Pakistan’s Geoeconomic Delusions

[Juggernaut_Flat_Plane_V8]

legitimate concerns raised...My takeaway is that CPEC is an investment into the future...if and when Turkestan has 200-300 million population

 

[Khan vilatey]

Pakistan’s Geoeconomic Delusions
The country says it wants to pivot from hard power to economic power, but its economy begs to differ.
BY ARIF RAFIQ | APRIL 5, 2021, 4:46 PM

A sweeper cleans a deserted bus station after the provincial government suspended public transport during a lockdown in Peshawar, Pakistan, on April 3. ABDUL MAJEED/AFP/GETTY IMAGES
In recent weeks, senior Pakistani officials, including the country’s powerful army chief, have signaled or outright said that, from now on, their country’s foreign policy will emphasize geoeconomics. This is a welcome rhetorical shift. Decades of bartering Pakistan’s geostrategic value—including as a “front-line state” in the Cold War and war on terror—has contributed to the loss of countless lives, stifled human development, and turned Pakistan into a heavily indebtedsecurity state.
Geoeconomics would flip that script. Definitions of the term vary, but Pakistani officialdom uses it to connote something akin to an end to war. In a public address last month, Pakistani Chief of the Army Staff Gen. Qamar Javed Bajwa offered a “geo-economic vision” that centers regional integration and the collective pursuit of sustainable development in an environment of peace and stability. The upside for one of the world’s poorest and least integrated regions would undoubtedly be tremendous.
But good intentions aside, Pakistan’s pivot toward geoeconomics is likely to hit a brick wall of reality—and fast.
For starters, the country cannot easily escape geopolitics. And the regional outlook portends conflict, not connectivity. Neighboring Afghanistan could see civil waras the United States departs. And despite the restoration of a cease-fire with India along the Line of Control, there are no signs that either side will make the kinds of concessions on the Kashmir dispute that would be essential for lasting normalization.
Then there’s the U.S.-Chinese cold war, which shows no sign of abating in the Biden er—as the war of words between U.S. and Chinese delegations at last month’s bilateral talks in Alaska shows. Pakistani officials say they want no part in it, but they may get dragged in. Islamabad depends on Beijing for essential military hardware to deter New Delhi as Washington arms New Delhi to counterbalance Beijing. Although the United States has provided Pakistan with more than $3 billion in arms since 9/11, those transfers have dropped significantly since 2016, according to the Stockholm International Peace Research Institute.

Meanwhile, Washington seems to have not only lost interest in Pakistan but also sees the country as firmly in China’s sway. A U.S. Institute of Peace study group report released last year, for example, argued that the “China-Pakistan axis is strengthening.” Among its policy options, it included “demanding suspension of Chinese arms transfers to Pakistan” and “matching Chinese diplomatic support for Pakistan with a U.S. tilt toward India.”
Balancing all this would be complicated enough, but also enacting the tough policy reforms key to making geoeconomics work in its favor seems beyond Pakistan’s grasp. The case of the China-Pakistan Economic Corridor (CPEC) illustrates why.
In 2015, Beijing and Islamabad launched the Belt and Road-linked CPEC, billed as a connectivity initiative linking China’s western landlocked region of Xinjiang with Pakistan’s Arabian Sea ports. It was, in other words, a grand geoeconomic project.
Through the CPEC, Pakistan was able to fast-track $19 billion in electric power, road, and other infrastructure projects. But Pakistan bled foreign exchange as imports of machinery and material surged and exports lagged. Ultimately, poor planning by the then-Nawaz Sharif-led government (motivated in part by electoral pressures) drove Pakistan back into the arms of the International Monetary Fund.
Six years since its launch, CPEC is nowhere close to a functional economic corridor. It may never become one. Today, the Gwadar port sits idle. And overland Sino-Pakistan trade remains very modest despite an increase before the pandemic. An economist with the previous Pakistan Muslim League (N) government in Islamabad projected that Pakistan would earn $6 to 8 billion in tolls and other revenue annually through CPEC by 2020. Those numbers were and remain fantasy.
The 2018 elections brought a new government to Islamabad, led by ex-cricketer Imran Khan. Although economic growth has come to a standstill, exports have steadily improved under Khan. And there have been efforts to address logistics bottlenecks, including at the border with Afghanistan.
But for Pakistan’s leadership, geoeconomics largely remains drawing imaginary lines on a map. As part of Islamabad’s push, for example, Khan’s administration invited Sri Lanka to join CPEC. Yet it’s unclear what “joining” CPEC actually means. Pakistan’s two main ports, Karachi and Mohammed Bin Qasim, are already connected via many shipping lines to Sri Lanka’s Colombo port. And Colombo is a regional transshipment powerhouse—a role Pakistan aspires to. In other words, it’s a competitor.
Even if there was conceptual clarity on the Pakistani end, its connectivity dreams look more like logistical nightmares. With great fanfare, Pakistan’s commerce advisor, Abdul Razak Dawood, announced in early Marchthe reboot of a freight train service connecting Pakistan with Iran and Turkey. A week later, the relaunch was postponed, in part due to the abysmal conditions of Pakistan’s railway lines.
Khan and others tout Pakistan ports as offering the shortest routes to sea for landlocked Central Asian republics. And although that is indeed true for many of these states, Pakistani routes, according to the Central Asian Regional Economic Cooperation Program and Asian Development Bank, are the slowest and costliest because of a time-consuming border-clearance process and its heavy dependence on road transports. For example, in 2019, it took an average of 45.6 hours for freight to clear a Pakistani border crossing, compared to around nine hours in Kazakhstan, Uzbekistan, and Turkmenistan. Border-clearance costs in Pakistan in 2019 were 34 percent to 220 percent higher than in these countries. These are among the reasons why Karachi and Mohammed Bin Qasim witnessed declines in transshipment volumes from 2016 to 2019, even as they expanded handling capacity.
Infrastructure and transit trade could never be the be-all and end-all of Pakistan’s geoeconomic pivot. Pakistan will not prosper solely by transporting the goods of other countries. That economic model may have worked at one point for city-states like Dubai and Singapore, but it won’t for a country of more than 220 million people that sees a million-plus young people enter its labor force annually.
Exports are the missing piece of Pakistan’s economic puzzle and a big reason why sustained, high-level economic growth has been elusive. Geoeconomic instruments—including trade pacts, tariff policies, and transport agreements—must be leveraged to get more Pakistani goods out to more markets. But improving export competitiveness also requires disrupting Pakistan’s political economy. And the problem is the country’s elite, both civilian and military, benefits from the status quo.
Despite Pakistan’s endless political turmoil, its civilian and military elite has collectively cartelized major industries, such as automobiles, fertilizer, and sugar. Their profitability stems from anti-competitive import tariffs and generous, distorting subsidies. Competition would force Pakistani companies to innovate and increase productivity—gains that could propel some of them to go global. Instead, they take the easier path, enabled by public policy, of selling substandard goods at inflated prices to a captive domestic market.
Given their predatory behavior, Pakistan’s elite are likely to cannibalize the gains from a modest economic opening, preventing them from reaching common Pakistanis. Elite capture could even render Pakistan’s geoeconomic pivot a non-starter.
Many of these same civilian and military cartel players have also benefitted from Pakistan’s binge on electricity, investing capital in building power plants and selling electricity to public utilities at some of the highest rates in the region. Unsurprisingly, after a government-induced electricity gold rush, Pakistan has an excess of electric power, although its grid remains in terrible shape. Public arrears owed to these private electric power producers continue to mountdue to high rates of power lost from the grid’s inefficiency and rampant theft of electric power. Pakistan struggles with paying for expensive energy, which will only get costlier.
Electricity rates paid by ordinary Pakistani consumers are projected to climb by 36 percent in the next two years as Islamabad starts to pay debt owed to private power producers, including companies owned by the army’s welfare trust and members of Khan’s own government. High utility rates will hurt Pakistan’s export competitiveness. And domestic industries are likely to persist in demanding protections to stave off foreign competition. A genuine economic opening seems improbable.
Like Pakistan’s electric power woes, an ongoing cotton crisis threatens to do serious damage. Raw and value-added cotton products make up the majority of Pakistan’s exports. But cotton output has plummeted by 34 percent in the past year alone, falling to the lowest level in three decades. To be sure, some of this is attributable to the pandemic. The early lockdowns drove cotton prices downward, sending some farmers to other cash crops. But Pakistan’s cotton crisis preceded the pandemic. The industry faces more enduring structural challenges. Yields have declined significantly due to climate change. In 2019 nearly a third of the country’s expected cotton harvest was destroyed by extreme weather. And sugar subsidies have lured farmers away from cotton.

Given the crop’s importance to Pakistan, one would think the government would redouble its support for local research institutes to improve cotton seed quality. But instead of resolving its own problems, Pakistan outsources the solutions to others. In this case, it’s asked Uzbekistan for help. Indeed, the cotton crop, which has been in decline for years, seems to be an afterthought for Pakistan’s leaders. Their indifference should be a dose of reality for anyone who believed Pakistan can integrate into the global economy as a major geoeconomics player.
A true pivot to geoeconomics must start with reforms at home. Until the rules of the game are changed, Pakistan will simply lurch from crisis to crisis as most of its citizens suffer and the elite laugh all the way to the bank.

Pakistan’s Geoeconomic Delusions

The country says it wants to pivot from hard power to economic power, but its economy begs to differ.

foreignpolicy.com

@Horus @waz @The Accountant @The Eagle @HRK @ghazi52 @krash @SQ8 @Imran Khan @Jungibaaz @Chak Bamu @Joe Shearer @beijingwalker @AgNoStiC MuSliM

This is an interesting read, all connectivity projects take time. Folks back in the late 80s early 90s use to question connectivity provided by the motor way, who would travel on it why will people pay for this, But today it created the entire Gujarati , gujranwala corridor


sothis seem to be the standard western don’t do this, trade is bad for you article.


my two cents we should go full steam ahead and buy lands to build the commercial parks, this will take 20+ years to give a return

Author is an economist and he only presented facts and figures. If he is wrong, another economist can counter his numbers.

so Norwegian, you should immediately leave this forum as you definitely are no defense expert......what is this amateur hour

k

 

[Indus Pakistan]

There's nothing that prevents Pakistan from leveraging the CPEC infrastructure & investments to boost economic growth and diversify & broaden its industries.

This is where the 'fail' has been. The failure to leverage the potential of CPEC and all along it was the prospect of ptential that we all looked on in hope. Two things would prevent the leveraging of CPEC potential and Pakistan's potential generally -

• monopolies/mafia rackets with roots within the ruling elite
• a culture entirely unfit for global trade which is insular/averse to modern world

These have been afflicting Pakistan for decades so when I heard CPEC being launched the hope I nursed was not that change would be brought about by tarmac/concrete. It never is. My hope was CPEC would trigger a Chinese exodus to Pakistan. These Chinese entrepreneurs would bring in fresh ideas, capital and flair to trigger a economic surge inside Pakistan. This would also then jolt and encourage a wave of new Pakistani entrepreneurs to copy the Chinese. All this creating a Malaysia/Singapore type of phenomenon. Anybody who knows history of these Asian Tigers will know the catalyst for this was always a small ehnic minority Chinese trading class. People will know that Malay Bumiputras have essentially 'piggbacked' their ethnic minority Chinese traders.

However despite a initial signs of Chinese influx it has dried out. CPEC has failed to draw in suffcient numbers of Chinese to be a catalyst for change. There are some but that number is insufficient to bring any change to the local monopolies and way of doing business.

There is always hope but I think our culture and local monopolies have scared off the Chinese. Instead Vietnam, Bangladesh and even India are preferred. Pakistan is left with a very dry military or geo-strategic relationship with China and failed to convert it to geoeconomics.

Still there is always hope.

 

[Protest_again]

This is where the 'fail' has been. The failure to leverage the potential of CPEC and all along it was the prospect of ptential that we all looked on in hope. Two things would prevent the leveraging of CPEC potential and Pakistan's potential generally -

• monopolies/mafia rackets with roots within the ruling elite
• a culture entirely unfit for global trade which is insular/averse to modern world

These have been afflicting Pakistan for decades so when I heard CPEC being launched the hope I nursed was not that change would be brought about by tarmac/concrete. It never is. My hope was CPEC would trigger a Chinese exodus to Pakistan. These Chinese entrepreneurs would bring in fresh ideas, capital and flair to trigger a economic surge inside Pakistan. This would also then jolt and encourage a wave of new Pakistani entrepreneurs to copy the Chinese. All this creating a Malaysia/Singapore type of phenomenon. Anybody who knows history of these Asian Tigers will know the catalyst for this was always a small ehnic minority Chinese trading class. People will know that Malay Bumiputras have essentially 'piggbacked' their ethnic minority Chinese traders.

However despite a initial signs of Chinese influx it has dried out. CPEC has failed to draw in suffcient numbers of Chinese to be a catalyst for change. There are some but that number is insufficient to bring any change to the local monopolies and way of doing business.

There is always hope but I think our culture and local monopolies have scared off the Chinese. Instead Vietnam, Bangladesh and even India are preferred. Pakistan is left with a very dry military or geo-strategic relationship with China and failed to convert it to geoeconomics.

Still there is always hope.

Pakistan needs to build up forex to get foreign investment. Without substantial forex, any investor would be vary whether he could repatriate his investment back out of the country. They would want the returns in dollars that includes Chinese.

 

[Indus Pakistan]

Pakistan needs to build up forex to get foreign investment. Without substantial forex, any investor would be vary whether he could repatriate his investment back out of the country. They would want the returns in dollars that includes Chinese.

Even with forex it won't happen. I don't think you guys understand what has happened in Pakistan. Brutal fact is Pakistan does NOT have any industry in the real sense. This is how Pakistan survives.

• farmers work their backsides to provide most of the food that feeds the country earning just enough to survive because of low productivity/quality
• poor workers go abroad and they bring dollars via remittances
• loans are taken from IMF etc for dollars. Grants from geo-strategic deals end up in military subsidies that pays for shiny toys.

This is Pakistan economic formula. Countries idles away living off remitance dollars and food grown by poor farmers. End off.

 

[Protest_again]

Even with forex it won't happen. I don't think you guys understand what has happened in Pakistan. Brutal fact is Pakistan does NOT have any industry in the real sense. This is how Pakistan survives.

• farmers work their backsides to provide most of the food that feeds the country earning just enough to survive because of low productivity/quality
• poor workers go abroad and they bring dollars via remittances
• loans are taken from IMF etc for dollars. Grants from geo-strategic deals end up in military subsidies that pays for shiny toys.

This is Pakistan economic formula. Countries idles away living off remitance dollars and food grown by poor farmers. End off.

Well this is what it is for now. But Pakistan, 220 million populated market will attract foreign investment with sufficient forex in place in my opinion. You have to market yourself the right way.

Look at Bangladesh, they would constantly talk about their economy through their media, generate a lot of publicity for nothing to show for it. Except for RMG exports, their consumption and government revenue is abysmal. On both accounts they are worse than Pakistan. Pakistan has to budget it right for a few years. Reduce their defence budget and use the resources to reduce the debt to a comfortable level. Otherwise by 2025, all revenue would go into debt servicing. Pakistan will face a lot of humiliation.

 

[Bilal Khan (Quwa)]

This is where the 'fail' has been. The failure to leverage the potential of CPEC and all along it was the prospect of ptential that we all looked on in hope. Two things would prevent the leveraging of CPEC potential and Pakistan's potential generally -

• monopolies/mafia rackets with roots within the ruling elite
• a culture entirely unfit for global trade which is insular/averse to modern world

These have been afflicting Pakistan for decades so when I heard CPEC being launched the hope I nursed was not that change would be brought about by tarmac/concrete. It never is. My hope was CPEC would trigger a Chinese exodus to Pakistan. These Chinese entrepreneurs would bring in fresh ideas, capital and flair to trigger a economic surge inside Pakistan. This would also then jolt and encourage a wave of new Pakistani entrepreneurs to copy the Chinese. All this creating a Malaysia/Singapore type of phenomenon. Anybody who knows history of these Asian Tigers will know the catalyst for this was always a small ehnic minority Chinese trading class. People will know that Malay Bumiputras have essentially 'piggbacked' their ethnic minority Chinese traders.

However despite a initial signs of Chinese influx it has dried out. CPEC has failed to draw in suffcient numbers of Chinese to be a catalyst for change. There are some but that number is insufficient to bring any change to the local monopolies and way of doing business.

There is always hope but I think our culture and local monopolies have scared off the Chinese. Instead Vietnam, Bangladesh and even India are preferred. Pakistan is left with a very dry military or geo-strategic relationship with China and failed to convert it to geoeconomics.

Still there is always hope.

The issue boils down to the fact that real change would threaten status-quo interests, and that the ones who benefit from the status-quo lack vision or drive. This is why our generals like running SOEs such as HIT when they're not qualified to do so. They don't have the foresight to delegate that work while they carry on with their actual military responsibilities (as they do in Turkey, Egypt, etc). So, if they can't even run a racket to its full potential, why are they going to do exert effort in any other area?

Well this is what it is for now. But Pakistan, 220 million populated market will attract foreign investment with sufficient forex in place in my opinion. You have to market yourself the right way.

Look at Bangladesh, they would constantly talk about their economy through their media, generate a lot of publicity for nothing to show for it. Except for RMG exports, their consumption and government revenue is abysmal. On both accounts they are worse than Pakistan. Pakistan has to budget it right for a few years. Reduce their defence budget and use the resources to reduce the debt to a comfortable level. Otherwise by 2025, all revenue would go into debt servicing. Pakistan will face a lot of humiliation.

The market is Pakistan's biggest redeeming factor, but our decision-makers lack the vision and drive to make something of it for the benefit of the nation. There's no enforcement of localization, for example, hence we import everything. Forget about tax revenue collection, auditing the defence budget, finding efficiencies in public sector spending, etc. There's a lot one could do within Pakistan, but at every level you have looters and thieves blocking the process because it's in their interest to do so. I mean, we're at a point where there are consulate staff in Canada who can't even speak English or Urdu.

 

[VCheng]

The issue boils down to the fact that real change would threaten status-quo interests, and that the ones who benefit from the status-quo lack vision or drive. This is why our generals like running SOEs such as HIT when they're not qualified to do so. They don't have the foresight to delegate that work while they carry on with their actual military responsibilities (as they do in Turkey, Egypt, etc). So, if they can't even run a racket to its full potential, why are they going to do exert effort in any other area?

Again, what you describe as an "issue" is an actual and desirable design feature that is maintained with great care and cost.

 

[Falcon26]

Excellent article from Arif Rafiq, someone who is an expert on CPEC and knows what he’s talking about. Arif has been writing about CPEC since it’s inception and offers nonpartisan and critical no nonsense analysis. Pakistani planners will be well advised to heed his warning.

 

[Bilal Khan (Quwa)]

Again, what you describe as an "issue" is an actual and desirable design feature that is maintained with great care and cost.

I pray, like all Pakistani made things, there's a fundamental flaw somewhere waiting to be yanked.

 

[VCheng]

I pray, like all Pakistani made things, there's a fundamental flaw somewhere waiting to be yanked.

Sorry to object to your prayers, but all the flaws in the system have been carefully removed over the last several decades, to be sure. It is dang near perfect right now. Barring any outside force majeure events, this will likely go on flawlessly.

 

[penlei00]

I read an article about Pakistan. The article wrote that a Chinese was traveling in Pakistan. He arrived in an area at night and was told that it was the land of Pakistani Prime Minister Nawaz Sharif. The car continued to drive and he fell asleep. When he woke up the next morning, he was told that the car was still driving on Nawaz Sharif’s private land.

 

[penlei00]

I remembered wrong. It’s not Musharraf. It’s Sharif. I have modified it.

 

[Path-Finder]

No this goes against facts, some but not alot
China hasnt been relocating many industries as its labour is still pretty cheap but the relocation if any is going more near its industrial base i.e south china see and vietnam. This is because vietnam has better polcies cheaper power and more proximity to china

Simply google and see if vietnam has more chinese investment in industries or pakistan


The answer will surprise you

the cost of labour is going up in China and there is a very very strong middle class. so its time for us to work and become first world.

 

[S.Y.A]

This is where the 'fail' has been. The failure to leverage the potential of CPEC and all along it was the prospect of ptential that we all looked on in hope. Two things would prevent the leveraging of CPEC potential and Pakistan's potential generally -

• monopolies/mafia rackets with roots within the ruling elite
• a culture entirely unfit for global trade which is insular/averse to modern world

These have been afflicting Pakistan for decades so when I heard CPEC being launched the hope I nursed was not that change would be brought about by tarmac/concrete. It never is. My hope was CPEC would trigger a Chinese exodus to Pakistan. These Chinese entrepreneurs would bring in fresh ideas, capital and flair to trigger a economic surge inside Pakistan. This would also then jolt and encourage a wave of new Pakistani entrepreneurs to copy the Chinese. All this creating a Malaysia/Singapore type of phenomenon. Anybody who knows history of these Asian Tigers will know the catalyst for this was always a small ehnic minority Chinese trading class. People will know that Malay Bumiputras have essentially 'piggbacked' their ethnic minority Chinese traders.

However despite a initial signs of Chinese influx it has dried out. CPEC has failed to draw in suffcient numbers of Chinese to be a catalyst for change. There are some but that number is insufficient to bring any change to the local monopolies and way of doing business.

There is always hope but I think our culture and local monopolies have scared off the Chinese. Instead Vietnam, Bangladesh and even India are preferred. Pakistan is left with a very dry military or geo-strategic relationship with China and failed to convert it to geoeconomics.

Still there is always hope.

The thing is that laying down roads on their own do nothing, you have to have policies that facilitate setting up of industries, like tax-breaks, subsidies etc. none of that happened, nawaz was only interested in setting up motorways.

This govt, although flawed, has introduced mobile assembling policy, but still hasnt done anything about assembling other telecom and electronics equipment. to export electronics, one needs to produce goods having CE or FCC certifications, no such authority was set up, and it looks as if the govt is in no mood to do that.

There is still nothing about manufacturing auto parts and exporting them, or manufacturing vehicles and exporting them. EV policy was a good initiative, but that has also come under a lot of pressure from existing big 3 mafia.

Nearly all the industry that is being set up is nothing but import based, be it the automotive manufacturers, mobile assemblers or what not. those touting the Haier plant as a win, criticize toyota and honda for doing to cars exactly what haier is doing to mobiles. not a single one of these companies is looking to export anything.

I have worked for big private companies owned by saiths, and I am currently working for the govt, and the situation is sh*t in both sectors. the saiths proudly state that they are running 40yr old machinery, conveniently forgetting that that machinery costs shit ton of money to maintain and run, and effects production by constantly breaking down, both quality and quantity of work suffer. otoh the govt doesnt want to maintain machinery at all, they think that a machine should never require maintenance, and if a piece of machinery requires repairs then that is the fault of the operator, as a result, no one tells about faulty machinery, or worse, the machine is never used at all.

Sorry to object to your prayers, but all the flaws in the system have been carefully removed over the last several decades, to be sure. It is dang near perfect right now. Barring any outside force majeure events, this will likely go on flawlessly.

agreed, all of this is by design. no one wants to lose their power or primacy. making the system rewarding to forward looking ideas would result in baba jees loosing their importance.