The economic growth of nation-states is linked to their ability to exploit connectivity and interdependencies within strong regional blocks. Despite the reversal of Brexit, various forums such as the European Union (EU), Association of Southeast Asian Nations (ASEAN), United States-Mexico-Canada Agreement (USMCA), The Regional Comprehensive Economic Partnership (RCEP) as well as other regional treaties, serve not only to demonstrate the importance of trade liberalization in boosting economic activity, but also that of intense diplomatic efforts is required in the regional and international arena to facilitate participation in these trading blocks, and beyond that.
Pakistani diplomacy, backed up by the ability to leverage the numerous economic opportunities the country affords, needs to take advantage of its unique geostrategic edge to maximize the benefits of globalization.
Its location allows it opportunities to facilitate trade between its surrounding countries by acting as a trade hub. It is particularly well suited to facilitate trade between large and resource-rich markets of the Middle East, Central Asia, and China.
China, Central Asia, and Afghanistan’s importance to Pakistan’s international economic engagement matrix cannot be overemphasized. While the China-Pakistan Economic Corridor (CPEC) has helped build an already strong strategic relationship between ‘Iron Brothers,’ the enormous potential for economic development with the Central Asian region remains to be explored. An important component of all diplomatic interfacing has to seek to build on economic interdependencies with these countries.
TAPI: From pipedream to pipeline for prosperity
With the exit of the United States from Afghanistan, regional trading opportunities put on ice can once again be revived, and try to bring to fruition the ‘Host Government Agreement’ between Pakistan and Turkmenistan for the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project in March 2019. Under the agreement, Pakistan would assist the TAPI Pipeline Company Limited (TPCL) in laying a gas pipeline in its territory against which it will receive a transit fee.
Turkmenistan is home to the world’s second-largest natural gas deposit, and TAPI would allow the Central Asian country to diversify its exports destinations by delivering energy to India and Pakistan. The 1,814 km pipeline will run from the Galkynysh gas fields in Turkmenistan through Afghanistan and Pakistan to India.
In Afghanistan, the pipeline will be constructed alongside the Kandahar–Herat Highway in western Afghanistan and then via Quetta and Multan in Pakistan. The pipeline will be 56 inches in diameter and is expected to bring 33 billion cubic meters of natural gas per annum (bcm) from Turkmenistan to the Pak-India border.
If the ultimate ambitions of TAPI are realized, it will create an integrated India-Pakistan-Central Asia oil and gas network servicing a huge and rapidly growing market.
A concerted, focused effort by Pakistan and the Central Asian states can lead to the optimal commercial development of Central Asian oil and gas resources, and at the same time, address the energy security needs of 1.5 billion South Asian consumers.
To take advantage of the vast untapped oil and gas reserves of Central Asia, Pakistan is becoming an active stakeholder in the development of pipeline infrastructure and playing a lead role in the commercialization mechanism of such resources.
Engagement matrix beyond energy
Central Asia and Afghanistan’s importance to Pakistan’s international economic engagement matrix is not limited to energy. The Central Asian region has enormous potential for economic development based on its other industrial raw materials and agricultural produce.
With the help of international investors, Pakistan can emerge as a partner for Central Asian economies in their economic transformation and modernization.
The development of integrated production networks that combine Pakistan’s competitively priced skilled and unskilled labor with Central Asian energy, natural resources, and agricultural products will go a long way in uplifting the region’s economies. Afghanistan will gain as a central part of this production network as an important transit country.
Investment opportunities will also arise because Central Asian economies are undergoing an economic transformation. With their unique technological and entrepreneurial know-how suited to a low-cost, low-technology environment.
Pakistani firms and companies can partner with Central Asian efforts by investing in new ventures in the region’s countries and helping them develop new export markets. As trade flows and traffic grows on these transit routes, new jobs in the logistics sector in warehousing, trucking, and packaging would also be created in the Afghan economy.
Besides direct employment from the transit economy, small-scale manufacturing and agro-based industries can potentially develop in Afghanistan, given the accessibility to Southern Asian and Central Asian markets.
Access to cheap energy resources and relatively cheap labor would result in the development of labor-intensive export-oriented manufacturing geared towards western and other markets. Such an export-oriented strategy has the potential to takeoff and creates a large number of jobs.
Development is likely to be the most impressive in the border areas with Pakistan and the northern areas bordering Uzbekistan and Tajikistan, leading to better prospects of peace and stability in the region.
Since the benefits of a well-developed cross-border infrastructure and improved trade regime are most likely to be felt in the border areas of Afghanistan, the population in these regions would have the most to lose from the disruption to war and strife.
Thus, a successful Central Asian initiative in the medium to long-term will create a huge incentive for the local population to lend their support and sustain such agreements, thus creating a strong domestic constituency for peace and economic development.
Pakistan needs to accelerate the steps being taken toward comprehensive trade reforms simultaneously and urgently, keeping in mind their interconnectedness, if it is to leverage its inherent strategic advantages, such as potential access to over $2 trillion import market as a result of the CPEC as well as proximity to Central Asia and the Middle East; readily available raw materials for manufacturing items; and a large domestic market and human resource base.
Greater economic integration with the world markets, facilitated by internal reforms and aggressive diplomacy to facilitate market access, will enable the Pakistani industry to take advantage of the vast opportunities offered by the global marketplace.
Investment and trade are intertwined, and any growth strategy should be driven by investment in manufacturing for international markets rather than primarily to satisfy domestic demand, as has largely been the case for Pakistan.
This will stimulate innovation and productivity gains among Pakistani manufacturers, making them competitive in the global market and scale up and create jobs.
Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He is an investment banker by training. He Tweets @javedhassan.