Is Pakistan well positioned to pursue economic cooperation with Russia?

One of the less talked about developments in April was the four-year roadmap for economic cooperation and bilateral trade shared by Russia following the visit of Pakistan’s premier. While we do understand that this roadmap has been received at the Ministry of Foreign Affairs in Islamabad, it is less clear if economic ministries have started to deliberate on this. We have seen media reports hinting towards wrapping up the China Pakistan Economic Corridor (CPEC) Authority and replacing this with better organizational and coordination mechanisms at the Planning Commission, but nothing of such sort has been discussed with regards to the possibility of coordinating large-scale investments from Russia.  

Such a lackluster approach in the past has led to diminishing interest by Moscow. It will be a missed opportunity if Islamabad doesn’t respond more proactively, leaving aside the bloc politics that it had to resort to during the past seven decades of the country’s history. The business community is also aware of the exchange of communication between the two governments, however they have desired more specific details regarding the roadmap so that sector-specific opportunities can be explored in the Russian market.  

From the Russian side, it is clear that the road map mentions their key sectoral interests. For example, the establishment of a vehicle assembly plant; supplies for transportation networks including railways; investments in improving power systems; supplies for air navigation; promoting Russian pharmaceutical products; chemical supplies as industrial raw material; the provision of LNG and minerals extraction, are all examples where Russian businesses are interested and would like to tap into Pakistan’s large domestic demand.  

The roadmap also presents some details regarding transboundary economic cooperation. For example, natural gas pipelines including Pakistan Stream, Russia-Kazakhstan-Uzbekistan-Afghanistan-Pakistan pipeline, and Gwadar-Nawabshah pipeline are some projects in which Russians see benefits for their enterprises. The projects also offer improvements in logistics for which Pakistan will join hands with one of the subsidiaries of Russia’s Gazprom. This arrangement could see the setting up of more refineries or upgrading of existing refineries. This will also allow for expediting the exploration of oil and gas fields inside Pakistan. Already, Russia’s Rosgeo has expressed readiness to map Pakistan’s mineral resource sector to identify possible avenues of mutual benefit.  

For a small open economy such as Pakistan, all economic partners who can lend technology and new ideas should remain important and beyond the vagaries of international politics.  

Dr. Vaqar Ahmed 

Within the energy sector, there is an intent to transition towards clean and green energy. Therefore, the roadmap also talks about harnessing hydropower and renewable resources. Along with this, improvements to existing generation and distribution networks in the electricity sector have also been mentioned.  

Unlike the CPEC long-term plan, the road map from Russia doesn’t mention any specific monetary value or total worth of the above mentioned projects. However, the sector-wise details are more specific than what they were when CPEC’s early harvest phase was promised. Learning from CPEC’s experience, there are some key lessons which could help in tapping into the economic potential of the above mentioned projects.  

A key lesson was to build stake for each province. This ensures a national-level ownership of any cross-border economic cooperation initiative and minimizes the prospects of several forms of sabotage. Likewise, gains from these projects such as improved electricity and gas supplies, or industrial jobs should also be evenly shared across all provinces.  

Second, foreign investments should not be directed towards merely producing goods and services for domestic consumption. Rather, such facilitation by friendly economic partners should be aimed at boosting capabilities and the productivity of export industries and sectors which could be positioned to become future exporters.  

In the same vein, it is important that production facilities that are set up have a favorable climate impact. Sustainable means of production will go a long way in respecting natural endowments. All projects should only be initialized after the completion of environmental impact assessments and such an exercise should be made public to win the confidence of local communities.  

Third, government-to-government cooperation should quickly transition into government-to-business and then business-to-business cooperation models. We have seen in the case of CPEC, how difficult it has been to invite the Chinese private sector to invest in Pakistan despite the success of the early harvest phase. One way to avoid this is to allow the role of the private sector even in G2G arrangements since the very start.  

Fourth, the concept of one-window facilitation should not lead to several more windows at the federal and provincial capitals, in turn leading to a higher regulatory burden. This also makes the task of navigating Pakistani markets more difficult for foreign firms and increases their cost of doing business.  

Given the nature of devolution, it is imperative that the top political leadership should put clear deadlines for implementation of this road map and also monitor the progress on a quarterly basis. All provinces should be part of such a monitoring exercise. The Joint Working Group arrangement worked well in case of CPEC – something which could be replicated in case of Russia-Pakistan economic cooperation.  

Finally, getting closer with Russia has often resulted in the wrath of other foreign economic powers. This is where a deeper narrative for cooperation with the region is required. For a small open economy such as Pakistan, all economic partners who can lend technology and new ideas should remain important and beyond the vagaries of international politics.  

- Dr. Vaqar Ahmed is an economist and former civil servant. He tweets @vaqarahmed