LAST month, Finance Minister Asad Umar advocated that Pakistan needs to enhance exchange with [its] eastern and western neighbours. He was spot on. And even though recent tensions between India and Pakistan have made any conversation on regional connectivity challenging, the compulsion of moving in this general direction remains unaffected.
Much is said about Pakistan’s pivotal geostrategic location that lies at the intersection of energy-rich Central Asia, two of the world’s largest economies — China and India — and the Indian Ocean. But Pakistan has foregone the benefits of this location, lack of strong internal reforms geared towards regional connectivity and a neighbourhood infested with conflict have hurt Pakistan tremendously through the years. The result is that Pakistan is falling behind its peers in the economic realm at a rapid pace, and its social indicators are among the worst in the world.
The acuteness of the problem is widely recognised in the country. There is increasing chatter about the need to move the country to a truly development-led paradigm focused on human capital investments. The benefits brought by regional connectivity and more open trade are evident: a liberalised regional trade regime in merchandise alone will result in a threefold increase in trade, an estimated $58 billion. Further, by connecting with resource-rich Central Asia and developing synergies between this east-west axis and the China-Pakistan Economic Corridor (CPEC), Pakistan would relieve its internal energy constraints, earn additional revenues and undercut circuitous trade routes created to bypass Pakistan — connectivity between India, Iran, and Afghanistan through the Chabahar-Zaranj-Delaram route being a case in point. This will produce a cumulative increase in GDP to the tune of $40-160 billion by 2047. Such connectivity will also improve Pakistan’s strategic footing by creating regional stakes in its stability. Gains will be far lower if Pakistan improves its economic outputs but continues to exist in an unconnected region.
By focusing only on the north-south axis will boost the GDP between $6-24bn over the next 30 years. You add trade liberalisation with India into the mix and the number jumps seven-fold
Admittedly, the envisioned path is a politically difficult one, not least because India remains central to the whole region, including Pakistan. Potential gains from liberalising trade with India dominate the total gains for Pakistan; 85 per cent of the unrealised regional trade potential for Pakistan is with India, while 15pc is with China. CPEC offers a great opportunity for economic growth but focusing only on this north-south axis will only boost the GDP between $6-24bn over the next 30 years. You add trade liberalisation with India into the mix and the number jumps seven-fold.
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Of course, Pakistan alone cannot achieve the suggested transformation. Other regional states are equally responsible for moving the connectivity agenda forward. The good news is that every South Asian country stands to gain tremendously from improved connectivity. And this reality hasn’t escaped the region’s policy circles. Energy-rich Central Asia is desperate to get access to the South Asian market. Afghanistan is also eager for regional connectivity. There is no other way for it to sustain even a semblance of economic stability in the long run. This also implies a positive US interest in pushing for Afghanistan’s integration into a regional economy. As China’s investments in the region mature, its stake in regional stability, and therefore a more normalised India-Pakistan relationship, will also grow.
To take full advantage of connectivity when the moment is right however, Pakistan (and the region) must prepare itself by reforming internal structures that are impediments to effective regional integration. This includes both steps to liberalise Pakistan’s trade policy to reduce tariff and non-tariff barriers and focusing on trade facilitation measures such as improving infrastructure and services, allowing electronic data exchanges at borders and accepting international transport guarantees, among others. Such measures are critical to unlocking the full economic benefits of CPEC and of broader regional connectivity.
Regionalism will have to be a necessary ingredient of any strategy aimed at bringing meaningful economic growth and the subsequent trickle down of the benefits to the average Pakistani. The alternative, a business-as-usual approach, is going to put Pakistan decisively behind its peers in the coming decades.
Fei Deng is World Bank Staff and Moeed Yusuf is from United States Institute of Policy, both of whom have worked on the Regional Connectivity chapter of the World Bank’s Pak@100 report
Published in Dawn, March 26th, 2019