Showing posts with label Incomes. Show all posts
Showing posts with label Incomes. Show all posts

Wednesday, April 14, 2021

2010-2020: Pakistan's Lost Decade

Until 2010, Bangladesh was a laggard in South Asia region. Its per capita income was about half of Pakistan's. Now Bangladesh has surpassed Pakistan as the Pakistani economy has suffered significant slow-down from the previous decade. In fact, the Pakistan economy grew at the slowest rate in South Asia as reflected in per capita incomes. However, the income inequality in Pakistan continues to be the lowest in South Asia. 

Per Capita Income Growth in Pakistan Lags in South Asia. Source: World Bank

Lower income inequality in Pakistan is reflected in its abysmal domestic savings and investment rate of around 10% of GDP. It shows in Pakistan's lower economic growth rate compared to Bangladesh and India. The distribution of national income in a country is a key socioeconomic variable with broad economic and societal implications. Income inequality and wealth inequality are related because the flow of income determines savings and investments, which in turn determine GDP growth and accumulation of wealth. An economic model offered by Galor and Zeira predicts that the effect of rising inequality on GDP per capita is negative in relatively rich countries but positive in poor countries like Pakistan.

Source: The Economist


Investment as Percentage of GDP Source: State Bank of Pakistan 

US Aid to Pakistan 2001-2020


While Pakistan's per capita income more than doubled from $500 to $1,000 in the ten years 2000 to 2010, the growth has slowed to less than 30% from 2010 to 2020. Faster GDP growth in the decade of 2000-2010 was partly the result of significant increase in Pakistan's savings and investment rates.  Meanwhile, rising worker remittances from overseas Pakistanis have been boosting Pakistan national savings rate and helping reduce current account deficits. 

Savings Rate in Pakistan. Source: Dawn

Pakistan also saw rapid economic growth in the 1960s in spite of low domestic savings rate. This can be explained by foreign development aid of as much as 10% of GDP that Pakistan received in that decade.


Foreign Aid to Pakistan as Percent of GDP Source: World Bank


Pakistan's exports doubled from $10 billion to $20 billion in years 2000-2010. In the last decade 2010-2020, the nation's exports have grown only about 25% to $25 billion. Exports have declined in terms of percentage of the country's GDP from 13% to 10% in the most recent decade. . 

Pakistan Exports Since Year 2000. Source: World Bank


Return on money invested in Pakistani stock market has also been cut in half in 2010-2020 when compared with the return in 2000-2010.  Shares of companies making up the Karachi Stock Exchange 100 index have returned 8% in US$ terms in 2010-2020, less than half of the 20% during 2000-2010 period. KSE100 still managed to achieve 14% return over the 20-year period from 2001 to 2021, among the highest in the world. 


Stock Market Returns. Source: Tundra 


Foreign direct investment (FDI) in Pakistan ramped up in 2000-2010, reaching the peak of $5.6 billion (3.67% of GDP) in 2007. FDI inflow has since suffered a steep decline.

Foreign Direct Investment in Pakistan. Source: World Bank

Pakistan FDI inflows have significantly lagged behind those of the rest of South Asia.

FDI Inflows in Pakistan. Source: World Bank

Pakistan's manufacturing output tripled from $7 billion in 2000 to $21 billion in 2010. Then it rose just 60% to $34 billion in 2019. The nation's industrial output declined as percentage of GDP from 14% to 12% in the last decade, according to the data from UNIDO, the United Nations Industrial Development Organization. 

Pakistan's Manufacturing Output Trend Since 2000. Source: World Bank


Pakistan's literacy rate has been flat at about 59% in the last decade (2010-2019) after substantial rise from 45% to 55% in the decade of 2000-2010. 


Pakistan Literacy Rate. Source: World Bank

The net primary enrollment rate in Pakistan jumped from 55% in 2000 to 65% in 2010. The progress on this metric slowed as it increased just two percentage points to 67% in 2019. 


Net Primary Enrollment Rate in Pakistan. Source: World Bank


Pakistan has seen a major decline in the rate of human development growth in the country over the last decade. Pakistan saw HDI (Human Development Index) average annual growth of 1.4% in 2000-2009 and 0.80% in 2010-2019, according to Human Development Indices and Indicators 2018 Statistical Update.  The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018.

Pakistan Human Development Index Growth Rate. Source: Human Development Report 2020


Bangladesh surpassing Pakistan in socioeconomic indicators has brought into sharp focus the contrast between Pakistan's decades of 2000-2010 and 2010-2020.What changed? The biggest change is Bangladeshi leader Shaikh Hasina's decision to stifle the unruly Opposition and the media to bring political and economic stability to the South Asian nation of 160 million people. It has eliminated a constant sense of crisis and assured investors and businesses of continuity of government policies. With development taking precedence over democracy, Shaikh Hasina followed the example of Asian Tigers  by focusing on export-led economic growth of her country. She incentivized the export-oriented garment industry and invested in human development. Bangladesh now outperforms India and Pakistan in a whole range of socioeconomic indicators: exports, economic growth, infant mortality rate, primary school enrollment, fertility rate and life expectancy.       

South Asian Countries' Export Growth. Source: Wall Street Journal

Bangladesh's garment exports have helped its economy outshine India's and Pakistan's in the last decade. Impressed by Bangladesh's progress, the United Nations’ Committee for Development Policy has recommended that the country be upgraded from least developed category that it has held the last 50 years. 

The next challenge for Bangladesh is to move toward higher-value add manufacturing and exports, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995, according to the Wall Street Journal. 

Pakistan Growth By Decades. Source: National Trade and Transport Facility


Vietnam ruled by autocrats is rapidly becoming an Asian Tiger. With rising manufacturing costs in China and the US-China trade war,  many major manufacturers are relocating to other countries in Asia. This situation has helped Vietnam emerge as a hub of foreign direct investment (FDI). FDI flow into the country has averaged more than 6% of GDP, the highest of any emerging economy. The country’s recent economic data shows a rise of 18% in exports, with a 26% jump in computers/components exports and a 63% jump in machinery/accessories exports.  These figures have earned Vietnam the moniker of the newest "Asian Tiger".

Musharraf Years & History of Pakistan's GDP Growth Rates. Source: PBS 


It was in 2007 that Pakistan caught the "democracy" fever led by the lawless lawyers of Lahore. This led to the return of corrupt dynastic rule of Asif Zardari and then Nawaz Sharif. The year 2007 also marked the beginning of yet another lost decade that saw Pakistan's per capita gdp's continuing lag behind South Asia region and other emerging economies. 


Pakistan was the original "Asian Tiger" back in the 1960s when  other developing Asian economies sought to emulate its development model. It became an export powerhouse in the 1960s when the country's manufactured exports exceeded those of Thailand, Malaysia and Indonesia combined.  The creation of major industrial estates in Karachi under President Ayub Khan's industrial policy incentivized industrial production and exports of value added manufactured products such as textiles. Now the country's industrial output lags its neighbors'. 

History of Pakistan's Manufactured Exports


With Chinese looking to relocate some of their industrial production to low-cost countries, Pakistan has a golden opportunity to grow its industrial output and exports again. Here's Karen Chen explaining why:

“Vietnam is too crowded already and moved into automobiles and electronics. There is no space for investment in Vietnam. Myanmar doesn’t have infrastructure. India is terrible. In Bangladesh you don’t have right conditions for setting up fabric units. So Pakistan is the ideal location for such garment manufacturing because of abundance of cheaper labour. The investment and tax policies for SEZs and new projects are also good. We’ve confidence to be at here.”

Seizing the opportunity to attract export-oriented investors will help Pakistan become the next Asian Asian Tiger economy. It will help the country avoid recurring balance-of-payments crises that have forced the nation to seek IMF bailouts with all their tough conditions. Focusing on "Plug and Play" Special Economic Zones (SEZs) is going to be essential to achieve this objective.

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Thursday, April 23, 2020

Incomes of Pakistan's Poorest Rising Faster Than Richest Pakistanis'

Pakistan Living Standards Measurement Survey (PSLM/HIES) of 2018-19 has revealed that the incomes of the poorest Pakistanis are rising much faster than the those of their richest counterparts. The survey measures changes in incomes, expenditures and living standards of the population by quintiles on a periodic basis. The survey provides detailed outcome indicators on education, health, population welfare, housing, water sanitation and hygiene, information communication and technology (ICT), food insecurity experience scale (FIES) and income and expenditure.

Average Monthly Income Growth By Quintiles. Courtesy: Bilal Gilani of Gallup Pakistan

PSLM/HIES 2018-19 compares incomes with those reported in PSLM/HIES 2015-16.  It shows that the average household monthly income in Pakistan has jumped 16.5% to Rs. 41,545.  It also shows that the average monthly income of the lowest quintile (Q1) in Pakistan rose 17.5% and that of the second lowest quintile (Q2) grew 22%, significantly faster than 11.7% for the middle quintile (Q3) and 12% and 5.1% for the top two quintiles (Q4 and Q5) respectively.

The average monthly income of Q1, the poorest quintile, stands at Rs. 23,192 in 2018-19. The second-lowest quintile’s income is Rs. 29,049. The middle-income group (Q3) is Rs. 31,373. The higher middle-income group’s average monthly income has increased to Rs. 37,643. The average monthly income of the top income group (Q4) is estimated at Rs. 63,544.
Monthly Household Incomes By Provinces. Source: PLSM/HIES 2018-19

Average monthly household income in Balochistan is Rs. 36,387, the lowest among the provinces. However, it has grown 21.2% since 2015-16,  much faster than Punjab's 18.3%, KP's 11.4% and Sindh's 15.1%.

Change in Share of Income From 1990 To 2015 in Poorest (Left) & Richest (Right) Quintiles. Source: UNESCAP

Pakistan's latest PSLM/HIES survey confirms long term trend of the lower quintiles gaining an increasing share of the national income.  Earlier in 2015, the United Nations Economic and Social Commission for Asia and Pacific (NESCAP) Statistical Yearbook for 2015 showed that the share of national income of Pakistan's poorest 20% of households increased from 8.1% to 9.6% in 1990-2015.  It was the highest share of income for the bottom income quintile reported in the region.


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Thursday, October 12, 2017

Pakistan Meat Industry Experiencing Strong Growth

Pakistan per capita meat consumption has nearly tripled from 11.7 kg in 2000 to 32 kg in 2016. It is projected to rise to 47 kg by 2020.

Rising Incomes and Meat Consumption:

Pakistan's per capita meat consumption has nearly tripled from 11.7 kg in 2000 to 32 kg in 2016. It is projected to rise to 47 kg by 2020, according to a paper published by the United States National Library of Medicines at the National Institutes of Health (NIH).  Organization for Economic Development (OECD) explains that meat demand increases with higher incomes and a shift - often due to growing urbanization - to food preferences that favor increased proteins from animal sources in diets.


Meat Production in Pakistan. Source: FAO

The NIH paper authors Mohammad Shoaib and Faraz Jamil point out that Pakistan's meat consumption of 32 Kg per person is only a third of the meat capita meat consumption in rich countries like Australia and the United States.

A study published in Proceedings of the National Academy of Sciences and Nature magazine reports that Pakistanis are among the most carnivorous people in the world.  After studying the eating habits of 176 countries, the authors found that average human being is at 2.21 trophic level. It put Pakistanis at 2.4, the same trophic level as Europeans and Americans. China and India are at 2.1 and 2.2 respectively.

Increasing Meat Exports: 

Pakistan's meat exports are growing about 30% a year, up from $29 million in 2005 to $243.5 million in 2015, according to report in Globalmeatnews.com.

Pakistan Meat Exports. Source: Express Tribune

Rapid growth in meat production and exports is supported by an ongoing livestock revolution in the country.  The Pakistani livestock sector now contributes about 56.3% of the value of agriculture and nearly 11% to the overall gross domestic product. Milk is the single most important commodity in this sector.

Future Growth:

“In the next three to five years, livestock sector should grow 4-5% per annum and its contribution to GDP looks set to remain in double digits”, says a senior official of the Ministry of National Food Security and Research according to Dawn newspaper. In FY16, livestock growth was 3.6% and its 11.6% contribution to GDP value-addition.

Downside:

While the global meat industry provides food and a livelihood for billions of people, it also has significant environmental and health consequences for the planet. The key is moderation in meat consumption to maintain good health and protect the environment.

Summary:

Pakistan's per capita meat consumption has nearly tripled since 2000. It has grown with higher per capita incomes and increasing urbanization.  Meat exports are also accelerating at a rate of 30% a year. Meat consumption and exports are supported by an ongoing livestock revolution in the country.  The Pakistani livestock sector now contributes about 56.3% of the value of agriculture and nearly 11% to the country's overall gross domestic product. Milk is the single most important commodity in this sector.

Related Links:

Haq's Musings

Meat and Dairy Revolution in Pakistan

Pakistanis Are Among the Most Carnivorous

Eid ul Azha: Multi-Billion Dollar Urban-to-Rural Transfer

Pakistan's Rural Economy

Pakistan Leads South Asia in Agriculture Value Addition

Median Incomes in India and Pakistan

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Sunday, May 7, 2017

Comparing Ownership of Appliances and Vehicles in India and Pakistan

Ownership of consumer durables like computers, home appliances and vehicles is often seen as an important indicator of the size and health of the middle classes in emerging economies. Examples of periodic household surveys used by researchers to measure such data include NSS (National Sampling Survey) in India and PSLM (Pakistan Social and Living Standards Measurement) in Pakistan.

Durables Ownership in India and Pakistan. Source: KSBL


India-Pakistan Comparison:

Dr. Jawaid Abdul Ghani, a professor at Karachi School of Business Leadership, has recently analyzed household surveys in India and Pakistan to discover the following:

1.  As of 2015, car ownership in both India and Pakistan is about the same at 6% of households owning a car. However, 41% of Pakistani household own motorcycles, several points higher than India's 32%.

Appliance Ownership in South Asia. Source: Seeking Alpha

2. 12% of Pakistani households own a computer, slightly higher than 11% in India.

3. Higher percentage of Pakistani households own appliances such as refrigerators (Pakistan 47%, India 33%), washing machines (Pakistan 48%, India 15%) and fans (Pakistan 91%, India 83%).

4. 71% of Indian households own televisions versus 62% in Pakistan.

Durables Ownership Growth in Pakistan. Source: KSBL
Growth over Time:

Dr. Abdul Ghani has also analyzed household data to show that the percentage of Pakistani households owning washing machines has doubled while car and refrigerator ownership has tripled and motorcycle ownership jumped 6-fold from 2001 to 2014.

Income/Consumption Growth in Pakistan. Source: KSBL

Rapid Income Growth:

Rising ownership of durables in Pakistan has been driven by significant reduction in poverty and growth of household incomes, according to Dr. Abdul Ghani's research. Percentage of households with per capita income of under $2 per day per person has plummeted from 57% in 2001 to 7% in 2014. At the same time, the percentage of households earning $2 to $10 per day per person has soared from 42% of households in 2001 to 87% of households in 2014.  The percentage of those earning over $10 per day per person has jumped 7-fold from 1% of households in 2001 to 7% of households in 2014.

Pakistani Middle Class:

Only 5% of Pakistanis in $2-$4 per day per person income group have college degrees. But 20% of those in $4-$10 have college degrees, according to the survey results.

Pakistan Middle Class Profile. Source: KSBL

Credit Suisse Income and Wealth Data:

Average Pakistani adult is 20% richer than an average Indian adult and the median wealth of a Pakistani adult is 120% higher than that of his or her Indian counterpart, according to Credit Suisse Wealth Report 2016. Average household wealth in Pakistan has grown 2.1% while it has declined 0.8% in India since the end of last year.

Median wealth data indicates that 50% of Pakistanis own more than $1,180 per adult which is 120% more than the $608 per adult owned by 50% of Indians.

GDP Estimates Using Household Survey Data:

Pakistan's GDP calculated from consumption data in PSLM is significantly higher than the government estimates based on production data. The reverse is true of Indian GDP.

M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE),  explored several published different approaches for sizing Pakistan's underground economy and settled on a combination of  PSLM (Pakistan Social and Living Standards Measurement) consumption data  and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08". 

 Prominent Indian economists Abhijit V Banerjee, Pranab Bardhan, Rohini Somanathan and TN Srinivasan teaching at MIT, UC Berkeley, Yale University and Delhi School of Economics believe that India's GDP estimate based on household survey (National Sampling Service or NSS) data is about half of what the Indian government officially reports as India's GDP. 

 Here's a quote from French economist Thomas Piketty's book "Capital in the Twenty-First Century" explaining his skepticism of production-based official GDP figures of India and China:

 "Note, too, that the very high official growth figures for developing countries (especially India and China) over the past few decades are based almost exclusively on production statistics. If one tries to measure income growth by using household survey data, it is often quite difficult to identify the reported rates of macroeconomic growth: Indian and Chinese incomes are certainly increasing rapidly, but not as rapidly as one would infer from official growth statistics. This paradox-sometimes referred to as the "black hole" of growth-is obviously problematic. It may be due to the overestimation of the growth of output (there are many bureaucratic incentives for doing so), or perhaps the underestimation of income growth (household have their own flaws)), or most likely both. In particular, the missing income may be explained by the possibility that a disproportionate share of the growth in output has gone to the most highly remunerated individuals, whose incomes are not always captured in the tax data." 
Who is Dr. Jawaid Abdul Ghani?

The PSLM household data cited in this blog post is taken from a recent presentation made by Dr. Jawaid Abdul Ghani at the Karachi School of Business and Leadership (KSBL) where he teaches. KSBL has been established in collaboration with  Cambridge University's Judge Business School. Prior to his current faculty position, Dr. Abdul Ghani taught at MIT's Sloane School of Management and Lahore University of Management Sciences (LUMS). He has a computer science degree from MIT and an MBA from Wharton Business School.

Summary:

Pakistan has managed to significantly reduce poverty and rapidly grow its middle class since 2001 in spite of major political, security and economic challenges. The foundation for the rise of the middle class was laid on President Musharraf's watch by his government's decisions to invest in education and infrastructure projects that led to the expansion of both human and financial capital. My hope is that the continued improvement in security situation and implementation of China-Pakistan Economic Corridor (CPEC) related projects will bring in higher long-term investments and accelerate Pakistan's progress toward prosperity for all of its citizens.

Related Links:

Haq's Musings

Credit Suisse Wealth Report 2016

Pakistan: A Majority Middle Class Country

Karachi School of Business and Leadership

State Bank: Pakistan's Actual GDP Higher Than Officially Reported

College Enrollment in Pakistan

Musharraf Accelerated Development of Pakistan's Human and Financial Capital

China-Pakistan Economic Corridor


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