SO far, development in Pakistan has been heavily reliant on aid from and trade with the US and other Western countries.
During recent months, Pakistan and the US were in a stand-off in the wake of the attack on the Salala check post last year and the suspension of Nato supply routes. This country’s vulnerability to financial pressure, such as withheld military payments or the threatened blockade of bilateral and IMF aid, must no doubt have played a significant role in Pakistan’s calculations.
Pakistanis rightly aspire to achieve financial and economic self-reliance. This would be possible if the government were able to end wasteful expenditures and ensure the adequate generation of revenue. Of course, in the modern interdependent world, no country can be truly independent economically. Because of trade and global finance major external crises — such as the current eurozone crisis — have an impact on all nations. Pakistan’s trade, finance and development are tightly tied to the West; the 2008 US financial meltdown and the current European crisis have, compounded with domestic mismanagement, served to severely depress Pakistan’s growth and increase poverty. And the portents aren’t too good for future Western economic support for Pakistan.
However, Pakistan can — if it wishes — rely on its strategic relationship with China to reduce its economic vulnerability and promote growth. This relationship is geopolitical in nature and has stood the test of time. Given the ongoing US endeavour to draw India into a ring of alliances around the periphery of China, Beijing and Islamabad have a vital stake in preserving and reinforcing their close relationship.
China’s ability to contribute to Pakistan’s growth and development is considerable. It is the world’s second-largest economy and within a few decades is slated to reach the top slot. Even at the moderate annual growth rate of 7-8 per cent, it is the world’s most rapidly expanding economy. With a low budget deficit, China can stimulate national growth as required and is engaged in acquiring the technologies needed for further development. With the world’s largest foreign exchange reserves, China is now the prime source of foreign investment in even Europe and the US.
China already contributes significantly to Pakistan’s defence capabilities and extends critical diplomatic support. Chinese state companies are financing and executing a number of important infrastructure projects in Pakistan. Nevertheless, the two countries’ economic relations do not match the depth of their strategic relationship. Bilateral trade stands at around $10bn and is heavily imbalanced; private-sector interaction is limited. Chinese investment in Pakistan amounts to a couple of billion dollars, while in India it is about $40bn.
How and in what areas can Pakistan-China economic relations be expanded, then?
First, the implementation of additional infrastructure projects by Chinese companies in Pakistan is quite feasible. These could be hydropower dams, nuclear power plants or an LNG terminal. These can be executed while strategic plans for oil and gas pipelines, ports, and road and rail systems from Pakistan to China and Central Asia are prepared for implementation.
China can provide a large proportion of the financing against a sovereign guarantee for projects executed by Chinese companies. Happily, some of the conditions from Pakistan’s side which were impeding cooperation, such as requiring a Chinese company to bid for a project it was itself financing, have been removed. The major impediment now seems to be the paucity of counterpart financing from the Pakistan government.
Second, a related area for collaboration is the exploration and tapping of natural resources in Pakistan. There has been a spate of reports in recent months about the identification of mineral and other resources in parts of Afghanistan and Pakistan, detected by advanced US technologies. A Chinese consortium has acquired a large mining concession in Afghanistan, but not in Pakistan. It would be interesting to find out why. The paralysing of a major copper mining project in Balochistan could be one explanation. Pakistan is also one of the least explored countries for oil and gas despite a high strike rate.
Third, Pakistan’s economy is cash-starved. There are profitable opportunities in almost every sector due to the large but unmet demand. Yet Pakistan has not secured investment for very many public or private ventures from the Chinese state or its private sector.
A conscious effort is required to bring together public- and private-sector companies in the two countries to explore and identify viable ventures on which they can collaborate. The full or partial privatisation of Pakistan’s loss-making state enterprises (power, railways, airlines and the highways) could be one way to secure rapid Chinese investment and restructure these white elephants. Chinese investment in the production, storage and marketing of food, or in the housing, electronics, textiles and clothing sectors would also respond to a huge, latent demand.
Fourth, Pakistan’s exports can be multiplied manifold through joint ventures and cooperation with Chinese companies. China acquired global dominance in manufacturing through a combination of low wages, high efficiency, low margins and high turnover. With wages rising in that country, Chinese (and international) companies seem ready to move at least some production to lower-wage locations. Vietnam and Bangladesh have benefited from this trend. Chinese companies would surely be willing to make an extra effort to relocate part of their export operations to Pakistan, but the initiative must come from Pakistani companies and business houses.
Fifth, to reduce, if not eliminate, its financial dependence on the West, Pakistan can begin to denominate some of its trade in Chinese yuan and invite Chinese banks to undertake a proportion of its international transactions. It can enter into larger currency-swap arrangements with China and invite Beijing to place a (small) part of its forex reserves in the State Bank of Pakistan.
Unless there is a major turnaround in Western perceptions of Pakistan, the China option may be the only one available to Pakistan to secure investment and growth in the foreseeable future. The central question is whether the political will exists in Islamabad to traverse this ‘new Silk Road’ to development.
The writer is a former Pakistan ambassador to the UN.