The transition to geoeconomics



The strategic shift from geopolitics to geoeconomics is a welcome move by the Pakistani government.

In a world where a nation’s relative position is determined primarily by its economic power, the focus on geoeconomics embodies a logical response to national and international challenges. Geography has always been considered an element of national power. All other things being equal, some countries, because of their geographical location, are better placed than others to attract trade and investment.

Pakistan is a country that is also strategically located. North of Pakistan is China, the world’s second largest economy and largest trading nation. To the east is India, which is one of the major emerging economies.

Northwest of Pakistan lies landlocked Afghanistan and beyond that landlocked, energy-rich Central Asia. Pakistan offers the shortest land route to Afghanistan for its foreign trade.

To the southwest is Iran, which connects Pakistan to the oil and gas-rich Middle East. The Arabian Sea to the south, which forms the northwest part of the Indian Ocean, is one of the busiest trade routes in the world. Because of its strategic location, Pakistan should have become a hub of trade, transport and investment.

On the contrary, strategic location proved to be Pakistan’s Achilles’ heel and reduced it to a hotbed of militancy, partly because national priorities were misplaced and partly because global or regional powers used the territory of the country to wage their wars by proxy. Foreigners generally saw Pakistan as an unstable country with high political risk, where their lives and property would not be safe.

Therefore, despite entering into various regional and bilateral preferential trade agreements, Pakistan has not been able to join global value chains (GVCs), which account for almost half of global trade, despite its geographical advantage and having without doubts the most liberal trade and investment. regimes in the region. As a result, the country received meager FDI inflows over the years and had to rely mainly on foreign loans to finance trade and current account deficits, thus accumulating massive debt.

Pakistan’s geostrategic environment remains uncertain, which further limits its economic choices.

The continuing Kashmir problem along with the growing hegemonic posture of New Delhi led by the BJP will make it difficult for Pakistan to normalize trade with India. As a result, the economic potential of the South Asian Association for Regional Cooperation (Saarc) is likely to remain underutilized.

If Afghanistan continues to remain unstable, the prospects for trade with the Central Asian republics will remain bleak.

The return of the United States to the Iran nuclear deal and the withdrawal of American sanctions against Iran hang in the balance and will therefore continue to cast their shadow over the resumption of large-scale trade between Pakistan and Iran. .

Take advantage of opportunities

Despite these constraints, substantial opportunities are offered by the international economic environment.

The new national narrative of geoeconomics, if implemented in faithful letter and spirit, would help realize Pakistan’s immense economic potential and leverage these opportunities.

The most obvious of these opportunities are offered by the Belt and Road Initiative (BRI), the Chinese government-sponsored mega infrastructure and development program. Announced in 2013, the BRI aims to connect Asia with Africa and Europe through land, sea and digital networks.

Partly because of its strategic location and partly because of its excellent relations with China, Pakistan has a very important role to play in the implementation of the BRI.

The China-Pakistan Economic Corridor (CPEC), which was unveiled in 2015, is one of six BRI corridors. CPEC connects China’s Xinjiang province with Pakistan and greatly reduces the time and cost of western China’s trade with countries in the Middle East, Africa and Europe.

The first phase of CPEC focused on infrastructure and energy projects and between 2015-16 and 2020-21, $4.86 billion of Chinese investments were made in Pakistan, mainly in these two sectors.

Thanks to the CPEC, China has become the main source of FDI in Pakistan. The second phase of CPEC, which has just started, will target industrial development and agriculture. Pakistan is seeking to receive considerable Chinese investment in manufacturing and modernization of agriculture, especially in the Special Economic Zones (SEZs) and Gwadar Free Zone, which offer many incentives to foreign investors in the form of exemptions from domestic and import taxes.

It can be mentioned that due to rising wages in China, many labor-intensive industries are relocating overseas. Due to its large workforce and competitive wages, Pakistan can be a credible option for Chinese companies wishing to relocate to low-wage countries.

CPEC is open to the participation of third countries and it is hoped that Chinese investment will encourage other capital-rich countries to step up their investment in Pakistan and thus enable the country to realize its investment potential and become part of some of the global value chains in such countries. sectors such as information and communication technologies, textiles and automotive.

Already a lot of mobile phone brands, mainly Chinese, but also Samsung, have entered Pakistan.

Challenges on the way

At the same time, some challenges need to be addressed. Due to space constraints, only three can be mentioned here.

Ensuring the safety of foreign investors and workers and the safety of foreign assets will be the biggest challenge for Pakistan. Incidents such as the lynching of a Sri Lankan factory manager in Sialkot, and the extremist narrative that encourages such incidents, if left unchecked, can undo the success of geoeconomics.

The continuity of liberal economic policies, particularly on investment, will also be crucial. The objective should be to minimize the cost of doing business, so that the advantage offered by lower wages is not offset by high barriers to trade and investment.

The third important challenge will be to ensure efficient and effective economic governance. Governance in Pakistan remains hostage to the principle of ‘administrative efficiency’, which sees all problems as essentially administrative and which is a vestige of the colonial era. Economic management requires specialized knowledge and skills. The Economists and Planners Group is a specialist cadre who, as its name suggests, can direct economic management.

However, economic management remains an almost exclusive domain of civil servants of the Pakistan Administrative Service (PAS), whose main competence is related to the administration of districts and divisions mainly with a view to collecting revenue and maintaining public order.

Dealing with the complex economic problems of the 21st century through a 19th century administrative system cannot ensure effective and efficient economic management.

The writer is a columnist based in Islamabad

Published in The Express Tribune, January 17, 2022.

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