Imran Khan has declared overseas Pakistanis the country’s greatest asset and committed to get them to invest in the country. This is not the first time this opportunity has been highlighted. Even the PML-N’s Vision 2025 set the goal of increasing remittances from $14 billion to $40 billion.
In order to understand the potential for remittances, we have to understand three things.
Firstly, for Pakistan, remittances form one of the most important sources of foreign exchange, unlike many other countries.
Remittances, foreign direct investment (FDI), export earnings and official development assistance (ODA) are the four major sources of foreign exchange for Pakistan and in 2016, remittances claimed almost 40 per cent of these inflows into the country. This money comes from 10+ million overseas Pakistanis, forming the sixth-largest diaspora in the world, second only to India, China Russia, Mexico and Bangladesh.
Secondly, this large Pakistani diaspora is rapidly growing. A study by the Asian Development Bank (ADB) led by Guntur Sugiyarto reveals that only 17 years ago, Pakistan had the ninth-largest diaspora in the world, which has jumped three positions since then.
But what is even more impressive is the fact that the remittances have been growing at even a faster pace. Since the year 2000, export earnings have grown by its two and a half, ODA by four times and FDI by eight times (after taking into account CPEC-related investments), but remittances in the same period have increased by 19-20 times in real terms.
A paper by International Growth Center ascribes this phenomenal increase to restraining the informal channels (hawala, hundi), increase in the number of migrants abroad and a rise in migrants’ skill levels, resulting in higher wages and incomes.
But Imran’s promise is not merely about improving remittances and rather about attracting investment from overseas Pakistanis. This may include money that is already being sent as part of remittances and is used to buy plots and other non-productive assets or the savings that are being invested elsewhere in the world.
Imran believes that fixing governance is the way to go and he is not quite off the mark. Global Investment Competiveness Survey shows that transparency and predictability in the conduct of public agencies is one of the key drivers for investment. Various other studies also show that overseas Pakistanis shy away from investing in the country because of distrust in Pakistan’s government and public officials due to corruption and bribery. This resonates with the PTI’s agenda of improving governance and reducing corruption.
But if the PTI is serious about attracting diaspora investments, it will need to do more. First of all, the government will need to put in place appropriate instruments and frameworks.
Many countries have successfully experimented with instruments like diaspora bonds to finance public infrastructure, diaspora venture capital funds to fuel startup and SMEs’ growth and general investment funds to direct investments into the equity market, real estate sector, etc. Such instruments can provide effective vehicles for diaspora investments.
Secondly, the government will need to reach out to influential overseas Pakistanis. The ADB study has suggested setting up a diaspora business council, which could be the first step in this direction.
Thirdly, the government will need to address the trust deficit. Other countries in similar situation have involved intermediaries such as international financial institutions, at least in the beginning, to build trustworthy partnerships to create confidence in the market.
But most importantly, the government will need to overhaul key institutions such as the Board of Investment and the newly created Public Private Partnership Authority to spearhead this process, quickly develop a pipeline of bankable and viable projects, and create an investment-friendly ecosystem through broader reforms.
Published in The Express Tribune, August 7th, 2018.