December 1, 2003	Monday	Shawwal 6, 1424

Some $60 billion are sent home through official channels by migrants to developing countries each year. Add to this another $15 billion in various unreported ways and the number is an astonishing $75 billion. Taken as a percentage of recipient countries’ GDP, such remittances are significant, making expatriates a potent force for economic growth.

Both China and India are economies that have benefited greatly from expatriates. According to estimates, in US dollar terms, China could overtake Germany in the next four years, Japan by 2015 and the US by 2039. Today’s rapidly growing China is drawing on the talents of its foreign-educated and western-trained elite more than ever. Most returnees are going into business—either joining the staff of foreign multinationals or state-owned enterprises, or setting up their own business.

The Musharraf government must devise a dynamic, coherent and forward-looking strategy to attract Pakistani expatriates for investing their efforts and resources. During his 2000 visit to the US, General Pervez Musharraf agreed there was a lack of confidence among expatriate Pakistanis about investing in Pakistan. He stated, quite correctly, that the ill effects of what had been done in the past were still being felt and expressed his determination to institutionalize the system so that funds invested in Pakistan receive full security.

Three years later, the Musharraf Government has stood by its commitment. Consistent economic policies, a stable macroeconomic, fiscal and monetary environment and surge in inward remittances post-September 11 are sufficient proof of this. Now it must successfully translate this consistency, credibility and confidence into direct, tangible economic progress.

Talent with optimism: Globally, Pakistani expatriates are well-placed in all areas of business, including banking, IT, health care, to name a few. Given a friendly, less bureaucratic business environment, many would be encouraged to return and serve the motherland. Pakistan’s leaders must be astute at harnessing such returning talent and the boundless optimism that has generated success overseas.

One need not go far to see how to do this successfully: China is a live example. Due to favourable policies, in Beijing alone, there are now 3,300 enterprises started by returners, including some of the country’s largest private companies.

Attracting expatriates: Pakistani officials must establish contact with expats who are potential returners in an organized, regular and meaningful manner. If those who go abroad subsequently return, they may import useful skills and contacts. A recent Canadian study found that, during the 1980s, a 10 per cent increase in the number of immigrants from a given country went with a 1 per cent rise in exports to and a 3 per cent increase in imports from that country.

Business parks must be set up exclusively for the use of Pakistani expatriates. Initially, such parks must be established in Karachi, Lahore and Islamabad providing access to communications infrastructure, databases, banking, tax and legal opinion, etc.

Those expats who do decide to return should receive tax breaks, cheap office space, start-up loans and advice on how to navigate the local bureaucracy. Not all expats may utilize it, but a business-friendly environment is necessary to draw expat attention. China has successfully adopted this approach. Unlike most Chinese, returnees are not required to renew their visas and passports every few months.

In addition, further steps need to be taken by the government that will enhance the confidence of expatriates. The government’s recent decision to float a $500 million international bond in February next year is an astute idea. Economics apart, such marketing and projection help the world outside better understand the situation in Pakistan. An extensive framework needs to be established to develop a venture capital industry as initially, banks may be reluctant to lend to expat entrepreneurs.

Concrete steps that should be taken to provide Pakistani expatriates incentives for investment include:

Exemption: Expat investments would generate economic activity, broaden the industrial base, and create more jobs and employment. Policymakers must be mindful that expats are paying taxes in their adopted countries and any scheme that levies similar taxes in Pakistan would not attract their attention or please their investment appetite. In South Korea, for instance, there is a 10-year exemption on corporate tax for such businesses operating in a special economic zone.

Simplification of the investment approval process and creation of special zones:

Today investors have a wide array of investment opportunities in different countries to choose from. After discounting for a country’s sovereign, political, currency and business risk, investors compare investment opportunities in terms of micro-structural and procedural issues.

Recently, South Korean Finance Minister Kim Jin-pyo said that three special economic zones were being set up in South Korea. The move by Seoul is a sign of the increasingly tough competition for investment among Asian countries at a time when many investors are focussing on China.

Indians used to joke that the British Raj has given way to the license raj: even the smallest investment decision by a private firm required government approval, very often all the way from New Delhi. In 1991, the reformist finance minister, Dr. Manmohan Singh, carried out the work of dismantling this bureaucratic behemoth. The results of his policies speak for themselves. According to Goldman Sachs, an investment bank, India has the potential to show the fastest growth of BRICs (Brazil, Russia, India, China) economies over the next 30 and 50 years. Growth could be higher than 5 per cent over the next 30 years and close to 5 per cent as late as 2050 if development proceeds successfully.

In Pakistan, the bureaucracy must be dismantled and the investment approval process made quick, simple and effective. The red tapism inherited from the British Raj must be abolished. Furthermore, the government must provide legal protection to such business ventures against a reversal of any policies based upon which such projects were envisaged.

Creation a database: In order to allow expats to easily access the “talent pool”, a national database should be constructed that provides a listing of all professions and disciplines along with the names of all qualified human resources. This list should be made available on-line allowing access to hiring talent for a proposed venture.

Effective communication: When circumstances or policies change, these should be properly communicated to expats through a simple notification, through newspapers, websites. There must be a central source that can be accessed by this group to keep them in touch with the realities on the ground.

Problems: A culture where advancement depends on political affiliation rather than merit will lose bright people to societies where talent is what counts. But once a developing country starts to grow rich, a return flow will build up of its own accord. Taiwan, South Korea and China all now receive considerable return migration. Ireland, once a land of emigrants, has become a country of net immigration.

We must be aware that the perks and a shot at becoming wealthy are not the whole story why expatriates may return. Cultural and family ties are a draw, along with a desire to give something back to the motherland. Sometimes this is combined with apprehension that the expatriates may have hit a glass ceiling in their adopted country.

The homecomings may and do produce problems in the social structure. Those returning may be perceived as arrogant or ignorant of ground realities. Local colleagues can resent the returners’ higher pay, or attempts to impose western management techniques. Multinationals may start turning down job applications from returning expatriates who have been away for more than a few years because they may no longer know enough about dynamics of the domestic market.

Culturally, returning expatriates can find it hard to reintegrate into society. Many had left with their families and children and adjusting back to a new lifestyle is not always easy. Nevertheless, due to increased globalization, the internet and satellite television, the transition has become easier than in the past.

Home of the Brave: The EIU (Economist Intelligence Unit) estimates Pakistan’s GDP to grow at 5.2 per cent in 2003-04. Provided that rainfall is normal, agricultural growth is expected at 3.5 per cent and industrial growth at 6.6 per cent. However, such growth cannot be sustained without increased investment as investment plays a dual role in economic development, affecting short-run output through the impact on demand and influencing long-term growth through the impact of capital formation on potential output.

Pakistani expats are a valuable source of such investment that can translate into meaningful growth and economic development. Post-9/11, Pakistan’s increased cooperation and improved relations with the US, rescheduling of its foreign debt, increased revenue collection and a stable currency bolstered by a record level of foreign exchange reserves are all positive indicators that the economy is getting back on track. Sadly, the risk of confrontation with India and its associated investment risks, danger of increased fundamentalism and sectarian violence, among others, are some reasons why foreign investors are continuing to shy away from Pakistan.

But overseas Pakistanis, who may be relatively more acquainted with ground realities, can play a meaningful role in Pakistan’s economic development and it would be unfortunate if the government is unable to foster an environment to encourage contribution from such expatriates.