CPEC: The Flagship enterprise of OBOR

Economic interests, of countries, shape International Politics and it is these interests/concerns, which bring countries together, form alliances or create rift among nations. At the core of all alliances and conflicts, it is these economic interests/concerns, which countries aim to protect and further at all costs. Therefore, it is imperative to study developments, in the realm of global Realpolitik, from the lens of economics. The One Belt One Road (OBOR) project of China, hence, must be understood from economic perspective & not just from strategic perspective. 

The political-economic changes in United States and Europe, in the wake of 2007 Recession, dubbed as The Great Recession, compelled China to take grand initiatives, of economic nature. Apart from changes in global economic landscape (gradual transformation of large liberal economies into closed economies), the apprehension pertaining to the political-economic consequences of possible dwindle in the pace of China's economic growth, pushed the country to take these bold economic measures and conceive/implement ambitious projects such as OBOR.

The enterprise, OBOR, is a massive enterprise, on which China intends to invest around $800 billion. The sub-enterprise, of this ambitious initiative is China Pakistan Economic Corridor (CPEC). For this project (CPEC), China initially committed $45 billion; however, later the sum was increased to $65 billion. Several infrastructure and power projects constitute CPEC, which would not only increase the economic potential of Pakistan, but would also realize the objective of regional connectivity, increasing trade between the East and West Asia. The process will not only strengthen existing markets, as per projections, but will also yield new markets.

For Pakistan, the most evident benefit, in the immediate short-run, will be the development of infrastructure, which will radically expand its economic capacity and it will augment its economic potential. In the short-run the multiplier effect will increase commerce related activities and general employment level, at least in theory. However, the skeptics are somewhat uncertain of these alleged reimbursements and their doubts are backed by evidence and sound reasoning.

Foreign Direct Investment is considered engine of growth and its spillovers improve the quality of economy, examples are China and India. However, FDI works when monetary system and policies are effective. Pakistan’s monetary system and its monetary policies are far from effective. Not only are the high interest rates a problem, but also the prevailing perception regarding interest, shaped by Islamic Ideology.  Therefore, some economists are of the view that the multiplier effect, of this huge investment, would be far less in magnitude/strength than what is being projected.

Another challenge pertains to the perception regarding the nature and objectives of CPEC. For instance, India, which is regional power and third largest economy of the world, in terms of PPP, considers CPEC an enterprise of strategic nature, which not only has economic objectives, but also military objectives. Indian strategists assert that Gwader port is being built for military purposes and through that deep port, China intends to increase its influence in Indian/Arabian Ocean. The argument, of Indian politicians-diplomats-strategists, is that if CPEC is entirely an economic project, why Bin Qasim port has not been considered, which is a fully developed port and the route, from Western China to Indian Sea through Bin Qasim port, is more secure?

These apprehensions, of Pakistan’s neighbor (India) and major economic/military power of region, is not only making this flagship project of OBOR controversial, but it is also polarizing the entire region, as India is employing its financial and diplomatic resources to impede the progress on CPEC enterprise.

To make this enterprise, worth $65 billion, a success, it is imperative for Pakistan to force evolution on its economic institutions and improve its economic policies. Without an effective and relevant monetary policy, which facilitates FDI & increases it multiplier effect, CPEC would not be able to produce the projected results. In addition, it is also imperative to allay reservations of India, regarding the nature of project and its objectives. Some experts are of the view that India’s problem with CPEC is far more complex and not just limited to Gwadar port; Gilgit Baltistan. Whatever, might be the concerns, the success of the project, as connectivity hub, is hard to come by, if India is not part of it. If India becomes part of it, Pakistan’s relevance for India will increase and it will allow two countries to address/resolve different issues, such as water and terrorism.  In addition it will give more authenticity to the entire economic scheme, increasing its chances of success. 

Afghanistan’s War Economy

After 16 years of long, hard and bloody war, during which United States disproportionately used both military and monetary resources to attain stability, Afghanistan is far from stable. The irrational use of resources, which include United States and NATO’s war-machines, failed to produce the desired results; in fact, this insensible and un-methodical use of resources, especially by Bush Administration, further aggravated an already bleak situation.

The disappointment, from the failures, is so great that for last five years the focus, of United States and its Allies, is on maintaining status quo and for that different instruments and resources have been employed. One of the instruments, which is devised to realize said objective, is to engage Taliban through Pakistan so that United States can leave Afghanistan with a system of some sort that can produce results, no matter how trivial these results are. 

Despite all the efforts and extravagant spending of resources, United States and its Allies are failing to curb ever-expanding presence of Taliban. Kabul is losing more territory, every year, to those groups, which question the legitimacy of Kabul government and contest, in various manners, the writ of Kabul. In 2016, Kabul has lost 15% of its territory to the Taliban and currently it only controls 56% of Afghanistan’s total territory.

To understand why United States is failing perpetually in realizing its objective, of bringing stability in Afghanistan so that it could leave without any serious blemish, it is imperative to understand the political-economic structure of Afghanistan.

Located in one of the most strategically relevant regions in the world, the land locked Afghanistan has only witnessed violence and destruction since the Soviet invasion in 1979. As the presence of Soviet Union prolonged, the violence augmented and war intensified. This severely damaged its economy and yielded a perfect environment for the emergence and sustenance of militant groups. United States and Soviet Union’s contribution to war, in form of weapons and money that they were providing to armed groups to protect strategic & tactical interests, gave birth to war economy. Different groups, such as Hezb-e-Islami Gulbuddin, emerged that understood that confrontation/violence was indispensable to ascertain their existence. Over the years this war-economy grew so large that it substituted conventional economy of Afghanistan, which had been impaired to the point of insignificance by perpetual conflict and chaos.

The strategy, of using weapons and money to meet immediate objectives, was opted yet again by United States, when it invaded Afghanistan in 2001. It relied on Northern Alliance to deliver the goods and later contrived a government, which was not only comprised of war-lords, who were occasionally drug-smugglers, but also represented minority. These war-lords, on which United States too much rely, to meet strategic needs & objectives, derive their power from American presence and money United States spends to maintain status quo, which is why prolonged American presence is desired. These political-militant groups, which are the beneficiaries of the war, recognize that once United States leaves Afghanistan, its commitment to it and its monetary assistance to the country, in form of aid and loans, will gradually die. As per official statistics, around $110 billion has been spent, since 2002, to rebuild Afghanistan and major portion of this US Aid has either been wasted or stolen.

Groups, like Taliban and ISIS (later has considerable presence in the eastern region of the country) are incidental products of prolonged conflict in Afghanistan; thus, it is natural that these groups entirely depend on this alternative economy for their existence. Therefore, any fluctuations in this economy directly impact the capacity and efficiency of these groups.  

What’s the remedy??? In the short-run, Afghanistan’s war-economy must be dented. The more impaired it is, more weak are these armed factions/groups that thrive on it. This will reduce their effectiveness, which will facilitate in reaching normalcy in war-torn country. It must also be acknowledged that different groups benefit differently from the economic system and that is why the design, to be devised to impair this economy, must be comprehensive. 

The process shall start by improving mechanisms that have been developed to provide monetary assistance to Kabul. The aid to be provided, in form of loans and funds, should be objective-oriented and checks and balances must be introduced to ensure that neither it gets wasted nor it gets stolen. 

Afghanistan’s private sector should be facilitated and more economic/corporate opportunities should be produced so that private sector could expand and play its part in the revival of conventional economy. Currently the emphasis of Afghan government is on the broad and bold use of fiscal instrument to meet socio-economic goals, which has made political-economic situation more perplexing as it has increased corruption at various tiers of Afghan government/state-machinery. This wide-spread corruption has drastically slowed the pace of economic revival; in fact, corruption has made Afghanistan’s war economy far robust than what it was before 2002 American invasion.

In the long-run the conventional economy must substitute war-economy of Afghanistan, which will require stability, growth of private sector, more investment (domestic and foreign) and evolution of state institutions to the level where they could deliver their constitutional obligations effectively. If the situation, in Afghanistan, is allowed to continue, the country will remain unstable and insecure for a very long period, which implies that conventional economy would not resuscitate for many more decades.