Building on geo-economic narrative

Country should shift from protectionist mindset; key sectors must be protected

ISLAMABAD:

It is a welcome paradigm shift in international relations of Pakistan to move from geopolitical to geo-economic focus.

It is, however, important to note that our international politics is largely correlated to our geography while economic relationship is not.

First and foremost, we need to synchronise our foreign policy with the international economic policy and also shorten physical distances of our economic ambitions and relations, in order to truly achieve benefits of the geo-economic approach.

There is hardly any commonality between the list of the most important allies of Pakistan, from the foreign policy perspective, the list of our geographical neighbours and the list of the largest trade and investment partners of Pakistan.

China is an exception due to the special relationship and CPEC, though Pakistan’s exports to China fail to qualify under this synchronisation test. Afghanistan is another exception due to its peculiar situation.

There are certain challenges, yet more opportunities as a result of this paradigm shift.

The first and foremost challenge is with changing the variable of politics with economics while keeping geography as a constant. Thus far, our national narrative of strategic depth has been built and strengthened over years on the foundations of politics with our neighbouring countries.

This depth has been kept mutually exclusive with the economic and trade depth, with the exception of China.

Due to such positioning of our international relations, there may be short-term pain in certain quarters, but who says that we cannot have strategic depth with both the political and economic pillars.

In turn, this provides a huge opportunity. If our strategic depth school of thought believes that we are politically important due to our geography, then we need to add a line that our geography also sits next to two of the biggest economies in the world (China and India), on the way to one of the most important sea trade routes of the world (Gwadar and Arabian Sea), and also next to the most underexplored global markets (Central Asia).

Where and how to start then?

Looking at Pakistan’s potential economic geography, the neighbourhood has it all. We are doing well with China, although it is largely one sided from the trade perspective.

There is a huge potential for Pakistan’s exports to China. It has been quite a while since signing the FTA with China, and more importantly with this level of special relationship between the two countries, there needs to be rethinking on our level of exports to China.

What about India? Would it still be seen from a geopolitical lens, probably yes. Nevertheless, the geo-economic lens does not have to be mutually exclusive.

If we assume that there is no trade happening between Pakistan and India, then we are not serious in this discussion. If in doubt, try to look at trade via the UAE and other transit destinations including some African countries.

Smuggling and trade via Afghanistan is additional to it. Why not to accept it as a reality and encourage formal and open trade. The potential is really huge, and has been analysed extensively through studies and simulations.

Going a little far east, to Southeast Asia would be even more beneficial, if we could get some inroads into Asean markets.

Moving to North and North West, Afghanistan is a big market for exports and investments of Pakistan but due to political situation, it may not yield its full potential in short to medium term.

Looking beyond to Central Asian states is what we need to do immediately. There are some good signs to establish road connections with one of the countries in that region, but we need a full-fledged effort and immediate action to tap these relatively unexplored markets.

These countries can provide us energy and food supplies while we can export intermediate and value-added goods and services.

Going further to the West, Iran is a market that we need to revisit and rethink seriously. Yes, Iran is under sanctions but there could still be many opportunities that do not fall under this sanctions regime. Hopefully, Iran would be out of this situation soon, in such a scenario have we done our homework on how to synergise our economic relations?

Getting back home, there are a couple of narratives that need bold rethinking and strategic decisions, if we really want to achieve our geo-economic ambitions.

The first is to have a paradigm shift in our protectionist mindset for the economy. There is no doubt that we must protect our key sectors and encourage domestic industrial and services growth, but it has to be based on either productivity or yield growth, or if it is an essential public good that is benefiting the public at large.

Having a look at the protected sectors such as auto and sugar, they do not apparently qualify under either of these criteria. Why are we protecting then, for a few capitalists?

Secondly, we need to repurpose the subsidies and other fiscal support mechanisms. Sectors such as agriculture are surely strategic enough to leave the efficiency argument behind, though a revisit may be helpful, but why to inject $7 billion into textiles to get $17 billion of exports in return.

Why not to inject half of that $7 billion into more efficient sectors such as light engineering, surgical and sports goods, and services such as ICT, to get even more exports in return.

The aforementioned two suggestions are necessary to make Pakistan’s economy efficient and responsive, able to harness high-value global markets and resilient enough to absorb and internalise international competition due to opening up, particularly to neighbouring markets.

Lastly, we need to have synchronisation between our foreign and trade policies. There should be a single international economic policy of Pakistan that corresponds to and advances the new geo-economic narrative.

Neighbourhood has it all, let us harness it before the window of opportunity is closed.

The writer is an international economist

 

Published in The Express Tribune, December 20^th, 2021.

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