve as reconnaissance platforms to gather and transmit real-time operational  intelligence. In future, Burraq will likely be deployed as an armed UAV to carry and launch laser-guided missiles.

Here's an excerpt of Defense News report on Pakistani UAVs:

Burraq, based on CH-3 specs, would carry around a 100-kilogram payload and 12 hours endurance,” he (analyst Usman Shabbir of the Pakistan Military Consortium think tank) said. The given payload of the (Chinese) CH-3 is a pair of AR-1 (laser-guided) missiles, or a pair of FT-5 small diameter bombs. The ability of Pakistan to field an armed UAV has great benefits when faced with time-sensitive targets, he said. “It is important in a sense that it greatly cuts the gap from detection to shoot,” he said. Adding, “Earlier, once you detected something and wanted it taken out you had to pass on the imagery to higher ups, who had to approve and allocate resources like aircraft and by the time the aircraft got there the bad guys were long gone. Now detect, make decision, shoot and go home — all in same loop.” He does not believe there is any real significance in the systems being named for use with both the Army and the Air Force, however, as “both have been operating their own UAV squadrons for a while now.” “The Army has been using German EMT Luna X-2000 and the British [Meggitt] Banshee UAVs, while PAF as we know has a lot of faith in the Italian [Selex] Falco,” he added. The Luna was also ordered by the Pakistan Navy in June 2012.

The new drones represent a significant advance in Pakistani military's counter-insurgency capacity and battle-readiness for any major conflict in the region.

Related Links:

Haq's Musings

Pakistani Army's Capabilities

India-Pakistan Military Balance

Pakistan's Defense Industry 

Pakistan Army at the Gates of Delhi 

Pakistan Launches UAV Production Line at Kamra

Pakistan's Military-Industrial Complex

Can Pakistani Military Defeat the Taliban?

Can Pakistan Learn From Sri Lanka to End Terror?

Monday, December 2, 2013

Pakistan Currency and Foreign Reserves in Sharp Decline

Pakistani rupee has sharply declined to 109.50 rupees to a US dollar, a loss of nearly 10% of its value in just a few months since Mr. Nawaz Sharif was sworn in as Prime Minister in June, 2013. At the same time, the foreign exchange reserves have plunged to $3.463 billion, a 12-year low since November 2001 when country had foreign reserves of $3.5 billion.

The drop in rupee and foreign exchange reserves is happening in spite of the fact that remittances from overseas Pakistanis are setting new record highs and IMF bailout funds are also being disbursed.

Overseas Pakistanis Remittances:

Overseas Pakistanis have sent home over $55 billion since 2008-9. Last fiscal year alone, expatriates remitted about $14 billion. Additional $ 5.3 billion in remittances have flowed in the first four months (July-October) of the current fiscal year 2013-14, a increase of 6.27 percent over the same period last year.

Foreign Direct Investment:

Net foreign direct investment (FDI) has surged 13.3 percent to $424.9 million in the first four months (July- October) of the fiscal year 2013-14 versus $375.1 million received in the same period of last fiscal year, according to the State Bank of Pakistan as reported in the media.

IMF Bailout:

Pakistan has received $550 million from $6.6 billion bailout package agreed in September this year.

Tweet From Geoffrey Langlands,
 teacher of the ruling Lahore Elite at Aitchison
Policy Inaction:

Economist Sayem Ali was quoted as saying by Pakistani newspaper Express Tribune that sharp decline in foreign exchange reserves resulted from large oil import payments and external debt repayments. “Aggressive monetary tightening, higher import duties and cash margins on imports would have eased the pressure on foreign exchange reserves. However, the government has so far not shown any urgency to arrest the decline in reserves,” he said.

Another Lost Decade?

Economic mismanagement by Nawaz Sharif's economic team brings back memories of the lost decade of 1990s when economic growth plummeted to between 3% and 4%, poverty rose to 33%, inflation was in double digits and the foreign debt mounted to nearly the entire GDP of Pakistan as the governments of Benazir Bhutto (PPP) and Nawaz Sharif (PML) played musical chairs. Before Sharif was ousted in 1999, the two parties had presided over a decade of corruption and mismanagement. In 1999 Pakistan’s total public debt as percentage of GDP was the highest in South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared to Sri Lanka (45.7% and 264.8% respectively in 1998) and India (44.0% and 358.4% respectively in 1998).



After a relatively peaceful but economically stagnant decade of the 1990s, the year 1999 brought a bloodless coup led by General Pervez Musharraf, ushering in an era of accelerated economic growth that led to more than doubling of the national GDP, and dramatic expansion in Pakistan's urban middle class. Pakistan's savings rate  reached historic high of 17.6% of GDP in 2004 and remained above 15% during Musharraf years. It has now plummeted to a new low of just 4.36%.

Pakistan Savings Rate as Percentage of GDP Source: World Bank


The best one can hope for is that Nawaz Sharif and his finance minister Ishaq Dar have learned from their past mistakes and they will try and do better this time around.  I expect it'll be a lot tougher now because of other major issues such as terrorism and energy  which also require a lot more attention.

Here's a video discussion of Pakistan's economy and other current affairs, including Indian elections:



Pakistani Economy under Nawaz Sharif; PTI Dharna; Indian Elections from WBT TV on Vimeo.

Related Links:

Haq's Musings

Pakistan to Beg and Borrow Billions More in 2013-14

Power Companies Profits Soar at Taxpayer's Expense

Does Nawaz Sharif Have a Counter-terrorism Strategy?

Pakistan's Tax Evasion Fosters Aid Dependence

Pakistan's Vast Shale Oil and Gas Reserves

Pak IPPs Make Record Profits Amid Worst Ever Load Shedding 

Global Power Shift Since Industrial Revolution

Massive Growth in Electrical Connections in Pakistan

Finance Minister Ishaq Dar's Budget 2013-14 Speech