THE Roshan Digital Account (RDA) was introduced under the erstwhile PTI government as its flagship overseas investment initiative, and it seems the incumbent government intends to continue with it.
According to State Bank data, over 400,000 RDA accounts have been operationalised since the programme was launched, and nearly $4.5 billion have been deposited in Pakistani banks by overseas Pakistanis through these accounts.
The holders of RDA accounts can use the amounts they have deposited for investment and charity purposes in Pakistan. RDA allows depositors to not only utilise conventional banking services, but also utilise their savings in products like Roshan Apni Car (a car loan scheme), Roshan Apna Ghar (a home loan scheme), and/or to invest in the stock market, mutual funds and Naya Pakistan Certificates. RDA deposit holders can also fund charitable causes through the Samaji Khidmat avenue.
However, what seems missing in the RDA portfolio is a means to channel investments to sectors that are vital to ensuring bottom-up growth in the economy, like agriculture and small businesses.
There is no denying the fact that Pakistan’s economic policy planners have consistently focused on growth through consumption. From this perspective, there can be no better example of wasteful economic planning than RDA.
Though the initiative has been quite successful in encouraging overseas Pakistanis to park their savings in domestic banks, it has come up quite short in finding innovative uses for the parked funds that can boost growth in traditionally underserved sectors of the economy.
Editorial: The RDA investment
The policy bias towards encouraging consumption is clear from the lucrative rates on the mostly consumption-oriented and speculative products offered by RDA. It offers a capital gains tax rate of only one per cent on investments in real estate (the new government recently announced 15pc CGT on property investment if sold within one year of purchase, but it remains to be seen whether it will apply to RDA investments or not). Likewise, investment in Naya Pakistan Certificates is taxed at 10pc, and investment in the stock market at 15pc. The plan also allows tax-free profits accruing on deposits in RDAs.
If overseas Pakistanis are given formal incentives to invest in agriculture back home they will find new opportunities to grow their wealth.
One must ask why our policy babus never thought about channelling RDA deposits to more productive sectors, like agriculture and small businesses. I think the reason is a lack of real-world experience and understanding of how the real economy operates.
A major issue that seems to preclude agriculture’s consideration as a major avenue for investment is the inability of policymakers (who are hugely influenced by corporate ‘gurus’, invariably drawn from big cities) to differentiate between business risks and outright fears. The business risks related to investing in agriculture can be identified, assessed and mitigated.
However, fear is a psychological phenomenon and will never allow a person or potential investor to see the market positively.
I propose that if overseas Pakistanis are given formal incentives to invest in agriculture back home — in their own villages at the beginning, and in the broader agriculture sector later — they will find new opportunities to grow their wealth. If they are well-connected to their communities, they will even be able to become intermediaries, either as individuals or through a more sophisticated digital platform, that can help channel productive investments to farmers and profits back to investors.
These individuals can also help immensely in raising investments in climate change mitigation, which is developing as a major area of interest for foreign corporates looking to generate carbon credits through green investments in other economies. But to make such kinds of creative and futuristic dreams a reality, it is important that policymakers have some clue of what is happening in the world and how best they can support both economic security while also healing the planet.
Read: The RDA challenge
The question may arise whether overseas Pakistanis even have the capacity to raise investment for agriculture from their adopted countries. My understanding is it should not be difficult.
If they hail from the geographical area where they want to invest in, they are likely to have a deeper understanding of local business opportunities in agriculture through their own experiences and social connections. In many cases, they may even know the business reputation of individuals working in their respective areas. They can, therefore, easily assess and mitigate business risks. This can then be turned into a more formal, institutional mechanism whereby overseas Pakistanis can set up rural business centres and offer financial intermediation and wider business services. But this will obviously require a policy signal or nudge from the government.
Our policymakers must start seeing much farther beyond just real estate or the stock market. They sometimes come up with ‘export promotion’ plans, which usually rely on providing subsidised gas and cheaper export credit to make them successful. We have seen that these generally do not work and likely never will.
Policymakers must understand that the country’s comparative advantage lies in agriculture and that they have to think creatively about how best to provide a level playing field to entrepreneurs working in this sector. No one is asking for replacing one favoured sector — say real estate or the stock market — with agriculture; but it has to be amply emphasised that models for institutional financing in agriculture still do not exist for the vast majority of entrepreneurial farmers, even though they can yield considerable dividends and create positive externalities.
The solution ultimately lies with the federal government, particularly the Ministry of Finance and the agriculture ministry (currently, food security). They must come up with an attractive and modern financing mechanism that provides an enabling environment for both Pakistani residents and overseas Pakistani investors. The country’s farmers, meanwhile, must push for such a level playing field.
The writer is a hands-on farmer.
Published in Dawn, August 27th, 2022