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Economy

Economic competition and competitive practices

Gagliano Giuseppe

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Since enterprises are at the frontlines of geo-economic competition, they must learn how to deal with state influence in this field. They need to acquire a global understanding of the business environment and to develop new strategies to tackle stiff competition. In order to bend market rules and beat competition, economic actors developed new aggressive strategies on the model of military knowledge and underground operations.

The new competitive practices are no more aimed at adjusting to or anticipating other enterprises. Their goal is transforming the operating context and subverting the balance of power through imposing a given enterprise’s rules on its competitors. The final objective is eliminating competitors or at least preventing them from entering the marketplace.

These practices are based on the systematic acquisition of information and on its use for hostile purposes. In order to pursue innovation, export or acquire more market quotas, it is necessary to understand the business environment and to put in place effective operations. The new economic practices are therefore featured with harsh competition to dominate information platforms. The United States offers many examples of the use of offensive operations to reach commercial purposes.

In this context, companies go beyond the mere search of information. They aim at manipulating the facts through new offensive techniques of economic warfare targeting new markets and destabilizing competitors. Here are some examples of competitive strategies used for hostile purposes: offensive benchmarking (attacking a product through counterfeiting), lobbying, social learning, stretch marketing, (acquiring control through regulation, humanitarian intervention, civil and military operations and economic warfare). These practices date back to the end of the Cold War, when economic and cultural clashes replaced military and ideological conflicts.

Benchmarking consists in a comparative evaluation of services or procedures of the most successful enterprises, studying their strengths and weaknesses and identifying possible actions to match or surpass them. Benchmarking can be used for offensive purposes in order to destabilize competition through reaction tests: an alleged client evaluates all the aspects of the service provided and the weaknesses of the system; in some cases, this person purposely provokes accidents in order to have more time to study the situation. Repeated accidents clearly compromise the image of the competitor and obstruct its activities.

As far as counterfeit is concerned, it is true that copying existing products and improve them is the foundation for progress. However, some companies can decide to copy some products while decreasing their functionality, therefore realizing low quality artifacts that acquire some of the market quotas of the original product. The problem emerges when these counterfeit goods do not respect safety norms and became dangerous for the market, with a negative impact on the company producing the original goods.

Lobbying indicates all practices aimed at influencing – directly or indirectly – political, legislative, regulating actors in order to assert a given economic interest. More and more companies are adopting lobbying strategies to defend and promote their interests. Lobbying itself not only is a reprehensible activity, but its systematic use can turn it into a dangerous weapon for economic and cultural competition.

Social learning is another technique to conquer new markets that consists in an accurate psychological action setting up opinion trends to influence decision-making. Through providing what seem to be purely education services – often addressed to the future leadership of a given country – social learning techniques influence public opinion and installs a dependency relationship with the country providing social learnings services.

Stretch marketing originally consisted in coordinating Chinese family networks for business development in any field. Nowadays, this term indicates a careful observation of 1) a given socio-economic market and 2) the information exchange within a given group of partner enterprises, through which a given enterprise can better exploit its business opportunities. Therefore, on the one hand stretch marketing allows anticipating the client needs through controlling information; on the other hand, stretch marketing prevents competitors from enter the market through the sharing of both offensive and defensive techniques within a given group of partner enterprises.

Lobbying and social learning practices contribute to increasing international regulations that lead to the indirect acquisition of new market quotas. These rules represent a competitive weapon to perform technical-economic dominance practices because they prevent the other actors of the system from operating freely. This can be easily observed on the military level with the imposition of the inter-operability: pursuing a maximized standardization of military materials within NATO countries leads to the imposition of a given product or industry on the others.

Another aspect to take into account is humanitarian intelligence. In recent years, several economic domination strategies to conquer the market of developing countries have disguised as humanitarian and development missions.  It is true that development markets have impressive growth potential and can count on natural resources that the West is interested in. As a result, Western countries continuously engage in humanitarian operations and development project in order to obtain long and medium term economic advantages. Besides NGOs, there are a number of governmental organizations that combine their humanitarian mission with strategies pursuing political and economic goals.

Since developing countries often experience the devastating consequences of war, civil-military co-operations (COCIM) aim at leading the country out of the crisis situation and take care of the needs of the population. However, COCIM operations are often used to conquer the infrastructure market and acquire contracts to provide services and materials for the reconstruction of the country, while profiting from public funding. It is possible to observe that as soon as a conflict ends, companies from all over the world compete to get their share in the reconstruction of the country and they rush there in order to quickly identify its needs and to influence the terms of contracts. In order for this strategy to work, military personnel should be accompanied by experts like doctors, engineers, businessmen, teachers, sociologists, ethnologists etc., that provide a better understanding of the region together with its religious, cultural, and linguistic features.

Lastly, manipulation is also an offensive strategy and it relies on the key role played by the media. Information war can easily build or destroy the image of a given company or country through the planned and targeted use of information and telecommunication channels. Information war is based on using false information both to control and protect information sources, and to prevent the opponent from reacting. These subversive disinformation or propaganda techniques can be easily performed in every communication channel, especially the Internet. In this situation it is important to rapidly react with counter information practices and occupy media space with dominant strategies.

At the present moment in which we witness a real war of knowledge, no company is immune from this kind of competition attacks.

Economy

Back to IMF: Whither Pakistan’s Medina Model

Amjed Jaaved

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Pakistan has been availing International Monetary Fund loan packages without stricto sensuo acting upon reforms since late 1980s. Its finance minister is now horn-locked with the International Monetary Fund ferreting out strings, a tangled skein, to a US$ 6 billion to $12 billion bailout package.    Pakistan could complete one IMF package that ended in 2016. That too with a number of requirements relaxed.

IMF’s worries

The thorny questions hovering over the instant package are opaque US$ 60 billion Chinese loans (diversion of IMF dollars to China), trimming unbridled spending,  nurturing  bloated state-owned corporations,  inaction against tax dodgers (low tax-to-Gross Domestic Product ratio), sluggish textile exports (lost out to Bangladesh), and US$7.6 billion debt-stricken energy sector. Besides, current-account and budget gaps have swelled to more than 5 percent of gross domestic product and foreign-currency reserves have plunged to the lowest in almost four years. In response authorities have devalued the rupee five times since December and hiked interest rates the most in Asia. The GDP growth of about 5.2 per cent in 2018 rolled down to 2.9 per cent in 2019 and a further decline to 2.8 in 2020.Inflation jumped from 3.9 per cent in 2018 to over 7.6 per cent in 2019. Already grey listed, Pakistan is fighting tooth and nail to wriggle out of stigma notwithstanding virulent Indian pressure to freeze it so.  

Interest-free Medina-model rhetoric

Pakistan had to go to the IMF doorstep despite cricketer-turned-prime minister Imran Khan’s reluctance. He was enamoured of Medina model as every Muslim should. Both Islam and Marxism did away with `interest’ as primum mobile of capital formation. But, Alas! Imran had to wake up about bitter reality of the economic world around. Much to his chagrin, even chairman of Pakistan’s Islamic Ideology Council has warned (October 22, 2018) him against `romanticism’.  He urged the government to set up a task force to realize a “Medina State” and suggested the formation of a task force to realize this vision., The whole of Pakistan,  with wistful eyes, looks forward to fulfillment of this dream of `new Pakistan’.

We now live in a different world.

Unlike Medina, today’s Pakistan is a complex state. Shortly after his arrival at Medina, the Holy Prophet Muhammad (PBUH) built a mosque and a market place there. Like the mosque, the market place could not be privatised. There was free entry and exit of traders (akin to perfect competition under micro-economics) and caravans to the market. No monopolies, duopolies and cartels! A section of the market caravanserai was reserved for foreign traders. The whole world could sell their goods there free of any taxes.  

Some clever local traders tried to take advantage of robust trade. They used to buy caravan camel loads outside the Medina (before they reached Medina), and sell it at dictated price. Islam outlawed this practice as talaqqiur rukaban (seeing faces of riders).  Islam prohibited all types of future trading involving element of uncertainty (advance purchase of raw tree-fruit, fish in the pond, and so on). Islam prohibited usury (riba) in all its forms (loan giving at agreed interest taffazzul, or loan profiting due to delay naseea). When Bilal (may Allah be pleased with him) tried to exchange his coarse-quality dates with fine-quality dates the Holy Prophet forbade him. He told him to sell his dates for cash and buy better dates at prevailing price. The Prophet did not live in a 300-kanal-and-10-marla house (like Pakistan’s prime minister). Nor did he, like our numerous politicians, own assets abroad. He bequeathed a dozen swords but no precious metals (Golda Meier). Islam globalized free-market mechanism (laissez faire). It changed attitudes and avaricious mindsets. Being a dominant religion, Islam dictated its own terms of trade.

To fulfil its promises, Pakistan’s government budgeted public-sector development- programme outlay of only Rs. 800 billion for the federation and only Rs 850 billion for the provinces. The government has a Hobson choice. With India, at daggers drawn, could it divert security allocation to welfare? Some writers described Pakistan as a `garrison state’.

For an economic turnaround, Pakistan’s visionary prime minister has to shun rhetoric, and decide upon suitable economic policies. It needs to look at the economic world around, beyond Medina.

Interest outlawed under Pakistan’s constitution

Under preamble to Pak constitution `sovereignty’ belongs to Allah Almighty, not to people themselves as under US constitution. The elected representative can wield authority within defined religious limits. Interest is outlawed under

Article 38 (f) of the Constitution of Pakistan, quoted heretofore _ Article 38 (Promotion of social and economic well-being of the people) The State shall…(f) eliminate riba

[economic interest]

as early as possible. The Islamic preamble (Objectives Resolution) was inserted in draft constitution under Pakistan’s prime minister Liaquat Ali Khan’s influence. Unlike Pakistan’s most `leaders’, Liaquat Ali Khan was financially scrupulous. Aside from his honesty, Liaquat Ali Khan could not foresee he would be the first to sow seeds of religious discord. Jamsheed Marker, in his book Cover Point, observes ` charge against Liaquat was that he moved the Objectives Resolution, which declared Pakistan to be an ‘Islamic State’ (ibid. p. 33)”. Unlike the US and many other secular constitutions, the Objectives Resolution (now Preamble to 1973 Constitution) states `sovereignty belongs to Allah Almighty’. The golden words of the constitution were warped to continue an interest-based economy. We pay interest on our international loans and international transactions. Do we live in an interactive world or in an ivory tower? Isn’t Islamisation old wine in new bottle?

Follow-up to `Interest’ outlawed

The Security and Exchange Commission of Pakistan enforced Shariah Governance Regulations 2018. This regulation is follow-up to Article 38 (f) of the Constitution of Pakistan, and Senate’s resolution No. 393 (July 9, 2018) for abolition of riba (usury).

(extortionist interest) and normal interest/profit are indistinguishable. They disallow even saving bank-accounts. They point out that riba is anathema both as `addition’ (taffazzul) and due to `delay'(nas’ee) consequent upon fluctuating purchasing power.

The regulation is welcome but there are unanswered questions about Islamisation of finance in Pakistan. We pay interest on our loans and international transactions. The sheiks put their money in Western banks and earn hefty interest thereon.

Future trading is hub of modern commerce. Yet, it is forbidden under Islam. At International Islamic University, I learned that Islamic law of contract does not even allow advance contracts concerning raw fish, fruit, or anything involving element of `uncertainty’. Islam does not allow even tallaqi-ur-rukbaan (buying camel-loads of goods from caravan before they had reached Madina open-market. Holy Prophet (Peace be upon him) forbade Bilal (may Allah be pleased with him) to exchange poor-quality dates with superior-quality dates. He was advised to sell off his dates in open market for cash and then buy better-quality dates with money so earned.

Interest-based real world

Complex `interest’-based world

Gnawing reality of complex interest-based economic world has now dawned on the government. To quote a Murphy Law `nothing is as simple as it seems at first’. Pakistan needs to review the whole gamut of its economic structure (feudal lords, industrial robber barons, money launderers, and their ilk) and International Monetary Fund conditions. In his lifetime, even our Holy Prophet had to engage in commercial partnerships with the non-Muslim also.

Even Marx did not live in Utopia. He, also, constantly searched for solutions to the problems of the real world around. Disgusted at the simplistic interpretations of his ideas, he cried in boutade: “If this is Marxism, what is certain is that I am not a Marxist”. Keynese offered panacea of deficit financing with concomitant inflation to swerve 1930-Depression unemployment and stagnation. He also reacted to mis-interpretation of his ideas, saying `I am not a Keynesian’.

Keynesian theories preceded a lot of discussion about Gold Exchange Standard, stable prices.  To create more money, deficit financing (paper money) was resorted to. As a result the hydra-headed monster of inflation was unleashed. Keynes believed inflation was a `short run phenomenon typical of a full- employment stagnant economy’. But, it became a long run phenomenon. Keynes postulated `With perfectly free competition, there will always be a strong tendency for wage relates to be so related to demand that everyone is employed at level of full employment’. When Keynes was asked about persistence of inflation (too much money chasing too few goods), he replied `In the long run we are all dead’. Post-Keynesian economists coined the term `stagflation’ to explain the phenomenon. With visible massive joblessness, Pakistan is far from a full-employment economy. The paltry household income has to bear the brunt of forced reduction in purchasing power due to rising price level, or falling rupee value.

We adopted floated exchange rate that ballooned our debt burden. No economist has ever applied his mind to effect, positive or negative, of international debt burden on Pakistan economy. No-one ever visualized even the idea of `odious debts’.

Pak government discourages savings

Keynes postulated savings are equal to investment. But, Pakistan discourage savings and encourage consumerism by reducing profit on saving deposits, and increasing taxes on small savings. Locke and others say government can’t tax without taxpayer’s consent. In Pakistan, the govt. picks people’s pockets through withholding taxes and reduction in National Saving Schemes profits. Even unissued bonds lying in Pakistan’s State Bank vaults are included in each draw.  The prizes on such bonds are devoured by State Bank, a body corporate, without buying them. Pakistan’s hidden economy is more than the monetized one. It needs to evolve politico-religious milieu and macro-economic theories that suit our country best. It should promote savings while blocking illegal cash flows by introducing magnetic-card transactions in everyday life.

Pakistan’s burgeoning interest-based debt burden

External Debt in Pakistan increased to US$ 95097 million in the second quarter of 2018 from US$ 91761 million in the first quarter of 2018. External Debt in Pakistan averaged US$ 54065.23 million from 2002 until 2018, reaching an all-time peak of 95097 US$ Million in the second quarter of 2018 from a record low of US$ 33172 million in the third quarter of 2004. International Monetary Fund expects Pakistan’s external debt to climb to US$103 billion by June 2019. Pakistan Government Debt to GDP 1994-2018 presents a dismal picture. Pakistan recorded a government debt equivalent to 67.20 percent of the country’s Gross Domestic Product in 2017. Government Debt to Gross Domestic Product in Pakistan averaged 69.30 percent from 1994 until 2017. It reached peak of 87.90 percent in 2001 and a record low of 56.40 percent in 2007. Successive Pakistan governments treated loans as free lunches. They never abode by revised Fiscal Responsibility and Debt Limitation Act. Nor did our State Bank warn them about the dangerous situation. State Bank however passively reported, every Pakistani owed over Rs115, 000 as the country’s burden of total debt and liabilities increased to Rs. 23.14 trillion by the end of December 31, 2016.

Pakistan’s debts not payable being `odious’?

Pakistan’s debt burden has a political tinge. For joining anti-Soviet-Union alliances (South-East Asian Treaty Organisation and Central Treaty Organisation), the USA rewarded Pakistan by showering grants on Pakistan. The grants evaporated into streams of low-interest loan which ballooned as Pakistan complied with forced devaluations or adopted floating exchange rate. Soon, the donors forgot Pakistan’s contribution to break-up of the `Soviet Union’. They used coalition support funds and our debt-servicing liability as `do more’ mantra levers.

Apparently, all Pakistani debts are odious as they were thrust upon praetorian regimes to bring them within anti-Communist (South East Asian Treaty Organisation, Central Treaty Organisation) or anti-`terrorist’ fold.  To avoid unilateral refusal of a country to repay odious debts, UN Security Council should ex ante [or ex post] declare which debts are `odious’ (Jayachandaran and Kremer, 2004). Alternatively, the USA should itself write off our `bad’ debts.

But Pakistan and its adversaries are entrapped in a prisoner’s dilemma. The dilemma explains why two completely rational players might not cooperate, even if it appears that it is in their best interests to do so. .The ` prisoners’ dilemma’ was developed by RAND Corporation scientists Merrill Flood and Melvin Dresher and was formalized by Albert W. Tucker, a Princeton mathematician.

No demand raised for forgiveness of `odious debts

Several IMF and US state department delegations visited Pakistan. But, Pakistan could not tell them point-blank about non-liability to service politically-stringed debts. The government’s dilemma in Pakistan is that defence and anti-terrorism outlays (26 per cent) plus debt-service charges leave little in national kitty for welfare. Solution lies in debt forgiveness by donors (James K. Boyce and Madakene O’Donnell(eds.), Peace and the Public Purse.2008. New Delhi. Viva Books p, 251).

Debt forgiveness promotes growth

Debt forgiveness (or relief) helps stabilise weak democracies, though corrupt, despotic and incompetent.  Research shows that debt relief promotes economic growth and boosts foreign investment. Sachs (1989) inferred that debt service costs discourage domestic and foreign investment. Kanbur (2000), also, concluded that debt is a drag on private investment.

In fact, economists have questioned justification of paying debts given to prop up a regime congenial to a dominant country.  They hold that a nation is not obliged to pay such `odious debts’ (a personal liability) showered upon a praetorian individual (p. 252 ibid.). Legally also, any liability financial or quasi-nonfinancial, contracted under duress, is null and void.

No economist to steer economy

Economics is mumbo jumbo to Pakistan’s finance minister. Renowned economist Atif Mian could not take over as finance minister because of uproar against his Ahmediyya/Qadiani religious belief. In protest, another cabinet-slot nominee Khwaja Asim also regretted to assume office formally (though continuing informal help ).

Pakistan’s economy: Back to basic

Economics remains a match between limited resources vis-à-vis unlimited wants (Lionel Robbins). What are our resources or factors of production (land, labour and socio-economic milieu, capital and organisation)?  Through what system these resources could interplay to start capital accumulation (growth/development/technical progress) in our country?

Our agriculture is exposed to vagaries of nature (floods, famines, etc.). Besides, productivity of our agricultural sector is low because of disguised unemployment (farmers produce less as compared to their ilk in advanced countries).

People are shy of investing in productive capacity because they could earn more in marketing and other business lines (even in real estate).

We have to determine optimal balance between public and private sectors. We have to balance constraints of security and welfare.

Manufacturing sector, not agriculture, produced Asian Tigers. Studies reflect that there is

correlation between manufacturing sector and economic development in our country. We need to adopt such polices as make manufacturing primum mobile of our economic development.Let some industries be croissance des fleures and improve some nuclei (one school, one university, one hospital) before expecting to transform the whole country through a magic wand (Waterston, Development Planning: Lesson of Experience).

Lessons for an economic turnaround

We need to realize that economics is a social, an inexact, science, but responsive to dynamic environment. Keynesian post-1930-Great-Depression macro-economic policies understood that unemployment is not due to un- or under-utilised productive capacity. It is due to under-spending and lack of effective demand to buy over-produced goods.

Mega housing project to promote capital formation Pakistan government has announced to build a million houses under Naya Housing Project . The scheme smacks of Ragnar Nurkse (Capital formation in underdeveloped countries). Will effective demand increased through mega housing projects will spill over into increased buying of goods imported from China and other countries?

A faulty project

To solve any problem, its nitty-gritty (features) should be first identified: (a) Shelter-providers are highly stratified. (b) Defence Housing Authority caters for shelter needs of military officers. It strictly adheres to its formula of allotment of flats and plots. But, it excludes `civilians paid out of defence services estimates’ (c) The Federal Government Employees Housing Foundation (and affiliate Pakistan Housing Authority) is supposed to allot plots to retired employees. But, it does not follow the date-of-birth criteria. Now only Grade 22 employees (including judges) get plots. Those in Grade 17 to 21(septuagenarians like me or even octogenarians and nonagenarians) may die without a plot or a flat.  (d) The FGEHF misuses hardship clause which favours not so hard-up people. For instance, a Customs collector on deputation to National Accountability Bureau was quickly obliged with a plot. He was allotted plot first and asked to submit illness certificate later (e)  It is eerie that FGEHF’s definition of `employees’, now, has infinity as its limit. It includes non-employees like legal fraternity, including Supreme Court Bar Association. (f) According to media reports, the FGEHF reeks of corruption and favouritism. (g) Shelter for general public needs careful study, beyond rhetoric of market demand and supply _ The Korangi Town Project, Lyari Expressway Projects, Khuda Ki Basti, ‘Home Ownership Scheme for the People’(1964), and ‘The National Housing Policy’ 2001.Trusting FGEHF for `naya housing’? `A cat’s a cat and that’s that’. The new government should have the nerve to merge all shelter providers (in khaki and mufti) and devise a national housing policy, instead of focusing on `houses’.

China should change consumerist Pakistan into a productive economy

Let China help expand Pakistan’s manufacturing capacity and thereby reduce unemployment in Pakistan. All policymakers should act in unison. They include policy formulators (prime minister, finance minister, et. al), policy detailers (chief economic adviser, statisticians) and technocrats. The policy-makers should decide upon balance of priority. agriculture or industry, “closed” economy with import substitution, “living within means” and balanced budget or deficit budget. Will increased spending “crowd in” or “crowd out” private investment? Monetary policy objectives and the role of the central bank_ stability of employment and inflation, growth rate, balance-of-payments issues Role of foreign-direct investment and “non-bank financial institutions? Their impact on capital formation, consumption trends, and other macroeconomic aspects.

Technocrats, being apolitical unlike policy formulators, could implement policies single-mindedly. Our precious borrowed dollars should not be frittered away into increased imports.

Pakistan’s economic system?

During Ayub era, capitalist growth had a free hand.  That led to rise of 22 nouveau rich families. A university mapped them in `Concentration of wealth and economic power in Pakistan’. Dr. Mahbubul Haq, himself the architect of laissez faire growth strategy, identified his mistakes in `Seven Sins of Economic Planners in Pakistan’. During post-Ayub period, we experimented with Bhutto-brand socialism. Later we embraced Islamic mode of financing mostly by packing old wine in new bottle (PLS sharing for `interest’, modarba,  musharika for partnership, so on). At the same time we kept paying debt service and contracting new loans under capitalist international system.

The downtrodden remained so in our Islamic system. The international exploitative capitalist system, on the other hand, delivered goods. Rapid economic growth with substantial amelioration in lot of the common man.  Soviet brand collectivism collapsed into oblivion.

Capitalism accepts inequality in incomes as a fait accompli. So do studies by political philosophers like Aristotle, Tacitus, Moska, Michel, Marx, Pareto and C. Wright Mill. Yet, sans uniform health care, education, and other basic facilities to masses, life in Pakistan is more miserable than in the West. Why? Soul searching needed by rulers and ruled alike.

Islamic modernism

A fetter to Pakistan’s rapid economic growth is debate between radical Islamists (fundamentalists) and liberal reformers The liberals, like Farag Fuda and Abu Zayd (Egypt), read the sources of Islamic sharia in terms of time and place (historical relativism). They advocate reading holy texts in our own terms, interpreting them in accordance with spirit and intentions. The radials (conservatives) regarded the liberals as heretics or apostates. Farag was murdered in 1992 and Abu-Zayd exiled in following years.

The conservatives say `Islam is complete’. The man in the street sees no undisputed Islamic model in Saudi Arabia, Iran, Pakistan or anywhere. We `circumcised’ some banking, civil and criminal laws to show case them as Islamic. For instance, we introduced PLS, modarba, musharika. Practically, there was no tangible impact on society, economy or polity. In international aid and trade, we conformed to secular principles. We continued to interest-based loans and pay debt service. Islamic punishments, introduced by Ziaul Haq had questionable impact. Sami Zubaida points out in his book Law and Power in the Islamic World (p. 224), “It is ironic that so-called Islamic punishments are described as `medieval’, when in fact, medieval jurists and judges showed great restraint   in their application while modern dictators flaunt them as a religious legitimacy”.

The Islamisation of laws is regarded by critics as hypocritical. Pakistanis have a long list of Constitutional rights. But, a proviso makes them non-enforceable through courts. Pakistan’s qanun-shahadat (evidence law) defines qualifications of a witness (tazkia-tus-shahood). But, it softens its Palladian to accept any witness if the ideal witness is not available. The less said about sadiq and ameen clauses, the better. Under these clauses, even a three time priminister was sacked by Pakistan’s Supreme Court. 

A judge has to decide according to law not according to his conscience and divine authority. An example is ban on gambling like circuses by one judge. The decision was turned down on appeal as it is Pakistan’s Electronic Media Regulatory Authority, not the court to adjudicate such matter.

Conclusion

Pakistan could not emerge as an Asian tiger because of indecision about what system to follow. The vested interests, particularly religious obscurantists, often smother dissent from so called enlightened moderators. Rampant sectarianism in Pakistan with concomitant effects on economy is an offshoot of lacunae in religious interpretations by vested interests.

Pakistan has abolished interest (riba) in accordance with its fundamental law. Yet its banking sector and international transctions are interest based.

Let Pakistan face the truth. It needs to evolve and show case a politico-economic model of Islam that is compatible with international practices. Or else, dispense with hypocritical patchwork, and go for secularist IMF model.

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Economy

Financial Inclusion in Europe and Central Asia: The Way Forward?

Asli Demirguc-Kunt

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Authors: Asli Demirguc-Kunt and Cyril Muller*

If you are unbanked there is a high likelihood you are living on the edge of poverty, exclusion and vulnerability. If you struggle to attain or maintain a secure, well-paying job, you probably do not have a bank account or access to financial services. You are completely reliant on cash, which is unsafe and hard to manage. And, should you or a family member experience a serious illness or another unexpected financial burden, you could quickly fall deeper into poverty and despair.

Unfortunately, this is the reality for millions of people in the developing countries of Europe and Central Asia. As recently as 2017, around 116 million adults in the region still had no bank account. And almost 60% of the unbanked in the region are women. In today’s highly globalized, technology-driven world, it is a stark reminder that we have a long way to go to ensuring greater inclusion and opportunities for all.

Over the past decade, account ownership has been increasing overall in Europe and Central Asia – from 45% of the adult population in 2011 to 65% in 2017 – but the data masks differences across subregions. In the high-income countries of Europe, most adults already own an account, and about 55% save formally in a financial institution. However, countries in the South Caucasus and Central Asia, despite important increases in recent years, have much lower levels of banked adults.

Armenia, Georgia, Moldova, the Kyrgyz Republic, Tajikistan, and Turkmenistan are among the countries that have seen the greatest increases globally, but they started from a very low base.

What are the reasons so many people in the region remain unbanked?

Lack of trust in institutions is a major issue. Almost 30% of unbanked adults in the region report lack of trust in banks as a barrier to opening an account, which is reflected in the very low level of formal savings in the region. Less than 25% of people in the developing countries of the region borrow from formal sources. As such, informal borrowing is prevalent. In cases of emergency, people rely on family and friends rather than savings or borrowing from a financial institution.

Gender gaps in financial inclusion also persist, and are especially acute in countries such as Armenia, Kosovo, Turkey, Tajikistan, and Turkmenistan. In Turkey, for example, 83% of men have a bank account, while only 54% of women have one. Being unbanked is also associated with a lack of labor force participation, which underscores the challenges facing so many women in the region with respect to participating equally and fully in business and in the economy.

What is the way forward?

Inclusive financial systems provide a high share of individuals with greater access to resources to meet their financial needs, such as saving for retirement, investing in education, capitalizing on business opportunities, and confronting shocks. Inability to use these financial services can contribute to persistent income inequality and slow economic growth.

There are many opportunities to increase account ownership. Over 80% of the unbanked in Europe and Central Asia have a mobile phone. Providing these mobile users with internet access or digital financial services could be key to expanding financial inclusion.

For governments, switching from cash to digital payments can reduce corruption and improve efficiency. Making government, private sector and agricultural payments directly into accounts would go a long way. For example, moving public sector pension payments into accounts would reduce the number of unbanked adults in the region by up to 20 million, including 8 million in Russia alone.

Technology has a huge role to play. Digital payments – such as receiving payments or transfers directly into an account, making payments over a mobile phone or using the internet, paying utility or fees directly from accounts – can drive financial inclusion, as many countries are also experiencing major advances in digitalization.

Financial services must be used responsibly, nonetheless. As such, countries need to ensure greater financial literacy among citizens and provide consumer protection safeguards. Financial services should also be tailored to the needs of financially underrepresented groups such as women, the poor, and first-time users.

As the Europe and Central Asia region grapples with sluggish economic growth and uncertain prospects in 2019-20, inclusive financial sector development can help boost growth and reduce poverty. Rapid technological advancement and interconnectivity between regions also provide unprecedented opportunities to ensure everyone can benefit from financial inclusion and therefore participate equally and fully in society.

*Cyril Muller is the World Bank Regional Vice President for Europe and Central Asia.

World Bank

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Economy

Ambitions are affordable for Asia and the Pacific

Armida Salsiah Alisjahbana

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Three years of implementation of the transformative 2030 Agenda for Sustainable Development in Asia and the Pacific shows the region has some catching up to do.

Despite much progress, the region is not on track to reach the 17 Sustainable Development Goals set out in the United Nations 2030 Agenda for Sustainable Development. We are living in a time of booming prosperity, yet many are getting left behind. Basic needs, such as the freedom for all from hunger and poverty, ill-health and gender-based discrimination, and equal opportunity for all are elusive. Economic, social and planetary well-being has a price tag. Calculations by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) show that it is mostly affordable for the region.

Realizing ambitions beyond growth

What will it take to realize the ambitious 2030 Agenda focused on strengthening the three pillars of sustainable development?

The 2019 edition of the ESCAP’s flagship publication Economic and Social Survey for Asia and the Pacific is asking for the region to raise ambitions beyond mere economic growth. Countries facing high and growing levels of inequality and environmental degradation will have to change course from pursuing a growth path that neglects people and the planet.

The 2019 Survey forecasts continuing robust growth in the region which remains the engine of the world economy. Amid rising global uncertainty that challenges the Asia-Pacific region’s economic dynamism, there is a need for investments that not only sustain growth but also build social and environmental capital.

ESCAP analysis shows the region needs to invest an additional $1.5 trillion every year to reach the Goals by 2030. This is equivalent to about 5 per cent of the region’s GDP in 2018, or about 4 per cent of the annual average GDP for the period 2016‒2030.

At $1 per person per day, this investment is worthwhile. It could end extreme poverty and malnutrition for more than 400 million people. A quality education for every child and youth would become possible, as would basic health care for all. Better access to transport, information and communications technology (ICT) as well as water and sanitation could be ensured. Universal access to clean and modern energy, as well as energy-efficient transport, buildings and industry could be achieved. Climate and disaster-resilient infrastructure could be built. Resources could be used more effectively, and the planet protected.

Most of this investment is needed to protect and nurture people and the planet. Making a better world for our people by ending poverty and hunger and meeting health and education Goals, requires some $698 billion per year. Protecting our planet by promoting clean energy and climate action and living in harmony with nature, requires $590 billion per year. Another $196 billion per year is needed to invest in improving transport and ICT infrastructure as well as access to water and sanitation services.

Of course, in a region as diverse as ours, investment needs vary considerably. Least developed countries need to invest the most at 16 per cent of GDP while South and South-West Asia has an investment need of 10 per cent of GDP to reach the Goals by 2030. More than two-thirds of the investment in these countries will be in reducing social deficits – poverty, malnutrition, lack of health care and education as well as job creation. Landlocked developing countries need to invest most in improving transport and ICT infrastructure as well as water and sanitation services. East and North-East Asia and, to a lesser degree, South-East Asia, need to focus on clean energy and climate action investment.

Paying the bill

It should be remembered that the Goals support each other and an investment in one area has a positive effect on another. Good health depends not only on access to healthcare services but also nutrition, safe water, sanitation and good air quality. Education for all also promotes gender equality. Resource efficiency supports climate change mitigation.

Besides harnessing these synergies, sustainable development financing strategies will have to turn to public and private finance. The good news is that most countries in the region have the fiscal space to invest in the Goals. There is also a massive untapped pool of private financial assets estimated at $51 trillion in developing Asia-Pacific countries alone. Enhanced regional cooperation would also help the region offset external risks and build resilience by tapping into regional resources.

Above all, leadership will be crucial in making the transition to a development strategy that balances all dimensions of human and planetary well-being. The 2019 Survey aims to stimulate a regional dialogue and offers guidance on accelerating progress towards the Goals in the region.

UNESCAP

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