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Unpacking Pakistan’s geo-economic ambitions

Pakistani leaders have repeatedly signaled a shift from ‘geopolitics’ to ‘geo-economics’ in recent months

By Imdad Hussain |
PUBLISHED July 18, 2021

Pakistan’s pivot from ‘geopolitics’ to ‘geo-economics’ came into sharp focus recently as Prime Minister Imran Khan concluded his visit to Uzbekistan. The term has been repeatedly brought up since the beginning of this year – first when the premier visited Sri Lanka in February and then in March, when both the army chief and Pakistan’s foreign minister announced in clear words the country’s developing geo-economic vision for its future.

The Uzbekistan trip, which spanned July 15 and 16, culminated in a slew of agreements across a range of sectors, from trade to culture. Among other things, the two nations agreed to finalise a preferential trade agreement (PTA) within three months to boost bilateral trade volume, which for now is far below potential. But perhaps most the significant one was a deal to enhance rail links between the two nations via Afghanistan.

The benefits of this particular agreement appear obvious. For the landlocked Central Asian nation, greater connectivity will allow it access to Pakistan’s three ports in Gwadar and Karachi.

For Pakistan, however, the end goal goes beyond more trade opportunities with resource-rich Central Asia. Linking Gwadar and Karachi to the 11-nation Central Asia Regional Economic Cooperation (CAREC) corridor would open the country and the China Pakistan Economic Corridor to both Russia and Europe – the benefits of which, most observers agree, would be unimaginable.

But Pakistan’s pivot seems to be taking shape in a crowded geopolitical space that poses a new set of challenges.

A battle of ‘new world orders’

In his first news conference in March, US President Joe Biden kept observers on their toes by dubbing his country’s great power competition with China a ‘global ideological fight between democracy and autocracy’. His language signified the emergence of a new divided world, the likes of which had not been seen since the end of the Cold War.

The 1990s saw the emergence of a unipolar world, perhaps for the first time in human history, as the Soviet Union disintegrated and the US, starting with Iraq and Kuwait, discovered it could decide global matters alone. Empowered by its technological and military supremacy, the US cemented its lone influence over major trade routes, like the straits of Malacca and Hormuz, and thus found itself in control of other nations economic and energy bloodlines. Through organisations it led, like the World Bank and IMF, the US also strengthened its global financial influence around the same time.

Against this backdrop, the China-led OBOR appears to contest the old US-led ‘new world order’ by providing alternative strategic routes to the ones the latter controls. Simultaneously, China’s rapid military modernisation, especially in terms of naval power projection, threatens America’s singular dominance of the seas.

Beijing’s large-scale investment in various regions, likewise, has appeared as a challenge to US financial might and the latter has already fired the first salvo in an emerging economic war by slapping sanctions on certain Chinese firms.

Many analysts fear this divergence in views over sea and land routes between the two superpowers will shape the economic calculus for countries in the region. In Pakistan’s case, US officials have already been very vocal in their opposition to CPEC and analysts fear Washington may try to complicate various projects under its umbrella in the future.


The right time to pivot?

In Islamabad, Biden’s remarks were seen in the backdrop of the pivot to geo-economics. The US declaration was followed by the rapid withdrawal of its forces from Afghanistan, a move highlighting that policies created in response to challenges 20 years ago were no longer valid. Washington has also not made it secret that it views China’s increasing engagement in global affairs through One Belt One Road (OBOR) initiatives as hostile to its own interests.

Any rift between US and China or Russia and Ukraine would obviously have ramifications for the entire world, not just Pakistan and CPEC. But for us, these complexities could delay safe access to Central Asia and beyond at least in the near term. Not only that, an even more complex challenge could emerge if Pakistan is pressured into joining either a China-led bloc or a US-led alliance. As an increasingly polarising global conflict takes shape, staying neutral and sticking to geo-economic objectives would be an immense challenge by itself.

Responding to whether it was the right time for Pakistan to opt for geo-economics against this backdrop, renowned economist and NUST dean Dr Ashfaque Hasan Khan stressed that sea routes were functional and trade and business were continuing even amid tensions in the South China Sea. “Pakistan can pursue its economic ambitions and policy shift even if international differences continue,” he stressed.

“This time Pakistan must opt for economic development as other states do in the world,” added head of Center for Research and Security Studies (CRSS) Imtiaz Gul. “Pakistan would decide alliances in accordance with its economic benefit if the objective is pursuing its geo-economic policies.”

Other analysts pointed to encouraging signs in how some European nations were navigating the situation. Italy, for instance, has joined OBOR while other European countries, despite reservations, have expressed keen interest in China-led projects. Even in the US, some voices have questioned their government’s outright opposition to OBOR and analysts suggest trends like those can minimise political polarisation emanating from great power competition.

Navigating uncertainty

As a gateway to Central Asia, uncertainty in Afghanistan is the prime issue standing in the way of Pakistan’s geo-economic ambitions. With the US having withdrawn its forces, the Taliban are claiming to have more than 80 per cent of the country under control already.

While it is difficult at the moment to pick which scenario is more likely, stability in the near-term appears elusive in nearly all of them. If the Taliban do end up controlling Afghanistan in its entirety, for instance, it would not just be the US that reacts negatively, analysts say. All regional countries, including Pakistan, would not want to recognise a Taliban government in Kabul at gunpoint, they believe.

A complete defeat for the Taliban, on the other hand, seems to be impossible given that neither the US-led forces nor the Afghan government forces with their support could achieve that.

A more likely scenario is the Taliban using the parts of Afghanistan under their control as a bargaining chip in talks with Kabul. The failure of these talks, however, will mean regional uncertainty will continue for the next few years at least; uncertainty that will pose a serious threat Pakistan’s internal security given how both Baloch and TTP insurgents have strong bases in Afghanistan’s bordering areas.

Instability in Afghanistan will also continue hold back already delayed collaborative projects with Central Asian nations like the TAPI pipeline or CASA-1000. As far as profitable infrastructure with the neighbors is concerned, Pakistan hasn’t been able to move ahead except in the case of minor ones, like the recently established markets at the Pakistan-Iran border.

The US, for its part, may be out of Afghanistan but not out of the game. A recent report by the Central Asia-Caucasus Analyst stated that US presence in Central Asia has increased in the wake of the withdrawal and that its objectives in doing so include balancing Chinese and Russian influence in addition to keeping the Taliban in check.

According to experts, the US withdrawal also means it would be less dependent on regional players for its goals in the region. For instance, it has the capability to launch air and missile strikes from remote bases and vessels to hit its targets in Afghanistan. Such a policy would further complicate the regional situation if implemented.

Still, with all these difficulties, prominent strategist and analyst Dr Rifaat Hussain said Pakistan must adopt a two-pronged strategy in order to see its geo-economic ambitions to fruition: “The first is to play a role in stabilising Afghanistan and the second, to secure routes to Central Asia.” Experts also advised efforts to restore SAARC and improve ties with India as prolonged distrust has kept regional development and integration from reaching its true potential.


Putting the house in order
Implementing the geo-economic policy could face serious issues if current internal situation continues. While Pakistan’s ranking in the WB Doing Business 2020 report improved from 136 to 108, the country still lags behind neighbours India, Sri Lanka and Nepal.

Analysts say that at first Pakistan would need stable political and economic conditions, for which the equation of civil-military relations will have to be altered. The country would also need stable economic policies as variations with the change of governments discourage investment and industrialisation. The present government has changed finance ministers four times, sending a negative message to investors both home and abroad.

According to analysts, reforming strict bureaucratic rules and reducing judicial intervention in business is also necessary. Sagas like that of Reko Diq have increased the reservations of foreign investors when it comes to Pakistan. Tax policies are another factor that needs to stabilised as tax fluctuation and unpredictable exemptions lead to investor shyness. Pakistan will also have to resolve longstanding management issues, such as in the case of the energy sector where even with surplus power, the country’s energy crisis continues.

Speaking on internal challenges, former principal economic advisor and prominent economist Sakib Sherani said the implementation of geo-economics strategies would become near impossible for Pakistan if reforms in various areas are not implemented. “Take for example taxation, the system is so flawed that the entire burden is on formal and registered businesses instead of informal or unregistered businesses. Which is why informal sector in the country is growing,” he stressed. “It is not only affecting the government’s revenue but discouraging direct foreign investment as well,” he added.

All analysts stress that Pakistan’s geo-economic ambitions will remain just that without foreign direct investment, industrialisation, skilled labour, infrastructure and energy reforms. In the absence of these, Pakistan’s grand schemes like CPEC would only serve as transit routes and provide limited benefit. The potential in Pakistan is already there, however. A recent report by PricewaterhouseCoopers, for instance, predicted Pakistan could become the 16th largest economy in the world by 2050 based on its gross domestic product at purchasing power parity. For reference, this is where the likes of Canada and Italy currently rank.