Partnership between Chabahar and Gwadar

The Spokesperson and Additional Foreign Secretary of Pakistan has emphasized the enduring brotherly relations between Tehran and Islamabad and expressed Pakistan's readiness to expand bilateral cooperation with Iran, including the signing of an agreement to further the partnership between the ports of Chabahar in Iran and Gwadar in Pakistan.

During the weekly press briefing at the Ministry of Foreign Affairs of Pakistan, spokesperson Mumtaz Zahra addressed the recent 10-year agreement signed between India and Iran concerning Chabahar port on May 13, and the subsequent reaction from the United States. 

Zahra clarified that Pakistan refrains from commenting on Iran's agreements with other countries and does not engage in discussions about the positions of third parties.

The agreement between India and Iran aims to facilitate the long-term development of the Shahid Beheshti terminal at Chabahar port, with operations managed by a subsidiary of India Global Ports Limited (IGPL). The Indian firm plans to invest US$120 million in equipping the terminal, and India has also extended a credit line of US$250 million to improve infrastructure around Chabahar.

Following the agreement, the US issued a warning that entities involved in business deals with Iran could face sanctions. US State Department Deputy Spokesperson Vedant Patel highlighted the potential risks associated with engaging in commercial activities with Iran.

Zahra also underscored the significance of Iranian President Ebrahim Raisi's visit to Pakistan in April, describing it as a pivotal moment for bilateral cooperation. 

President Raisi's visit, accompanied by a high-ranking politico-economic delegation, included key meetings with Pakistani officials. 

During his two-day stay in Islamabad, President Raisi set an ambitious target of US$10 billion in bilateral trade, emphasizing the 900-kilometer shared border as a valuable opportunity for the development and prosperity of border areas.

 

 

Afghanistan eyes boosting transit through Iranian Chabahar Port

According to an IRNA report, Afghanistan Ambassador to Iran, Abdul Ghafoor Liwal said his country plans to increase commodity transit through Iranian Chabahar Port. He made these remarks in a meeting with Abdolrahim Kordi, Chairman, Board of Chabahar Free Trade Industrial Zone Organization.

In the meeting, Liwal said expansion of all-out relations won’t be possible without stronger economic ties and “we are determined for stronger presence of our businessmen and traders in Chabahar Port.” 

“Chabahar is an economic and a transit bridge for Afghanistan and we are going to expand our economic relations through increasing exports and imports through Chabahar,” he said.

According to the official, following the country’s plans for boosting trade in Chabahar, setting up an Afghan bank branch in the port is one of the plans that Afghanistan is pursuing along with other programs to resolve issues like residency and certification problems.

Kordi underlined some of the port’s capacities and investment potentials, saying more than 176 Afghan companies have registered with Chabahar Free Trade Industrial Zone Organization for trade activities in the port, however only 32 of them are currently active.

“Chabahar is a strategic port and Afghan businessmen and traders need to have a greater presence in it and increase their investment,” emphasized Kordi.

If one can recall, in 2016, Iran, India and Afghanistan had decided to jointly establish a trade route for landlocked Central Asian countries. India committed up to US$500 million for the development of Iran’s Chabahar Port along with associated roads and rail lines. India launched a trade route to Afghanistan via Iran through shipping its first consignment of wheat to Afghanistan in late October 2017, bypassing longtime rival Pakistan.

Will Iran replace Pakistan in Afghan transit trade?

While the United States is creating war hype, India is using Iranian port, Chabahar as transit route to send goods to Afghanistan.   

According to an IRNA report, India’s first consignment of rice to Afghanistan which is due to be delivered through India-Iran-Afghanistan trade route arrived at Chabahar Port.

According to Khan Jan Alokozay, First Vice President, Afghanistan Chamber of Commerce and Industries (ACCI), it is the first of its kind and more shipments will follow in the near future.

India launched a trade route to Afghanistan via Iran through shipping its first consignment of wheat to Afghanistan in October last year, bypassing longtime rival Pakistan. 

Also in February, the Afghanistan-Iran-India trade corridor in which Afghanistan will export goods to India through Iran’s southeastern Chabahar Port was inaugurated.

Afghanistan's first 570 ton export cargo included 200 tons of grains and 370 tons of talc stone which arrived in Chabahar port late February.

Afghanistan is planning to boost is exports revenue to US$2 billion this year and according to Afghan officials, a significant share of the country’s exports will be through Iran’s Chabahar Port.

In 2016, Iran, India and Afghanistan decided to jointly establish a trade route for land-locked Central Asian countries.

India has committed US$500 million to Chabahar Port development as a way to bypass Pakistan and crack open a trade and transport route to landlocked Afghanistan, as well as the resource rich countries of central Asia.

India is expanding its economic diplomacy in Afghanistan, seeing itself as a regional power. Its involvement in Chabahar’s development is primarily about establishing a gateway to Afghanistan, more than Iran itself.

Investment opportunities in Pakistan

It is an undeniable fact that Pakistan suffers from two contentious problems: 1) low savings and 2) limited opportunities for investment. All the successive governments have been making efforts to lure foreign investors. However, they fail to understand that if the local investors are shy no foreign investor would be keen in investing in Pakistan. The problem is further aggravated because per capita income is low and there is hardly any incentive for saving. Those who have some money want to become rich overnight but mostly fall in the trap of cheaters and ultimately loose whatever amounts they have. The successive governments have not been doing anything more than lip service and regulators can be termed ‘sleeping watch dogs’. If one looks at the history of financial scams taking place in Pakistan, only the regulators could be held responsible for those.

Lately, some of the cheats ripped off people and the event was termed ‘Modaraba Scam’. Interestingly media flashed headlines, which gave an impression as if the Modarabas listed at Pakistan Stock Exchange (PSX) were involved in the scam. In fact a few clerics belonging to KPK were the master minds, who cheated the innocent people. The amount involved is estimated from Rs6 billion to Rs45 billion. The most regrettable point is that the regulators failed in identifying the crisis, while it was brewing. According to a financial analyst, “State Bank of Pakistan (SBP) considered it an issue which pertained to Securities and Exchange Commission of Pakistan (SECP) and the high ups at the Commission had an opposite view”. Another analyst said, “The quantum of money involved is still not known because some of those having given the money to the cheaters preferred to remain silent and also didn’t lodge any claim because they couldn’t provide evidence of source of fund”.

As stated above there is little incentive for saving in the country, not only that the opportunities are limited, the investors are penalized by the government in one way or the other for making investment. To begin with, people having other sources of income have to pay tax, often at a fabulous rate, but the income of feudal lords is tax exempt because it is termed income from agriculture. It has been highlighted by experts repeatedly that that now business tycoons have also learnt the trick of clubbing income from other sources into income from agriculture.

It would not be out of context to cite two example, rate of tax applicable on the income of listed companies and tax charged on dividend income. The number of listed companies at Pakistan Stock Exchange (formerly Karachi Stock Exchange) is on constant decline because of merger and acquisitions and voluntary delisting. At an average the listed companies pay above 30% tax on their income and when they distribute dividend, on that income tax/withholding tax is charged. The rationale put forward is that listed company is a legal entity and shareholders are different, therefore both have to pay tax on their income. The propagators of this philosophy tend to forget that listed companies also pay taxes on import of machinery and raw material, GST on finished goods and effectively act as tax collection agents for the government. Therefore, not more than 5% tax should be charged on the income of listed companies. On top of all these listed companies are the providers of employment and also the earners of much needed foreign exchange for the country.

Investment in listed companies is still considered risky by the small investors, particularly after the global financial crisis of 2008. Unlike developed countries, Pakistan didn’t suffer from ‘sub-prime loans issue’. However, imposition of floor for a long time, did not allow the small shareholders to take an exit. On top of all shares kept by investors in subaccounts were sold by some of the brokerage houses that created the real havoc. This disheartened many investors of stock market, who pulled out their investment from capital market and invested it real estate, foreign exchange and precious metals.

Around the world mutual funds are considered a safe haven for the small investors. The logic is simple that asset management companies have substantial investments in various types of funds and that any decline in the income of on particular company does not affect the overall income of a particular type of fund and in turn the income of the unit holders. Along with this there is constant sale and redemption by the unit holders that save does not causes spikes in value of the asset under management (AUM). However, in various funds bulk of the investment is by corporates and large net worth investors that results in sudden rise and fall in the value of AUM.

The big investors also invest in real estate, foreign exchange, precious metals and energy products. One of the reasons for investing in these products is the lack of documentation, which allows the investors to evade tax payment. It is estimated that the documented economy constitutes only one-third of county’s total economy and size of undocumented economy is always increasing due to exemptions and evasions. There is always an incentive for the evasion because the incumbent governments have been offering amnesty schemes with regular intervals. It is also on record that billions of rupees are being sent out of Pakistan in the form of US dollars every year. According to certain estimates, funds kept by Pakistanis outside the country range from US$50 billion to US$500 billion. Bulk of this amount has been invested in real estate, international trading and manufacturing facilities. Some of the favorite destinations are India, UAE, Malaysia and Singapore. If the government of Pakistan is serious in accelerating GDP growth rate, it has to ensure that each penny saved is invested in Pakistan.

This article was originally published in Pakistan & Gulf economist

India opposing CPEC

Indian Ocean is the oldest and most efficient trade corridor. On its one side are hydrocarbon rich countries and on the other side are energy deficient but major energy consuming and industrially developed countries. The ships carrying goods destined for Europe using Suez Canal also passes through Indian Ocean. In order to provide security to their maritime trade navies of different countries are also present in the Indian Ocean. In the recent past pirates having safe sanctuaries in Somalia have created serious havoc, which prompted many countries to further enhance their presence in the Indian Ocean, which also included India.

India not only claims that it is the strongest regional super power, but also openly denounces any world super power that refuses to accept its hegemony in the Indian Ocean. India is fully cognizant of the fact that bulk of the international trade, energy products, consumable and capital goods pass through Indian Ocean. It is also a fact that India and China have never enjoyed cordial relationships; in fact they are involved in boarder disputes for decades. In such a scenario, China has no option but to protect its maritime trade, particularly movement of energy products. The US Navy is also active in Indian Ocean and it has been constantly increasing its presence around Striate of Hurmaz and in the Malacca Striate. In South China Sea dispute, Japan and Korea are fully supported by the US, which also wishes to contain Chinese growth.

India has emerged as the biggest opponent of Chinese program, which is commonly known as ‘String of Pearls’. Under this program China is building sea ports in various countries and out of these Gwadar is one. While China says that all these ports fall under the category of ‘Listening Ports’ that helps in the movement of merchant ships. However, India has been refuting Chinese claim and call these ‘Chinese Naval Bases’ and term these a serious threat to its sovereignty.

India is actively operating in Afghanistan, under the disguise of developmental work. Afghanistan is a land locked country and bulk of its transit goods having been passing through Pakistan for ages. India often complains that its Afghan destined goods are not allowed to pass through Pakistan conveniently. In this backdrop India has invested huge amounts in constructing Chabahar port in Iran and linking it to the Central Asian Countries via Afghanistan by road and rail. While the Indian endeavor may succeed in offering an alternative route, the undeniable fact is that Pakistan offers the shortest and the most efficient passage to Afghanistan. This fact became most obvious when Pakistan stopped movement of NATO supplies though land route.

Pakistan decided to handover management control of Gwadar Port to China and also entered into an agreement for the construction of China Pakistan Economic Corridor (CPEC). The corridor will link Gwadar with Kashgar and enable China to contain transit time of its imports/exports. The goods will move on-land rather than sea. Under CPEC, Gwadar port will be linked to china by construction of allied infrastructure­ - road and railway track. India is opposing construction of CPEC section passing through newly constituted Gilgit-Baltistan Province of Pakistan.

With the commencement of full scale activities at Gwadar Port and construction of road and rail networks, Baluchistan is likely to reap enormous benefits. Over the years India has been supporting rebel groups and supplying them funds and arms. A banned outfit Jundullah had enjoyed external support but the group was disintegrated after the hanging of its chief in Iran. Lately, ‘Free Baluchistan’ banners were seen in Switzerland and analysts suspect that it is the work of those Baloch groups who have obtained political asylum there.

One can still recall that India announced to disassociate itself from Iran-Pakistan-India (IPI) project due to security reasons as the gas pipeline has to pass through troubled Baluchistan province. Later on, it dawned that another gas pipeline project, Turkmenistan- Afghanistan-Pakistan-India (TAPI) was being sponsored by the opponents of IPI.  A point beyond comprehension was that India decided to quit IPI because of security issue in Baluchistan, but joined TAPI that has to pass through war-torn Afghanistan.

A substantial part of road network that will ultimately become part of the CPEC has already been constructed and now it is being revamped to offer speedy and safe mode of transportation. It is believed that CPEC will change the entire landscape. India has the realization that it has missed the opportunity by strangulating its relationship with China. It also fears that Chabahar port would never be as efficient and cost effective as Gwadar. Therefore, it is making last ditched efforts to sabotage Gwadr Port and CPEC projects. Now it is the responsibility of all the Pakistanis to frustrate Indian efforts and make Pakistan ‘natural corridor for trade and energy’.

This article was originally published in Pakistan & Gulf Economist

Need to revisit Pakistan’s foreign policy

To begin with it may not be wrong to say that since independence Pakistan’s foreign policy has been dictated by the United States. During Ayub Khan Era Pakistan got the maximum aid, grants, and loans, which some analysts also called cold war era. During this period, an airbase in Pakistan was used by the United States for spying against the then USSR.

When USSR attached Afghanistan, Pakistan was dragged into the proxy war in the name of Jihad during Ziaul Haq Era. Then in Musharraf Era Pakistan was once again assigned a role to eliminate Taliban, the Jihadi group created and funded by the United States to avert USSR attack. Pakistan is still fighting the US proxy war in Afghanistan. The fallout of Pakistan’s involvement in Afghanistan is cross-border attacked that also includes an attack by the United States on Sala check post. 

Pakistan has fought three wars with India, which have dented two-nation theory and resulted in the creation of Bangladesh. Pakistan spends billions of dollars every year in a bid to maintain minimum deterrence level and to counter Indian war mania. Both the countries have attained the status of nuclear powers but Kashmir remains the biggest thorn, which has kept both the countries in the constant state of war since independence. Over the decades both the countries have failed in developing even working relationship with each other. It may not be wrong to say that all the efforts to normalize the relationship between the two countries have been sabotaged by hawks present on both sides of the border. Despite enjoying common border, rail and road links, official trade between the two countries is a fraction of total trade conducted through a third country or smuggling.

 Worst have been the relationships with Afghanistan, which still refuses to accept the demarked borders. It was the only country that opposed Pakistan’s entry in the United Nations. The country during the monarch era enjoyed the most cordial relationship with India and USSR. Most of the modern day Afghans consider Pakistan their worst enemy as it has been accused of killing hundreds of Afghans in a war against Taliban and cross-border terrorism is most common. Lately, in a bid to contain Afghan infiltration, when Pakistan decided to construct fence and gates, Afghanistan once again started talking about disputed border.

For decades, Pakistan has been providing transit facility to Afghanistan, which is not considered a favor but its inherent right. To undermine Pakistan’s importance India is contracting a port in Iran, Chabahar, and road and rail links up to Central Asian countries passing through Afghanistan. It is necessary to point out that India was involved in the construction of this Iranian port at a time the country faced worst economic sanctions. It may be said that the United States kept its eyes and ears closed as it also wanted an alternate route.

During Shah’s era Pakistan enjoyed an extremely cordial relationship with Iran but after the Islamic revolution, Pakistan’s foreign policy went into the shadow of the United States and Saudi Arabia. Despite recent withdrawal of sanctions imposed on Iran, Pakistan and has not come out of this dictate. Pakistan has not been able to establish banking links with Iran, a must for boosting trade between the two countries. Not a drop of crude oil is being imported from Iran, contrary to the fact that India remained one of the major buyers of Iranian oil even when sanctions were there.

China is often termed a time-tested friend but the response from Pakistan is often disappointing. Many anti-China groups have emerged in Pakistan, mostly based in Baluchistan. They are also trying to spread disinformation about China Pakistan Economic Corridor (CPEC). It is also on record that many Chinese engineers and workers have been attacked and killed. One has all the reasons to doubt Indian support to the militant groups because Gwadar port will reduce the importance of Chabahar.

To conclude, it may be said that ever since PML-N government headed by Mian Nawaz Sharif has come into power, the cabinet is without a full-time Foreign Minister. Mian Sahib’s tilt towards Saudi Arabia is a major hurdle in improving the relationship with Iran, as he himself overseas Foreign Ministry. Ironically, Saudi Arab and the United States relationship have deteriorated after withdrawal of sanctions imposed on Iran.

It is feared that tweaked foreign policy is pushing Pakistan towards isolation. It may be true that Pakistan enjoys geopolitically important position but it has not been able to take advantage of its location. Pakistan needs a vibrant foreign policy and a young and more articulated full-time Foreign Minister. The current advisors are part of past legacies and also see the world with tinted glasses.

Pakistan: Foreign Policy Dilemma

It is often said that Pakistan enjoys geopolitically important position but this factor has become its worst enemy. Pakistan’s location has made it highly vulnerable country, be it global politics or ongoing war on terror. Since there are too many state and non-state operators in the region it is often difficult to distinguish between friend and foe.

It is evident that forces having conflicting interests are busy in establishing their hegemony in the region, often undermining Pakistan’s interest and at times subjugating its sovereignty. In such a delicate but complicated situation maintaining good relationship with immediate neighbors and regional and global super powers becomes extremely difficult. This often poses serious threats for the sovereignty of the country.

Pakistan’s top most concern is maintaining cordial relationship with three of its immediate neighbors namely, Afghanistan, Iran and India. In the regional context Pakistan also has to keep happy three regional powers i.e. Saudi Arabia, China and Russia. On top of all it has to follow instructions of United States, leading war on terror in Afghanistan. At time US mantra becomes unbearable because it is promoting India as regional super power and completely ignoring its ‘frontline partner in war against terror’.

A few days before dissolution of assemblies, PPP led coalition government transferred control of Gwadar port to China and commenced work on Iran-Pakistan gas pipeline project. Some experts say that United States, Saudi Arabia and India are not happy with these decisions. They even go to the extent of saying that the two decisions were the reasons for PPP’s defeat in the general election.

Prime Minister, Mian Nawaz Sharif is too keen to grant India MFN status and consolidating trade and investment relationship with it. In this endeavor transfer of control of Gwadar port to China becomes a big stumbling block. India is not at all happy on this decision, as it considers presence of China in the Indian Ocean the biggest hurdle in achieving status of regional super power. India also considers Gwadar a big threat for Chabahar port, which it is building at distance of 70 kilometers from Gwadar in Iran. In this venture India enjoys complete support of United States as at no point in time India was warned of violating sanctions imposed on Iran.

Historically, Saudi Arabia has been kind enough to extend financial support to Pakistan and even at this juncture it is willing to offer US$15 billion bailout package to the country. While people many of Mian Sahib’s critics term the package a hoax call there are also growing apprehensions even in the minds of those who are termed ‘cool headed’. They say Pakistan will have to accept either Saudi bailout package or Iranian gas but can’t enjoy both.  Therefore, it is apprehended that Mian Shaib under the pressure of United States and Saudi Arabia may shelf Iran-Pakistan gas pipeline project, which will not be a good omen for Pakistan-Iran relationship.

Keeping this complicated scenario in mind, it was believed that Mian Sahib will appoint a well articulated full time foreign minister. Since the influx of experts from all the above stated countries is likely to increase in due course, it will be imprudent that prime minister negotiate with those dignitaries, who will not be enjoying the status of prime minister.

Experts also fear that Mian Sahib is likely to get overindulged in domestic issues, especially energy crisis and precarious law and order situation which will not allow him to spend around 10 to 12 hours a day on foreign policy issues.

Mian Sahib having decided to oversee this ministry has appointed two stalwarts to advise him on foreign policy, these are former foreign minister Sartaj Aziz and former senior diplomat Tariq Fatemi. However, the two are not on the same wave length and are likely to create more problems rather than ensuring smooth handling of crucial foreign policy issues.

Some experts say that Mian Sahib does not have any competent person to be appointed as foreign minister. PPP had chosen Ms Hina Rabbani as a replacement for Shah Mahmood Qureshi and appointed Ms Shery Rehman Ambassador in United States. Therefore, Mian Sahib needs two replacements, one to fill the slot of foreign minister and other to occupy the most important position in Washington. He may have to continue with the ambassadors stationed in Saudi Arabia, China, India, Russia and Afghanistan for the time being.