Pakistan@100: Prospects for enhancing global connectivity
“Geography is destiny”, is an adage which is fundamental to the understanding of
geopolitics. On the world map, Pakistan’s location delineates that it was destined
to be the hub of international trade and global connectivity. Serendipitously,
Pakistan is located at the crossroads of Central, South and East Asia and is also
linked to the maritime trade routes of the Indian Ocean via the Arabian Sea.
However, for the past seventy-one years, Pakistan has exploited the potential of
its geostrategic location only to a limited extent. As of 2017, according to the
World Bank, Pakistan’s trade to GDP ratio stood at 26% which is among the
lowest in the world. For Pakistan, the reasons for aversion to trade openness are
manifold but it is high time that Pakistan reorients itself and establishes close
linkages with other economies within and across the South Asian region for
becoming an upper-middle or high-income country by 2047.
The China Pakistan Economic Corridor (CPEC) is predicted to allow Pakistan to
wield the full potential of its geostrategic location. The revival of the old Silk
Route, by means of the Chinese Belt and Road Initiative, would not only connect
the markets of Europe and Asia but will also create numerous economic
opportunities for Pakistan. Massive Chinese investment in transport and
infrastructure projects would serve to revamp Pakistan’s existing road and rail
networks and will boost regional connectivity. The development of advanced
infrastructure and sophisticated transport would enable Pakistan to earn berths in
global value chains. Pakistan would lag very far behind in terms of economic
growth if it does not act now to integrate itself in the global value chains. A 2018
study by the CPEC Centre of Excellence has forecasted that CPEC will create
around 1.2 million job opportunities. Furthermore, the development of the
Gwadar port will lessen the burden on other maritime trade routes of the Indian
Ocean and subsequently unleash a new era of economic activity in Pakistan.
China, landlocked Central Asian states and Afghanistan would greatly benefit from
Gwadar port and other infrastructure projects of CPEC by placing shorter and
cost-effective transit routes at their disposal.
Moreover, the major chunk of investments under CPEC is going to be directed
towards Pakistan’s energy sector. Pakistan has been experiencing trade deficit
since 2003 on account of large volumes of energy-related imports. Decreased
dependence on such imports would make it easier for Pakistan to attain a positive
balance of trade.
All around the world, rising economies are working towards harmonizing their
economic policies and striving to eliminate barriers to trade. The South Asian
region is an exception in this regard as intra-regional trade comprises of a meager
less than 5% of total trade and is lowest in the world according to the Asian
Development Bank. Bilateral disputes among member states and the limited
scope of South Asian Association for Regional Cooperation (SAARC), the regional
organization, hamper the prospects for improving intra-regional economic
relations. The South Asian Free Trade Area SAFTA, established under the auspices
of SAARC, only offers inadequate remedies for the region’s many economic
troubles. The SAFTA agreement urged SAARC member states to gradually bring
down tariff rates, preferentially for the region’s least developed countries, to
work towards the creation of a regional free market in the long run. However, it
allowed member states to keep non-tariff barriers intact and also gave them
enough liberty to shield products of their choice from tariff reductions by means
of maintenance of sensitive lists. Pakistan has 936 items on the sensitive list
which range from potato starch to generators. India on the other hand has 614
items on its sensitive list for Pakistan. Pakistan needs to gradually shrink its
sensitive list by revising it every four years as suggested by SAFTA provisions.
Every revision should entail the scraping off of at least 120 items in order to
facilitate the creation of a South Asian Economic Union by 2047.
The World Bank estimates that Pak-India bilateral trade which is currently valued
at less than $3 billion could be expanded to $20 billion by removing barriers. India
is looking to enhance its economic ties with Iran and Afghanistan. Bypassing
Pakistan would be costly for India. Economists and foreign policy analysts are of
the view that if India agrees to accept and tolerate CPEC, Pakistan should allow
India access to Afghanistan, Iran and Central Asia. Such an arrangement would
yield revenue for Pakistan in the form of transit fees and will also improve
bilateral relations and regional security. Red-tapism also impedes the expansion
of Pak-India bilateral trade which could be overcome by making custom
regulations and visa regime business and trade friendly.
Following the example of the revival of the old Silk Route, Pakistan, India,
Afghanistan and Bangladesh should work to revive the marvelous land route of
the Grand Trunk (GT) Road. Chandragupta Maurya and Sher Shah Suri were
cognizant of the advantages of regional connectivity. However, the interstate
conflicts which surfaced in the centuries to come entrapped the potential of this
heritage. In an era when the development of corridors including the CPEC and
Bangladesh-China-India-Myanmar (BCIM) corridor are being dubbed as game
changers, countries through which the GT road passes should also make efforts to
use it for boosting intra-regional trade.
The development of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas
pipeline would satiate Pakistan’s growing energy demands and further integration
between Central and South Asia. Energy security is a common concern of these
two regions and closer cooperation is in the best interest of all participants of this
venture. The TAPI project has undergone many stalemates and setbacks over the
years but now its completion has become inevitable for fulfilling the energy
requirements of its constituent members.
According to the Economic Survey of Pakistan 2017-18, the lion’s share of
Pakistan’s exports go only to six states namely; the United States, China,
Afghanistan, United Kingdom, Germany, Bangladesh, France, UAE, Italy and Spain.
Pakistan should explore trading partners in close proximity and enhance its ties
with existing partners by diversifying its export basket.
Pakistan has signed Free Trade Agreements (FTAs) with China, Malaysia, Sri Lanka
and negotiations are underway with Thailand for the same. The Ministry of
Commerce has recorded that in ten years Pak-Malaysia trade increased by 72.5%
as a result of the Free Trade Agreement. Pakistan should strive to sign Free Trade
Agreements with other states with which it shares cordial relations as the existing
ones have garnered remarkable trade growth.
Upholding human rights standards is also essential for Pakistan for achieving
deeper integration in the world economy. Pakistan worked really hard to become
a beneficiary of the European Union’s GSP+ Scheme. The same vigour is required
to ensure compliance with the international conventions affiliated with the GSP+
Scheme. According to the Economic Survey of Pakistan 2017-18, the Committee
on International Trade has deliberated that if Pakistan continues to effectively
comply with GSP+ Scheme’s requirements; its status could be upgraded to an FTA
partner. This would be a great leap forward and would require extensive legal and
structural reforms.
Pakistan is currently on the grey list of the Financial Action Task Force (FATF),
implying that it is not doing enough to eliminate the menaces of money
laundering and terror financing, thereby having a baleful influence on the
international financial system. Furthermore, Pakistan was ranked 117 out of 180
countries on Transparency International’s Corruption Perceptions Index 2017. The
continuation of democratic political system will aid in gradually dispelling these
negative trends. In the past few years, thanks to social media, the civil society has
been mounting pressure on all the three branches of government to curb human
rights abuses and corruption. This is exactly the impetus that is needed for
bringing comprehensive structural transformation in the coming decades.
Pakistan should overhaul its business climate in the wake of the opportunities
presented by CPEC. Pakistan earned a ranking of 147 in the World Bank’s Ease of
Doing Business Index in November 2017. Business regulations should be brought
in line with the international best practices and pragmatic taxation mechanisms
should be put in place to attract foreign investors. In the past few years, unstable
political conditions, security challenges and energy crisis have driven foreign
investment away from Pakistan. The political and security conditions are
gradually improving and measures have also been adopted to mitigate the energy
crisis. Upgrading of communications technology and strong enforcement of
intellectual property laws would further motivate investors to invest in Pakistan.
Comprehensive economic planning, extensive policy making and rigorous
commitment to implementation of structural and trade reforms are required for
making Pakistan a globally well connected state by 2047. Capitalizing on the CPEC
dynamic, improving trade relations with neighboring states, working towards
regional integration, maintenance of cooperative ties with existing trading
partners, renovation of transport, infrastructure in line with changing global
trends and creation of a friendly business environment are a few endeavors which
Pakistan can undertake to earn itself a place amongst the upper-middle income or
high income countries by 2047. The benefits of all such initiatives would
eventually contribute towards human development and help in making Pakistan a
self-sufficient state by the time it is set to celebrate its centennial independence.