Pakistan’s corridors: economic and transit hub

Hassnain Javed

March 20, 2019

In an era where geostrategic and geopolitical maneuvering of states are giving way to ‘geo-economics’ pursuits, Pakistan’s advantageous location offers promising future prospects for its economy. Apart from inheriting the fertile Indus Valley, Pakistan sits on territory which has had historical significance as a transit hub for trade caravans, marching armies and wandering saints. Parts of the Ancient Silk Route, which passed through its mountains in the North, have been modernized into the Karakoram Highway.

The various mountain passes on Pakistan’s insurmountable peaks allowed passage to conquerors and invaders from Afghanistan, Iran and beyond, ushering the establishment and intermingling of entire civilizations in the subcontinent. Sufi saints travelled such ancient routes and trails, eventually settling in areas that became hubs of cultural and commercial activity.

For hundreds of years, the region of present-day Pakistan enjoyed a “central position in relation to the rest of the world, a place where different societies mingled, sharing cultural ties and making economic transactions. Cities such as Lahore, Multan and Peshawar, and those in Upper Sind lay on trade routes connecting lands to their west ? Iran, Central Asia and China ? and those to the east ? India ? and as such became centres of trade, commerce and culture and brought prosperity to regions they commanded.”

In the present-day and age, with states’ borders fixed according to the modern international legal framework, it is not difficult to see that Pakistan’s strategic location is more beneficial than ever for economic trade. And in this context, the various trade corridors, routes and projects available to Pakistan can also offer significant economic returns for the regional and global economies.

Within Pakistan’s vicinity lie Iran to its West; Afghanistan to the North-West; India to the East and China to the North. Its Southern coast, which boasts the celebrated port of Gwadar, grants access to the Arabian Sea, Gulf of Oman, Persian Gulf and the Indian Ocean. The importance of this maritime access cannot be stressed enough, especially in light of the assertions of eminent scholars who argue that the 21st century world politics will revolve around the Indian Ocean.

Thus, it is clear that Pakistan is part of a region that is demonstrating immense economic vitality. China’s populous and emerging middle class offers a “huge consumer market for Pakistan’s products”; and with a high savings rate, could also serve as “a deep pool of investment for Pakistan”. India too has seen a consistent high growth trajectory. The Central Asian Republics are “engaged with the world to exchange their mineral wealth for goods and services that satisfy growing consumption and rising living standards of their citizens.” Iran’s fossil fuel reserves can be channelled to power the “energy poor South Asia in exchange for skilled manpower and consumption goods.”

Even as sub-regional units, Pakistan’s environs have shown promising economic activity and regeneration with booming economic growth rates. Among these engines of growth, the Central Asian Republics as a sub-region have shown around 5% growth rate over the past five years. For China, “GDP growth has averaged nearly 10 % a year – the fastest sustained expansion by a major economy in history – and has lifted more than 800 million people out of poverty”. South Asia has shown a growth rate of 6.5% over the past five years.

Thus, there is emerging consensus that the decades ahead will usher in an Asian century. Within this milieu of a Rising Asia, Pakistan with its central location can serve as an economic and transit hub, by utilizing both its North-South and East-West trade potential through trade routes and corridors. From a practical standpoint, the ancient trade routes would help link the energy-rich states of Central Asia with the emerging economies of South Asia, and promise much benefit to Pakistan which would play the role of a regional trade-hub.

International trade opens up “sustained welfare improvements for citizens” as the economy moves from being a transit hub, to a manufacturing economy – which is marked by high productivity and high wages for its populace. This transition requires a skilled labour, modern infrastructure, efficient governance policies and promotion of investment over short-term consumption.

Such reforms will only be holistically achieved for Pakistan if it is able to develop the land-based trade routes across a full spectrum, i.e. in multiple directions and sub-regions. Trade via transportation on land routes is a common feature of the imports and exports between neighbouring countries. Yet despite having a common border with both China and India, Pakistan’s trade potential via land with these two booming economies has not been tapped to a significant degree. With China this has primarily been due to an absence of well-developed land-based infrastructure in the past. “Until recently, there were no feasible low cost land routes for transportation of goods between the two countries.”

However, this is an area where the China-Pakistan Economic Corridor will offer considerable remedies. “Western China is closer to Pakistan than the coastal provinces and can be accessed if highways, railways, pipelines are built to link the two countries. But Pakistan has yet to fit itself into China’s huge supply chain as other Asian countries have done.”

The re utilization of the historic trade corridors would expand the population base which is searching for avenues to maritime trade in the Indian Ocean. Pakistan promises easy access to the Arabian Sea via its strategic coastline, and thus can become a major transit hub in the region. Trade via Pakistan’s land routes can act as a driver of growth which can lead to substantial growth rates that result in a persistently rising GDP and per capita income.

Regional trade will enable Pakistan to establish modern special economic zones. Pakistan has a huge young labour force, as well as business-friendly policies which enhance competitiveness. Thus, regional integration would allow Pakistan to become a major manufacturing hub. Economic prosperity will eventually lead to social and political stability. One can find extensive work on trade corridors within the context of regional geographical divisions such as Asia, South Asia, etc. For instance, the Asian Development Bank has conducted extensive research on connectivity prospects between South and South-East-Asia. The effects of the regional connectivity will be far beyond the localized infrastructure; and it is through dialogue, engagement and investment that these projects will bear fruit for the regional and global economies.

Transforming the investment landscape of Pakistan

Hassnain Javed

March 12, 2019

After the last government’s poor financial performance, Pakistan is still recovering from growth which was fueled by short term debt and declining investments. The economy was in shambles and Pakistan was almost on the verge of bankruptcy by the end of the year 2018. In these circumstances, the Pakistan Tehreek-e-Insaf (PTI) government has chosen to control the supply side of policies with the aid of reduction in government spending to encapsulate austerity drives and increase taxes.

So what should be the government’s focus in order to boost investment in the country? A major highlight from Finance Minister Asad Umer’s speech on the new mini-budget was the relief and incentives being given to the investors to ensure ease of doing business. According to recent stats, Pakistan is ranked at the 136 in the Ease of Doing Business Index (EDBI), and 173 in terms of complicated tax systems. The investment-to-gross domestic product (GDP) ratio of Pakistan has been stagnant at approximately 15 percent, while countries like China, India and South Korea have been able to sustain the ratio to more than 30 percent. Therefore, the new government should aspire to raise the investment-to-GDP ratio to at least 20-25 percent during the government’s five-year tenure. Such a move will improve job creation, productivity, and exports.

Recently, the Finance Supplementary (Second Amendment) Bill, 2019 was passed by the National Assembly, which is termed as a business-friendly reform package. This is because a tax reform package would encourage investment, promote industrial growth as well as boost the country’s stagnant exports. Before this announcement, Abdul Razak Dawood, who is the Adviser to the Prime Minister on Commerce, Trade, Textile, and Investment has also said that the bill would allow investment opportunities and business activities will increase in the country. Regarding this, the Chairman Pakistan Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) Zubair Motiwala acknowledged decisions of the government and speculated that it would help to boost exports and investment.

Following these encouraging policies, the State Bank of Pakistan reported that private sector borrowing has jumped by over 92 percent to Rs600.5 billion during the July-February 22 period, compared to Rs312 billion in the same period last year. These numbers are encouraging for the government as the private sector continues to borrow at a stronger pace despite a steep rise in interest rates, which shows increased confidence of investors in the economy of Pakistan.

Foreign investment in Pakistan is also showing positive trends with countries like the United Arab Emirates (UAE) and Turkey showing interest in investments. Turkey has further expressed interest in developing a legal framework for tourism infrastructure planning, allocation of public properties to the investors, determination, and classification of qualities of hospitality facilities based on international standards. The main focus would be the rendering of technical support to Pakistan in order to facilitate promotional marketing of tourism, advertising a positive image of the country and production of promotional material.

In early October last year, PM Imran Khan spoke at the Future Investment Initiative Conference (FIIC) in Riyadh, where he discussed Pakistan’s economic challenges and invited foreign investors to invest in the country. In this conference, the PM communicated the policy of his tenure that is to enable an environment for investment. He further added that the plan is not just to attract foreign and overseas investors, but also Pakistani investors as well.

The crown prince of Saudi Arabia visited Pakistan last month, showing staunch support and promising $20 billion in investment. Haroon Sharif, who chairs Pakistan’s Board of Investment claimed that the UAE has also nearly finalised plans to establish an oil refinery in Pakistan with an anticipated production capacity of about 300,000 barrels. This project would entail $8 billion in investments.

Recently, Foreign Minister Shah Mehmood Qureshi held a meeting with a delegation led by Luxembourg Foreign Minister Jean Asselborn. Both governments have exchanged views on bilateral relations, trade, and matters of mutual interests. Furthermore, agreement exchange of delegations for enhancing bilateral ties besides cooperation in science, technology and education sectors.

Conclusively, the investment landscape of Pakistan shows some promising trends but in order to fully upturn prevalent economic conditions, more effort from the government is required. Firstly, a multiplicity of taxes and redundant procedures hurt businesses. Pakistan is advised to transform its entrepreneurial environment by encouraging cottage industries to improve the domestic market. By easing the procedures to start a business, the investors could be encouraged by allowing construction permits as indicators through one-window or online operations. Moreover, reforms in contract enforcement, tax payments and protecting intellectual property rights among others are also needed.

It takes two to Tango: The rising Indo-Pak tension

Hassnain Javed

March 07, 2019

 

 

Peace between India and Pakistan, which is tangible and true in every aspect and strong enough to crush the mood of bellicose jingoism in South-Asia seems like a cry far from reality. Prime Minister (PM) Narendra Modi who is contesting for re-election in India, has built a Hindu nationalist base with India’s violent response to a suicide attack in the Indian controlled part of Kashmir. The attack killed 49 Indian soldiers, in response to which India bombed Pakistan, claiming to have been targeting a Jaish-e-Mohammad camp. The air strike in the Muslim-majority area had initially improved PM Modi’s image amongst the extremist groups in India. However, after Pakistan’s counterblast and downing of two Indian aircraft and brief imprisonment of the Indian pilot by Pakistan, the tables turned.

It has been 30 years since the insurgency in Indian Occupied Kashmir (IOK) began. Indian military operations have led to the creation of a new generation of young activists that are fighting Indian forces for independence. The bombers who have claimed responsibility for the February 14 attack on the Indian troops was a local Kashmiri, which shows the level of agitation in the youth.

The situation has taken an interesting turn after the confrontation between the two nuclear-armed arch enemies took place five decades down the line. An article by the New York Times revealed that the challenges faced by the Indian army are quite visible as the country lost two of its planes to a country which is half in terms of the number of army and quarter in terms of the military budget. The article further explained that according to government estimates “if intense warfare broke out tomorrow, India could supply its troops with only 10 days of ammunition. And 68 percent of the army’s equipment is so old, it is officially considered vintage”.

Furthermore, Gaurav Gogoi, who is a lawmaker and member of the Parliamentary Standing Committee on Defense, said that: “Our troops lack modern equipment, but they have to conduct 21st-century military operations,”

Often characterised as an emerging superpower with a strategic position in South Asia, high quality of engineering technology and talent management, there is a rather gloomy story to India’s image of optimism. Reports reveal that India has one of the highest rates of illiteracy and unemployment in the world. Other Human Development Indexes like infant mortality, anaemia and morbidity are also showing poor performances. The social and economic disparities amongst the masses have reached an acute level. This can be seen from the fact that half of India’s 1.2 billion-strong population do not have the facility of private toilets in their home. According to the consensus report, about 77 percent of houses in Jharkhand, 76.6 percent of houses in Orissa and 75.8 percent of houses in Bihar do not have a toilet facility. All three of these states also report the highest poverty rates with more than half of their population living under the poverty line. Registrar General and Census Commissioner C Chandramouli said while releasing the report said that: “Open defecation continues to be a big concern for the country as almost half of the population does it,”

According to Express Tribune, even after the surgical strike on Pakistan, India has lost 785 points on Tuesday over rising tension between New Delhi and Islamabad; the KSE-100 of the Karachi Stock Exchange also shed 275 points on Wednesday as tensions continue to escalate between the two neighbours. Considering the economic consequences of having a nuclear war in the entire region, PM Imran Khan proposed to give peace a chance and released the Indian Air Force (IAF) Wing Commander Abhinandan – who was captured by Pakistan after his MiG 21 Bison aircraft was shot down by a Pakistan Air Force (PAF) jet. The DG ISPR Asif Ghafoor in a statement to the media said that, “Pakistan wants peace; India needs to understand war is a failure of policy”.

Despite these public statements and PM Modi’s reminder to Imran Khan to talk about poverty and illiteracy control, there still has been an air force incursion which is worrisome not only for both the countries but also the entire region. War is not an option, even if it’s started with the intent of being a brief political move to prove supremacy over counterparts in the region. As PM Imran Khan said in his speech, war has a tendency to escalate beyond control. Especially, when the two states are nuclear powers. There has been no direct engagement of war between nuclear countries, but only proxy wars in third states that were a result of failed policies and misplaced ideologies. It would be a move of utter insanity for Pakistan and India to engage in war in such a situation. Nuclear war becomes could annihilate both countries and neither India nor Pakistan’s weak economic conditions would sustain that level of damage.

Conclusively, the only viable option for India is to carry out peace talks with Pakistan as suggested by P Chidambaram, the Congress party leader and former finance minister. Nascent economies that are present all over the world face similar problems of poverty and economic disparity. Therefore, India and Pakistan should join forces to eliminate the crisis that has hit the region and work on public policies which work best for both the countries.