The cup and the lip

Published April 26, 2015
The writer is a former Pakistan ambassador to the UN.
The writer is a former Pakistan ambassador to the UN.

THE recent visit of China’s President Xi Jinping was a much-needed shot in the arm for Pakistan’s people. The China Pakistan Economic Corridor enterprise confirms China’s strategic partnership with Pakistan. While it will advance China’s plans for the New Silk Road, this will be a “game changer” for Pakistan, as one minister put it.

Unfortunately, there is many a slip between the cup and the lip. Pakistan has missed several opportunities in the past to exploit strategic developments as a platform to build a robust economy and a stable polity. Many in the West have wasted no time in expressing scepticism regarding the success of this corridor project. Their ennui is understandable.

Yet, there is no reason why Pakistan and China should not be able to realise the ambitious vision outlined during Xi Jinping’s historic visit.

There is no reason why we should not realise the ambitious vision outlined during President Xi’s visit.

There are actually two kinds of projects to be implemented under the economic corridor: government-to-government infrastructure projects (Gwadar Port, KKR highway, road and rail development) and the 10,000MW of power projects, most of which are to be sponsored by private Pakistani companies.

As regards the infrastructure projects, Chinese state companies have a demonstrated capability to execute these efficiently and on time. Financing has been agreed. The Pakistan Army will provide dedicated security. Only bureaucratic incompetence or corruption can hold back the implementation of these projects.

For the private-sector power projects, some questions could arise. Will the Pakistani sponsors be able to deploy the required 20pc of the project cost as equity? Will the Pakistan government — while under the IMF-supervised programme — be able to provide all the sovereign guarantees required to secure the debt financing brought in by the Chinese companies executing the projects? Again, the actual construction of the power plants and dams should not pose difficulties for the Chinese companies selected to undertake this.

The successful implementation of the economic corridor projects would create ancillary opportunities and benefits. Energy availability would revive existing industries, such as textiles, to full production and add an estimated 2pc to Pakistan’s GDP growth. The improved transportation network would accelerate and expand internal and external trade. The areas adjacent to the corridor would become attractive locations for manufacturing, agricultural and services industries. Small and medium enterprises would be special beneficiaries. Employment and economic growth would expand significantly.

To derive full advantage from the economic corridor opportunity, Pakistan’s private sector needs to establish a much closer relationship with China’s public- and private-sector companies. China is now the largest economy in the world. Due to rising prosperity and wages in China, parts of its manufacturing sector are moving to lower-cost locations including Vietnam and Bangladesh. Pakistan has not so far benefited from this economic relocation.

Pakistani companies and entrepreneurs remain heavily oriented towards the West and unfamiliar with China. On the other hand, Chinese companies have been mostly interested in executing construction projects in Pakistan. Very few of them have invested equity in Pakistani enterprises. A recent Chinese private sector delegation returned disappointed from their interaction with Pakistani companies.

A vigorous campaign can be launched to promote business cooperation between the two countries.

In September 2012, a group of us independently organised a conference in Beijing on China-Pakistan economic cooperation to bring together Pakistani businessmen with China’s state and private companies. It was well attended from both sides and led to a modest expansion in business relationships. Such efforts need to be pursued more systematically with the sponsorship of the two governments.

Some of the specific steps that can be undertaken are:

— a China-Pakistan economic forum can be established for frequent contacts and exchanges between businesses in the two countries.

— A database can be established where business opportunities in either country could be posted in Chinese and English.

— Pakistani investment banks could organise sector-specific investment meetings where interested Chinese companies could interact with potential Pakistani partners.

— The China-Pakistan Friendship Association, which is now headed on the Chinese side by senior official, can also be utilised to promote business interaction and cooperation.

At the September 2012 informal conference, there was wide support for the establishment of a financed private equity fund dedicated to investments in Pakistan. Although an official China-Pakistan investment company exists, it has not been very active. A private-sector fund could make a more effective contribution to collaboration between the business communities of the two countries.

Visible progress on the economic corridor and the mobilisation of Chinese investments in Pakistan will also help in overcoming the psychological barriers to flows of foreign investment from other sources. Despite its restrictive economic regime, over 150 private equity funds, foreign and domestic, are active in India. Only three or four such funds are dedicated to investing in Pakistan. A conscious campaign by the Pakistan government, with the participation of the private sector, to encourage foreign direct investment in Pakistan is indispensable.

It is self-evident that, apart from security and perception problems created by a hostile Western media, foreign investment flows into Pakistan will depend on the health and stability of the Pakistan economy.

Three goals are central in this context: closing the energy gap — hopefully, the corridor projects will succeed in doing so; reducing the budget deficit — this cannot be achieved without a bold effort to enlarge the revenue base and ensure effective tax collection; and reducing the trade deficit. Remittances, privatisation and bond issues while important contributors to balancing the books and enhancing confidence in the economy, cannot replace the need for the expansion of exports, especially of value added goods. To this end, nationally oriented adjustments should be made in the trade regime, particularly to provide protection to emerging industries and enterprises.

Today, the Chinese commitment to the economic corridor has created a new and significant opportunity for Pakistan to revive its economy, stabilise its polity and advance its strategic interests. It cannot let the China cup slip from the Pakistani lip.

The writer is a former Pakistan ambassador to the UN.

Published in Dawn, April 26th, 2015

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