Expatriates’
Investment
By Shahid Javed Burki
In my previous articles
I have looked at the various aspects of Pakistani
expatriate communities in various parts of the world.
I paid particular attention to the community of
Pakistanis in the United States, dividing it into
five clusters across the country. That was done
to distinguish between the economic and social characteristics
of these groups.
I did this in order to suggest that if the government
were to somehow get involved in interesting the
members of these communities in using their ample
income and wealth to aid the development of their
homeland, Islamabad must develop a better understanding
of the motivations of these various groups of its
citizens living in different parts of the world.
For instance, what would motivate the “techies”
living on America’s West Coast may be different
from what would interest the doctors practicing
on the East Coast.
For purposes of public policy it also makes great
sense to treat remittances not as one homogeneous
flow but as a stream made up of several different
components. In the article last week, I identified
four different types of flows that constitute the
stream of remittances from the United States to
Pakistan.
The first of these are what are perhaps best labeled
as “family aid”, money sent to near
and dear ones to provide regular financial help
or give them support during periods of financial
distress.
Charitable contributions constitute the second stream.
These are given mostly in visits to the country
or in response to various religious beliefs or causes.
Sending money home for “sadqas” is one
example of this type of remittance.
The third type of flow is composed of financial
contributions for promoting social development in
the homeland. As the word has gone around, spread
by institutions such as the United Nations Development
Fund in their annual Human Development Report, non-
resident Pakistanis are becoming painfully aware
of the fact that their country is fast losing the
race to get better integrated into the global economy.
This could only happen if the quality of the human
resource could be dramatically improved. This would
require a massive effort which is beyond the competence
of the public sector and considerably greater than
the government’s financial capacity.
This awareness has resulted in the establishment
of a number of non-government organizations that
enjoy a special tax status in the United States.
When contributing to these organizations the donors
can write off their giving against their incomes.
In a way, therefore, these contributions are leveraged
with money from the United States treasury. This
type of giving has also begun to attract reputable
and well-established Pakistan-based organizations
that are able to take advantage of tax relief available
to potential donors to raise funds from the expatriate
community.
The fourth flow as a constituent of the stream of
remittances is of relatively recent origin. This
pertains to investments in various forms of assets
that hold promise for the financially savvy members
of the community. For the moment much of this is
going into real estate and some of it is now also
finding its way into the stock market.
This move towards sending money for investment in
physical and financial assets is typical of a maturing
diasporas. It also signals an increase in confidence
in the economic prospects of the home country.
All new human settlements, including the establishment
of diasporas, go through a distinct life cycle.
They are founded by the young and adventurous -
people prepared to take risk and expend a great
deal of energy to improve their economic prospects.
The large Pakistani expatriate communities in North
America are about three to four decades old when
thousands of well-trained professionals left their
home country to look for opportunities abroad.
They went either to Britain or came to the United
States. Once they found jobs, they settled down
and brought in their partners mostly from Pakistan.
Once they had started families, they bought homes
near the place of work.
Some of them took advantage of the provision in
the US immigration law of that time to sponsor close
members of the family to migrate as well. The word
about the economic success of this first wave of
migrants spread in the homeland and more people,
mostly from a similar social and economic background,
also took the plunge.
They generally went to the places where their friends
or relatives had taken up residence. This is the
reason why expatriate communities even in a country
as large as the United States exist in the form
of highly concentrated clusters.
Some 30 to 40 years after the arrival of the first
migrants, a large number of the founders of these
communities have reached the age of retirement.
Where would they like to spend the rest of their
lives? Will they remain in the United States or
relocate themselves in Pakistan? Is America the
right place to live out life or would Pakistan,
with help easily available and support of the larger
family also at hand, be a better place to be in?
These questions are being asked in Pakistani communities
abroad as they mature.
They have also become significant for two other
reasons: changes in the American approach towards
allowing new migrants from places such as Pakistan
and the on-going process of globalization which
continues to knit the world together ever more closely.
With the cost of communication coming down every
day, relocation no longer means a permanent change
in the place of residence. It has now become possible
for people with means to divide their time between
the homeland and whichever place they have spent
the productive years of their lives.
It is in this context that decisions about investment
in real estate are being increasingly made by the
older members of the Pakistani communities in the
United States. Other factors also weigh, in particular
the impression that the country may have begun to
turn the economic corner.
It was first by word of mouth that these communities
learned that conditions at home were improving;
that Pakistan may not, after all, be an unsafe place
to go back to; that the returns on investment in
land and houses were considerably higher than those
available in the United States.
Those who had gone for holidays to Pakistan returned
with stories about the boom in the real estate market
in several large cities, in particular in Islamabad,
Lahore, and Karachi. But it wasn’t only the
word of mouth that was spreading the good news about
the home country. Respected newspapers had also
begun to write about the economic boom in the country.
On March 23, The New York Times published a story
about the economic boom in Pakistan in an important
place in the newspaper - page three which carries
the main foreign story of the day.
The account appeared under the banner “Pakistan
is booming since 9/11, at least for the well-off”,
and was written by Somni Sengupta, a writer based
in New Delhi. In Sengupta’s story, the newspaper
presented a fairly rosy picture of the Pakistani
economy.
The account started with a story about a Pakistani
entrepreneur “British-born, New York-trained
and married to a woman from New Jersey, who had
long dreamed of running his own restaurant. London
was too expensive, New York was too risky. Karachi
seemed just right”. This was news not only
for the Americans who associated Karachi with sectarian
violence, Islamic radicalism, and the kidnapping
and gruesome murder of Daniel Pearl, the correspondent
for The Wall Street Journal. It was also a pleasant
break for the Pakistanis, accustomed as they were,
about reading negative stories about their homeland.
“I’m getting a lot of corporate heads,
a lot of nouveau riche, people who come from abroad
who are not necessarily wealthy but are educated
about cuisine”, said Mr Sheikh, the son of
Pakistani immigrants to Britain.
“People want high end products” and
Sheikh was prepared to provide them. The stage was
now set for the return and flow of expatriate capital
into Pakistan’s real estate market.
If the experience of other such communities abroad
is anything to learn from, investments into Pakistan
by the more well-to-do members of the communities
in the United States will proceed through four phases.
First will come investment in real estate, motivated
mostly by the desire to establish an alternative
place of residence by the older members of the group.
This has already begun to happen and is probably
behind the boom in real estate and housing prices
in several major cities of the country.
There are tens of thousands of expatriates looking
to invest in the Pakistani housing market in the
next few years. This will fuel the market and prices
will go up unless new areas are opened up for housing
in the major cities. There are signs that this may
be happening in several cities of the country.
The return of the non-resident Pakistanis to their
home country, even for part time living, will bring
in other developments. The move to construct new
golf courses in places such as Lahore, Rawalpindi
and Karachi may be in anticipation of this new demand.
Other developments will also come such as new retail
outlets that can cater to the needs of this class
of consumers, health care, restaurants and entertainment.
The second phase of this remittance is normally
directed at the capital markets. Once again the
enormous increase in the prices of the scrips quoted
in the Karachi stock market in the first 10 weeks
of 2005 may have been caused in part by the arrival
of portfolio investment by the members of the expatriate
community.
This group has been active as investors in the world’s
capital markets and they looked at the Karachi market
as opportunity for making handsome returns. Only
time will tell whether the recent serious downturn
in the market will dull this enthusiasm.
The third flow will take the form of investment
in small businesses such as restaurants, retail
outlets, fashion houses, medical practices, educational
services. As already noted with reference to the
article in The New York Times this has already begun
to happen.
There is a considerable amount of anecdotal evidence
to suggest that second and third generation Pakistanis
living in Britain and the United States have begun
to look at the homeland of their ancestors as a
place where lucrative investments can be made.
The fourth flow will involve large scale investment
in either green-field operations or the acquisition
of established enterprises. Much of this activity
will happen in association with foreign firms.
This is one way that foreign direct investment will
begin to flow in. This is the pattern followed by
the expatriate communities of China and India. For
Pakistan, this last flow will be the most important
one and will help to bring the Pakistani economy
into the global mainstream. (Courtesy Dawn)
