Closed-door policy bound to fail
We are living in the age of connectivity. The world is highly connected and is looking for ways to enhance connectivity further. The level of connectivity determines the economic status of any country. A country with better connectivity becomes the hub of investment and economic opportunities.
Supply chain and value chain-led economic and trade linkages have further enhanced the importance of connectivity. OECD has estimated that about 70% of global trade is routed through global value chains. Thus, a country with better connectivity has an edge over other countries, making it a good investment place.
Since 1970, the world has continuously moved towards globalisation by modernising connectivity tools. Such tools have accelerated the process of globalisation.
Now, digitalisation has put connectivity on a fast track. Digitalisation has brought the world market to fingertips. The globalisation, led by connectivity, has revolutionised the world economy, growth and development.
It has given exceptional impetus to the global economy and now the world is reaping the benefits of connectivity. The World Bank has estimated that from 1970 till 2015, the world GDP grew 25-fold.
Moreover, the global GDP increased from $2.96 trillion in 1970 to $105 trillion in 2023. Again, connectivity is a critical factor in the enormous development of worldwide economy.
China is the best case study to understand the importance of connectivity in modern days. It was developing at a good pace after the introduction of reforms. However, when Beijing joined the World Trade Organisation (WTO), it grew by leaps and bounds.
Statistics indicate that at the time of joining the WTO, the total size of Chinese economy was $1.3 trillion and its total trade was worth $0.51 trillion. It ranked sixth in both categories.
Later, the whole dynamics changed and now China is the second largest economy with a GDP of $18 trillion in 2022 and the biggest trading nation with trade valuing at $6.2 trillion in 2022.
Fortunately, Pakistan is blessed with strategic locations, which present it with excellent connecting nodes for various regions of the world.
On the one hand, Pakistan offers opportunities to Afghanistan and the Central Asian States, which are all landlocked nations, to connect with the world.
Fortunately, Pakistan enjoys good relations with all these countries, which makes it a perfect choice. Moreover, it offers China the most reliable and shortest route to world markets.
On the other hand, regions like Asean can also benefit from the location of Pakistan, which will help them to shorten the distance to European markets by investing in the South Asian nation. It also presents lucrative avenues to European countries to reduce their distance to Asean.
With the launch of the China-Pakistan Economic Corridor (CPEC), the potential and scope of Islamabad being a connectivity hub have enhanced enormously. CPEC helped to construct new motorways and related transport infrastructure.
According to official statistics, under CPEC, Pakistan has built 851 km of highways. CPEC has also helped Pakistan to develop a state-of-the-art seaport; the Gwadar Port.
Being part of the Belt and Road Initiative, Gwadar Port is emerging as a new centre of connectivity. Many countries, like Central Asian States, have shown keen interest in using the port for international trade.
Despite such a potential, Pakistan has not been able to capitalise on it. There are two major reasons for the poor performance. First, the country has an outdated and flawed connectivity policy framework, which has limited relevance in modern times.
More precisely, Pakistan has a closed-door connectivity policy, under which a complicated institutional framework has been put in place.
In some cases, investors and representatives of countries, including friendly nations, are not allowed to visit designated investment places. In this situation, one wonders how an investor will pour capital.
Besides, the business environment further aggravates the situation. Potential investors have to run after many institutions as they need multiple no-objection certificates and security clearances. This is exhausting for the investors, who prefer to stay away.
Apart from that, Pakistan’s business community (big business groups) is overly protected. They secure lucrative deals, win subsidies and shun competition. They are so used to subsidies that they are afraid of competition. They use their connections and influence over the government and institutions to tweak the system.
Successive governments have implemented this policy without realising that it is hurting the economic interest of Pakistan. The policy has discouraged investors, preventing the country from gaining the required growth momentum.
Now, the economy is in a shambles. Despite the strategic location and connectivity advantage, exports could not grow. Foreign currency earnings stand thin compared to expenditures, resulting in low reserves of the central bank.
Unfortunately, the present policy has weakened the economy. Pakistan is running after international financial institutions and friendly countries to address the economic malaise.
Global financial institutions and countries, even some of the friendly nations, are trying to exploit the situation. With an eye on national assets of Pakistan, they are asking the government to sell stakes of state entities.
In this backdrop, the present closed-door connectivity policy is counterproductive and is inflicting a heavy cost. Pakistan can never benefit from its strategic location and CPEC-related connectivity opportunities in the presence of the closed-door policy.
If the country wants to cash in on the connectivity potential, then it will have to transform. First, it will have to switch to open-door connectivity by simplifying the institutional framework and minimising the need for NOCs.
Second, Pakistan will have to slash, if not eliminate, subsidies to the big business groups, which should be more competitive. Lastly, the country needs to come out of the self-denial mode and try to put the house in order.
The writer is a political economist and a visiting research fellow at Hebei University, China
Published in The Express Tribune, September 4th, 2023.
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