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Post-COVID-19, Pakistan will have to look to China more and more

SAM SPECIAL-ENG-07-05-2020

While the proportions of COVID-19’s debilitating effect is not yet clear, the pandemic is causing a massive melt-down of the global economy. Growth rates of some important Western economies will go into the negative. This quarter, the US economy has shrunk by 4.8%, the biggest downturn since the 2008 recession.

Such a global contraction of economies cannot be without multifarious consequences. Global economic and political power relations will change, the way most economies and even how the countries will be run, won’t be the same.

Among the lessons being learned from Covid-19 is that the new priorities that are emerging will be made the basis of future planning.

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The country least damaged by the pandemic will probably be China. In the beginning, they also made mistakes and could have reacted earlier, but China had a head start in fighting the coronavirus. Run by a strong and centralized government, the measures that were taken were strict if not draconian, but they were extremely effective. By early April, the epidemic was under control and economic activities cautiously revived. It was at a time when the peak of the pandemic in many places had not even been reached.

Of course, the Chinese economy has taken a hit as well. It is expected to suffer a contraction in the first quarter of 2020 for the first time since the end of the Cultural Revolution in 1976, heaping pressure on the government to steady the economy and ensure the country’s growing unemployment problem does not get worse.

However, the second quarter should show a bounce-back given the head start and because of the “countercyclical policies”, or pro-growth measures, already taken by Beijing.

While global consumption and consequently the demand for Chinese products is falling worldwide, China is a huge country and can fall back on developing domestic consumption instead, and contain unemployment.

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By the third quarter, global economies will reopen and Chinese exports will recover even as they target more markets than before. For the foreseeable future, China will be buying extremely cheap oil and filling its storage to capacity. In addition, it is expediting its own infrastructure investments mainly focussed on IT, 5G, AI and the like, trying to develop independence from imports in those fields. China will come out of this crisis stronger rather than weaker.

In the past, China has been trying, with some success, to get its foot into European and American markets by buying companies and investing money. That has been met with a considerable opposition in those countries citing national security concerns. This resulted in many hurdles for Chinese capital wanting to expand.

But Chinese strategy might be very different in future. While concentrating on core businesses of high value in the future, instead of struggling with investments in developed countries and economies they could turn towards developing countries – a strategy that has been pursued before in Africa and in the countries along the Belt and Road Initiative. That is the time when Pakistan should come into renewed focus for China.

Pakistan

Pakistan is in a very comfortable situation both with regard to pandemic containment and the economic fall-out from it. The coronavirus has not hit it as hard as it did in Europe or the US. However given the constraints of a weak and overburdened healthcare system with limited capacities for testing and isolating infected people, the epidemic will take longer to vanish here than it did in China.

The economic fall-out of the health crisis may become larger and less manageable and threaten many more lives than the virus itself if we don’t use the opportunities it presents. Due to the lock-down, Pakistan’s important industries are suffering and the owners are forcing workers to sign letters of notice before they are paid their last salary. The number of industrial jobs lost will be considerable and poverty will rise.

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Pakistani money has been taken out of the country by leading industrial and feudal families like the Sharifs, Zardaris and so on. These have always preferred to invest outside Pakistan transferring badly needed foreign exchange illegally to Europe and America. With all their money-laundering laws the Western countries and UAE have turned a blind eye to these predators. In contrast, Chinese capital should create new jobs in our country to help fight poverty that will certainly grow after this pandemic.

Projects that are already planned under CPEC and any new schemes that could come after the end of the lockdown have to be welcomed. The construction and infrastructure development sectors should attract investment as also 5G, a stronger internet that reaches remote corners of the country.

A second major sector is Pakistan’s agriculture. In the past, Pakistan has been a country that was able to feed and clothe its population without imports and had even exported some of the produce. But in the last few decades, agricultural production has stalled or gone down which is partly due to the rising population and partly due to soil erosion, lack of rains, irrigation water and out of date agricultural cultivation methods.

The fact that much of the land is owned by people who live in the cities, who have their main income from jobs and consider income from their lands only as an add on, is another reason. Such people are no agriculturalists. They don’t know and don’t care about new methods, modernization and new seeds. On the other hand, many farmers have holdings that are too small to be profitably tilled. Agricultural yields in almost all sectors in Pakistan are below international average and need to be raised.

Another problem is the fact that farmers are uneducated. They till the land the way their fathers and grandfathers had done and their capacity to (critically) absorb new techniques is limited. While the Sartaj Aziz National Commission on Agriculture of 1988 is still largely valid, there is a need for fundamental reforms in agriculture that is the backbone of the wellbeing of the majority of Pakistanis who cannot buy imported stuff.

Land reforms, uniting small landholdings into cooperatives and education of farmers and their children are the need of the hour.

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The water problem needs to be tackled first. Chinese investment in the construction of dams should be given priority to the exclusion of everything else. There is an acute water and irrigation shortage in Pakistan. Electricity produced by dams is the cheapest available. For decades Pakistan has neglected the construction of dams due to the big egos of politicians and inter-provincial rivalry.

The most outstanding example is that of the Kalabagh dam, badly needed but badly politicized. The Diamer Bhasha Dam, the foundation of which was laid as early as 1998, more than 20 years ago, has not been finished till date. Upon completion, Diamer-Bhasha Dam would produce 4800 megawatts of electricity through hydro-power generation and store an extra 10.5 cubic kilometres (8,500,000 acre⋅ft) of water for Pakistan that would be used for irrigation and drinking.

Water storage in dams big and small, along with dozens of other smaller storage facilities, is badly needed. But financing the project never worked out. In 2017 Pakistan dropped its bid to have the dam financed under the China-Pakistan Economic Corridor framework. This must be revived. The construction of multiple smaller dams would be helpful as well. Mohmand Dam is one example that has been under discussion since 2000 but construction has not started yet.

For the first 20 years of our existence as a nation, the US was generous with both military aid economic aid. While economic aid continued after 1965, military aid was affected, and was dependent upon the US adventure in Afghanistan. It became intermittent. In times of crisis, the US has always been generous, but with the pandemic hitting their economy hard, US aid is not likely to come in any great volume, if it comes at all.

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After 1965, China took up the slack of military association but only when China came into its own economically, and lately in furtherance of it’s own global ambitions reflected in its BRI project, that Pakistan became a great beneficiary. CPEC has strategic connotations. After the pandemic it will become all important.

Pakistan should also be careful about Indian ambitions. It may use the pandemic situation and the future US economic meltdown to change sides as it did in the 1990s when it left the crumbling Soviet Bloc after the Cold war and became the best friend of the US overnight after it had opposed the US tooth and nail for nearly 50 years. As day turns to night and night turns to day, it will now use this opportunity to try and make China its “best friend” economically, if not militarily.

Inviting Chinese capital to invest in Pakistan will certainly come at a price as it did in the case of the botched negotiations over the Bhasha Dam. But what is the alternative? Post-epidemic Pakistan will need to rebuild its economy fast. Otherwise poverty, hunger and riots might be the consequence. It is now that the Pakistani leadership has to make up its mind and set the markings for the time to come.

(The writer is a defence and security analyst).