Another kind of influence

By Shahid Javed Burki

When people in Pakistan talk about the growing American influence in their country, they are, of course, thinking of the way Washington may be affecting policymaking in Islamabad. That the administration headed by President George W. Bush has forged a close relationship with the administration of President Pervez Musharraf is a fact of life for Pakistan.

However, there is one other way in which America has begun to impact on developments in Pakistan. What I have in mind is the influence originating from an increasingly powerful group in America. The reference here is to the Pakistani diaspora in the United States made up of hundreds of thousands of Pakistanis resident in different parts of that country.

In the minds of many Pakistanis, the recent economic recovery in the country is attributed to the large flows of foreign capital. This is true to some extent. But less well known and realized is the fact that the largest part of this flow is not from official sources such as the government of the United States or the World Bank or the Asian Development Bank. It is coming in as remittances being sent by Pakistanis living and working abroad.

Since the mid-seventies, when this type of external flow became important for the Pakistani economy, it was referred to as "workers' remittances". That was a correct description since the bulk of the money being sent then was coming from the millions of Pakistanis working in the Middle East.

A very large number of these people were unskilled or semi-skilled workers labouring on thousands of construction sites all over the oil producing and exporting countries of the Middle East.

These workers went on short-term assignments that lasted for no more than three to five years. They lived in labour camps near the construction sites, saved most of what they earned, and remitted back to Pakistan most of what they saved.

There was an impression at that time that much of this flow of money was simply frittered away by those who received it. There was no doubt some waste that always happens with windfall incomes.

That notwithstanding, the remittances went straight to friends and families of the workers and a good proportion of the money was used for meeting the basic needs of dependents that had stayed back.

That the incidence of poverty declined in Pakistan by a significant amount during this period was largely the result of the flow of this money to the poor. But that was then. Now the origin of remittances and the use to which they are being put are entirely different from those earlier flows.

The construction boom in the Middle East is now mostly over; most of the workers who were employed on the construction sites are back in Pakistan; the people of Pakistani origin still resident in the Middle East mostly represent a different economic and social class; their pattern of savings and investments are different from those who worked in this part of the world a few decades ago.

They have, in other words, a different kind of relationship with the homeland. The Pakistanis living and working in the Middle East are not sending back as much money as was the case with the first wave of migrants.

One way of illustrating this fundamental change in diaspora economics is to look at the streams of remittances into the country over the last several decades. For a quarter century from 1975 to 2000, Saudi Arabia was the largest source of remittances into Pakistan.

In the 10-year period between 1990-1991 and 1999-2000, Pakistanis living in Saudi Arabia sent a total of $4.796 billion to their homeland. This averaged at $480 million a year. However, the amounts being sent declined steadily from $682 million in 1990-1991 to only $310 million in 1999-2000. By the end of the decade of the nineties, the amount of remittances received by Pakistan from Saudi Arabia was less than one-half of the amount at the beginning of the decade.

Not only did the amounts sent by the Pakistanis in Saudi Arabia decline, their proportion in the total also fell significantly. In 1990-1991, the Saudi Arabian remittances accounted for 37.4 per cent of the total; 10 years later, the proportion had declined to only 28.5 per cent.

During the same period, Pakistanis living in the United States began to increase the amount of money they were remitting to the homeland. This flow cannot be called "workers' remittances" in the strict sense of that term.

The funds that constituted this stream were not emanating from the working class but from the class of professionals who had, over time, built a large diaspora in North America.

What motivated this group of people was not the provision of financial assistance to the people they had left behind. They were much more interested in making economic investments in the country of their origin.

The stringent regulations introduced on money transfers after the terrorist attacks on the United States on September 11, 2001, had an impact on this flow of funds. In one year - between 2000-2001 and 2001-2002 - remittances from the United States increased almost six-fold, from $135 million to $779 million.

In the following year, they increased by another 60 per cent and reached a record of $1.24 billion. They have stayed around that level since then. What explains the sudden jump in this type of financial flow?

The initial impetus no doubt came from the steps taken by the US treasury following the terrorist attack. Instead of using the informal 'hundi' and 'hawala' channels for transmitting funds, the remitters were forced by new regulations to use official banking channels.

Some black money that was available with the members of the expatriates also came under scrutiny and was probably pulled out of the United States and sent back to Pakistan.

Some of the remitted money probably constituted capital flight - deposits held in the American banking system by the Pakistani businesses awaiting a turnaround in their country's economy. Some members of the Pakistani diaspora in the United States, troubled by the policies pursued by Washington in the Muslim world, may have sought new investment opportunities in their own country.

All these factors contributed to the sharp flow of private funds from the United States to Pakistan. But there is more to the story than this explanation. There is enough anecdotal evidence available from around the United States to suggest that a profound change is occurring in the way the expatriates are viewing Pakistan and the way they might become important players in Pakistan's economic progress. Islamabad would do well to take cognizance of this development and begin to cater in its planning to the wishes and aspirations of the members of the diaspora.

How large is the Pakistani community in North America (Canada and the United States) and what is the level of their incomes, savings and investments? How much wealth has this community accumulated and to what use is it being put? There is little solid information available to provide good answers to these questions.

I have suggested in some of my writings that the number of Pakistanis living in the United States and Canada is close to a million, about equal to those resident in Britain. That estimate was based on some of the information available from the US Census but the problem with the official numbers is that they use the place of birth to identify the country of origin of the people living in the country. A state-by-state survey done by the Pakistan embassy in Washington suggests a much smaller number.

The Indians who claim the size of their North American community to be about 2.5 million believe that there are only 150,000 people of Pakistani origin in the United States.

There is a reason why the Indians would favour a smaller estimate for the size of the Pakistani diaspora; the larger the size the greater the political influence of the community.

A similar debate has gone on for some time between the Jewish and Muslim populations of the United States. Organizations representing the former claim that at most there are two to three million Muslims in the United States; the latter put their number at between six and eight million.

Even if we use a number of half a million for the size of the Pakistani community in the United States, their economic presence with reference to the homeland would still be considerable. There are several ways of estimating the economic size of this community. Since little information is available about this, I will use mostly guesswork or information about other expatriates.

If the average income per head of the members of the diaspora is $50,000 - more than the average for the United States but a bit less than the average for the Indian community - the aggregate income per head of the community is of the order of $25 billion.

This is more than one quarter of the revised estimate for Pakistan's gross domestic product. If this community saves one quarter of its annual income, the aggregate savings would amount to over $6 billion. This is equivalent to about one third of net national savings of Pakistan estimated by the World Bank at 18 per cent of the gross domestic product.

How have the expatriates deployed their savings over time? As is the case with all immigrants, housing is generally the first destination of savings. I estimate the accumulated wealth of this community at about $100 billion.

Of this, probably one half, or $50 billion, is in housing. This translates into about 200,000 housing units that this community owns in the United States. About a quarter, or $25 billion, is invested in businesses, mostly small. The remaining $25 billion is in various kinds of financial assets.

The amount of total income of Pakistani expatriates in the United States will continue to increase if there is no addition to their numbers. This will happen since the total wealth of the community will keep on increasing which in turn will produce additional income.

We can, therefore, safely assume that the economic size of the expatriates will continue to expand, probably at a rate larger than the rate of increase in Pakistan's gross domestic product? How has this economic wealth begun to affect Pakistan and what is likely to happen in the future? I will take up these questions next week.

[taken from http://www.dawn.com/2005/03/22/op.htm#1]

Date/Time Page Created: 03/29/05

Date/Time Last Modified: 3/29/2005 2:30:22 PM

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