Counting on the Diaspora for economic change

The influx of remittances is changing, in many ways, Pakistan’s social and economic landscapes.

For the last several years, remittances sent by Pakistanis working abroad have increased by unexpected rates. In the financial year 2013-14, the first quarter of which has been completed, they may bring in an additional $14 billion. This flow has kept the country solvent. By adding to the pathetically low rate of domestic savings, they have contributed to maintaining the rate of growth at just about three per cent a year. These are well-known and recognised facts. What is not fully realised is how this amount of money is changing, in many ways, Pakistan’s social and economic landscapes. In order to highlight some of the changes that are taking place, I will place the Pakistani situation in the South Asian context.

In 2011, the number of people in the worldwide South Asian Diasporas was estimated at 50 million, out of the total number of international migrants numbering 200 million. The number of people leaving South Asia every year is now estimated at 10 million. In 2013, the size of the South Asian Diaspora is 70 million strong. There are four major Diasporas formed by the South Asians over the last several decades. They are to be found in Britain, East Africa, the Middle East and North America. The fifth is in the process of being formed in South East Asia, including Australia.

The Diaspora per capita incomes range between $5,000 and $65,000. The lower figure is for the Middle East where most of the people who have gone in search of work have low-level skills. The highest level of income is in North America where the Diaspora is peopled mostly with professionals with high skill-levels. The average per capita income is around $25,000. This means that the total income earned a year by the people of South Asian attraction living and working abroad is approaching $2 trillion a year. This is 10 per cent more than the combined South Asian national income.

Migrants always save more than the host populations. The savings rate for South Asian’s working in the Middle East is very high — averaging at 80 per cent of the earned incomes. Almost the entire saved amount is remitted back to the home countries. For the entire Diaspora the savings rate is in the order of 30 per cent. This means that $600 billion of savings are being set aside for various kinds of expenditures and investments. Since the total amount of remittances received by South Asia is now estimated at $100 billion, the members of the Diaspora send a sixth of their savings to what were once their home countries — the remaining half a trillion goes into asset formation. The total assets owned and kept abroad by South Asians now amount to $1.5 trillion. This asset base adds another $10 billion a year to the total amount earned by the members of this community.

What has gone mostly unnoticed by academics, as well as those responsible for making public policy, is the way the money coming in from abroad by way of remittances is changing the social structure of South Asia. This change also has an enormous amount of impact on the area’s economy. Dozens of studies have been carried out to determine the size of the middle class in South Asia. I place the number of people in this category at 950 million, about 60 per cent of the total population. This class is divided into two parts, each with about the same number. The 475 million or so are very close to the fringe of poverty. About 10 million are moving up every year from being absolutely poor to the ranks of the lower middle class. This is on account of the augmentation of their incomes from the remittances they receive from the relatives working abroad. By the year 2020, the number in the lower middle class will increase to almost 550 million. Those who have higher income levels will remain about the same. In other words, the lower middle class will account for about 55 per cent of the total number of people at the middle income level. While the upper middle class will be located mostly in the region’s large and middle-sized cities, the lower middle class will have a larger number in the countryside. However, they will not be dependent on agriculture for most of their livelihood. They will be involved mostly in the service sector.

Relieved from producing goods and commodities for their own consumption, this class of consumers will begin to depend on simple manufactures. Processed food has already become readily available in the rural areas — in villages and in small towns. In Pakistan, small rural stores carry prepared masalas produced by such large companies as National Food and Shan Masala. This greater reliance on processed items of food have cut down on the amount of time women must spend in the home kitchen. Thus freed, they have taken up new lines of economic activity including minding livestock, stitching and sewing. The failure of the public sector to provide quality education has brought in a number of young women into the business of education. Thousands of privately run schools now dot the country’s landscape. Most of these activities don’t get counted in national income accounts. This is one reason why the gross domestic product is seriously underestimated in all of South Asia.

The main point of this analysis is that the large amounts of remittances that are flowing into the region, from several places that have a large concentration of South Asians, are producing profound socio-economic change in the subcontinent. This change is seldom included in the South Asian economic story.

Published in The Express Tribune, October 14^th, 2013.

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