Pakistan and its role in SAARC

Pakistan is located in South Asia. Other countries in this region include Pakistan’s arch rival India, Nepal, Sri Lanka, Bangladesh, Maldives and Bhutan. These countries are also part of a bloc called SAARC (South Asian Association for Regional Cooperation) which was established in 1985. While Afghanistan was included as  full member in 2006, Iran, China and Myanmar are seeking full member status in the bloc.

After Sub Saharan Africa, South Asia is the poorest region in the world with a large percentage of the population living below the poverty line. Quarter of the world’s poor population is living in Africa while half is in South Asia alone. South Asia is amongst the least integrated region in the world according to a World Bank report published in 2007. In South Asia, trade amongst the countries  is only 2% of the region’s combined GDP while on the other hand in East Asia it is 20%.

These countries are still competing with each other globally, due to similar mindset of the ruling elite, similar climatic conditions and soil composition. These countries have however have hostilities against each other despite having close proximity and common borders.

In this region the largest countries by population in the descending order are India, Pakistan and Bangladesh. These three countries are agriculture and manufacturing based economies but don’t have good diplomatic relations with each other. This ‘trust deficit’ hinders any economic cooperation between these countries in agriculture and manufacturing sector.

Countries in this region are suffering from energy shortage which according to me is a lifeline for any economy in the world.  Inconsistent policies and mismanagement is prime reason for the energy crisis in this region for the past 40 years or so. The power generation facilities in this region are running below optimum capacity because of fuel shortage and poor cash flows.

The aggregate installed electricity generation capacity of Pakistan is around 30,000 mega watt but unfortunately the capacity utilization is around 50% i.e. 15,000 mega watt. Not only Pakistan, but its neighbor India, is also suffering from the same problem. India, which happens to be the third largest economy in the world, has installed generation capacity of 250,000 mega watt but capacity utilization is around 60% i.e. 150,000 mega watt. While India is trying to overcome the energy crisis, Pakistan on the other hand has often ignored the important problem and appropriate steps or not taken to overcome the problem.

One can just forget two of the gas pipeline projects Iran-Pakistan-India (IPI) and Turkmenistan-Afghanistan-Pakistan-India (TAPI). Both the pipelines were aimed at catering to Indian gas requirement but Pakistan was to benefit in two ways: 1) getting millions of dollars transit fee and 2) also gas for meeting domestic requirements. It was believed that after easing of economic sanctions on Iran, Pakistan will succeed in completing portion of gas pipeline located in its territory. However, it seems that Government of Pakistan (GoP) does not wish to complete this project due to the US pressure. Fate of TAPI is also in doldrums as NATO forces are likely to vacate Afghanistan in 2014. Therefore, Pakistan will have to accelerate oil and gas exploration activities in the country and also complete LNG project on war footings.

Pakistan is a natural corridor for energy supply because on one side are energy-rich countries and on the other side are energy-starved ones. Pakistan can also follow Singapore example and establish state-of-the art refineries on the coastal belt. In this regards help can be sought from China, Russia and other Central Asian countries. Pakistan already has a mid-country refinery and two pipelines to carry black and white oil products up to Multan. This can pave way for export of white oil products to Afghanistan and Chinese cities enjoying common border with Pakistan. Realization of all these projects can help the country in earning millions of dollars transit fee.

Ironically, Gwadar port project has been put on back bumper after the departure of Pervez Musharraf. In fact the paraphernalia should have been completed prior to transfer of management control to China. Though, India is facilitating in the construction of Chabahar port in Iran, Pakistan will continue to offer shortest and most cost effective route up to Central Asian countries passing through Afghanistan.

Lately, some of the Middle Eastern countries have shown keen interest in acquiring agriculture land in Pakistan but local feudal lords have emerged to be the biggest opponents to leasing of cultivable lands to other countries. Pakistan has millions of acres of land which is not cultivated, mainly due to shortage of irrigation water. Leasing out land to other countries is not a bad proposal because it would help in improving the infrastructure i.e. construction of farm to market roads, and modern warehouses. Construction of water courses and installation of tube wells would have helped in raising sub-soil water levels in arid zones.

Pakistan produces huge quantities of wheat, rice, sugar, fertilizer but a significant portion of these commodities is smuggled to neighboring countries. Plugging of porous border and formalizing trade with India, Iran and Afghanistan can increase Pakistan’s export manifold. It is estimated that nearly one million tons wheat and half a million tons rice and sugar each is smuggled to the neighboring countries.

The increase in lending to farmers has started yielding benefits with Pakistan joining the club of wheat exporting countries. The recent initiative of State Bank of Pakistan, Warehouse Receipt Financing and trading of these receipts at Pakistan Mercantile Exchange is likely to improve earnings of farmers, though reduction in wastages and better price discovery. It is encouraging that British Government has offered assistance equivalent to Rs240 million to complete the project at a faster pace. The key hurdle in the realization of this project is lack of modern warehouses and absence of collateral management companies.

It is necessary to remind the GoP that nearly 1000 palm oil plants were grown in Sindh near the coastal line. While a large percentage of plants have died due to improper management, extracting oil is almost impossible because no crushers have been installed. Achieving self sufficiency in edible oil can help in saving over US$2 billion currently being spent on import of palm oil.

Pakistan often faces ban on export of seafood because to not abiding by international laws. While local fishermen face starvation deep sea trawlers from other countries intrude into Pakistan’s territorial waters and take away huge catch. On top of all use of banned net results in killing of smaller fish that are ultimately used in the production of chickenfeed. This practice going on for decades deprives Pakistan from earning huge foreign exchange besides ‘economic assassination’ of poor fishermen.

Pakistan’s agri and industrial production has remained low due to absence of policies encouraging greater value addition. Pakistan is among the top five largest cotton producing countries but its share in the global trade of textiles and clothing is around two percent. The country needs to establish industries that can achieve higher value addition. Pakistan should export pulp rather than exporting fruits which have shorter shelf life.

Pakistan has overwhelming majority of Muslims but still goods worth billions of dollars are imported which are not Halal. Ideally, Pakistan should be exporting Halal food products to other Muslim countries. The country need to focus on breeding of animals (i.e. chicken, goat, cows) and export frozen meat and dairy products. If countries like Australia, and Holland can produce Halal Products what is stopping Pakistan.

Another example to follow is Bangladesh, which does not produces cotton but its export of textiles and clothing is more than that of Pakistan. This is because Bangladesh has focus on achieving higher value addition and Pakistan continues to produce law quality and low prices items. This is waste of precious resource and to be honest value addition is negative.

Pakistan has also not been able to benefit from being a member of SAARC. Some of the analysts say it is difficult to compete with India but has Pakistan really made any effort to achieve higher value addition? The reply is in negative due to prevailing mindset of Pakistanis who want to lead ‘easy life’.

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