How high should Islamabad’s policymakers aim as they think about the country’s economic future? My answer: Higher than they are doing at this moment. There is a reason why I believe that Pakistan could do better than even the more optimistic among those who are currently in charge of the economy believe is possible. When I was responsible for the countries in Latin America and the Caribbean at the World Bank in the late 1990s I saw turnarounds in a number of countries that were in extreme distress. The banking system in Mexico collapsed in 1994; Argentina came close to defaulting on its foreign obligations; Brazil and Peru saw their exports decline sharply because of the financial crisis in East Asia. Foreign investors fled the continent and domestic capital-holders preferred to take their money out of their countries.
We at the World Bank worked with these countries to develop recovery plans. This was done and both foreign and domestic confidence was quickly restored. Growth returned. In fact, the continent did better than most other world regions during the Great Recession of 2007-09. In 2017, Pakistan finds itself at a situation similar to the one faced by several Latin American countries when in the early 2000s they began the process of recovery. Several foreign analysts have written bullish stories about Pakistan’s future while the International Monetary Fund, the agency with which the country concluded a well-designed programme of reform, has expressed the hope that the gross domestic product could grow at a rate of more than five per cent a year. I believe the country could do much better. It could set itself on a trajectory of growth that would bring GDP increase to six to eight per cent a year.
How can Pakistan climb to the path of higher growth? It has the assets that can help to move the country on to a higher growth trajectory. However, for that to happen, policy makers should recognise the endowments that need to be factored into the growth equations. Over the last four years, the administration that took office in May 2013 rightly focused on solving the acute problems the country then faced. These were identified as the three “Es” – the revival of the economy, solving the energy problem, and controlling extremism. Progress has been made in all three areas. The country is now ready to move forward with a growth strategy that focuses on the sectors that can lead recovery. How this might happen will be the subject of several articles I will write for this space beginning with the one today.
In the article today I will begin to recognise the assets that can be counted upon to lead growth and social change in the country. It would take me a few articles to spotlight these endowments before going on to reflect on the policies that should be put in place to deploy them in the service of the economy and society.
Location is Pakistan’s most important asset. The country sits on top of India; it is situated between China, the Middle East, and Central Asia; it is next to Iran and not too far from Turkey. The fact that China has arrived in Pakistan with a huge programme of investment is in recognition of the country’s location. The much-commented-upon China-Pakistan Economic Corridor (CPEC) should be understood in the context in which it is being developed.
The Chinese are engaged in a fundamental reordering of their growth strategy. Having used an export-oriented approach to development, Beijing is now engaged in relying on other drivers of growth. Among these will be the building up of domestic demand and connecting the economy with the resource-rich countries of Central Asia and the Middle East. At the same time, they are working on relocating the enterprises that have been producing low-wage items of consumption for the western markets. For demographic reasons the markets in the West are shrinking; in response the producers in China would like to build supply chains located in low-wage countries that would link up with their more developed industrial enterprises. This is the reason for China’s interest in investing in large industrial estates located along the CPEC. The goods produced in these locations will travel by road to production centers in China.
China is also concerned about the fact that almost the entire oil and gas it imports from the Middle East travels through the Straits of Malacca. This sea-lane could be easily blocked by a hostile power thus inflicting heavy damage on the Chinese economy. China is nervous about the direction in which the United States has begun to move under President Donald Trump. The new American administration has already singled out China as the country it will look at not as a collaborator in the international arena but as a serious competitor. The United States with China in its focus has begun to add to its already considerable military strength. Beijing cannot be complacent about these developments.
One way of dealing with the potential American threat is to develop alternate routes for moving the goods and commodities China needs. This is where the CPEC enters the picture. But CPEC is not the only route the Chinese are developing. They are also investing heavily in building a CPEC-like corridor in Kazakhstan. All this activity is at the initial stages of development. It will become more ambitious as the system grows. Pakistan’s location is likely to prove to be a game changer for the country.
Published in The Express Tribune, March 27th, 2017.
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