Daily Times

It was indeed a pleasure for the nation to host the Chinese president during his recent, monumental visit and his comment about visiting a brother’s home is greatly appreciated. Truly, in a world where Pakistan is constantly harangued for a farrago of deemed diplomatic bloopers a friendly handshake is like a whiff of empyrean wind, all the more so after having recently lost an old friend, which time will prove or disprove, as the case may be. The government rightfully went out of its way to welcome the honourable dignitary; the eight jets escorting the Chinese plane in domestic air space was a flash of brilliance.
Unequivocally, anyone pledging $ 46 billion for investment in Pakistan is a magnanimous and redoubtable ally. This quantum support has always been sorely lacking form Middle Eastern friends, who, with all their petro dollars in gargantuan sovereign funds, prefer to flounder it in the west rather than to alleviate the hardships of brotherly nations. Accordingly, the gallimaufry of accusations from certain quarters, such as the absence of all but one Chief Minister (CM), an inexorable focus on one province, the ‘impeccable’ track record of MOUs with China, the nature of the investment and a bunch of other calumny all were quite boorish. And, as always, in this deluge of gaucherie, exigencies took a back seat so let us focus a bit here.
The old and wise have always advised against looking a gift horse in the mouth. Irrespective of whether the $ 46 billion is a debt or investment, it is surely not a gift. Hence, a reasonable level of ratiocination is admittedly mandatory. With that in the forefront and with a view to disprove certain myths floating around, a couple of clarifications: debt is always cheaper than equity and when equity returns are guaranteed by the state, it is in any case a quasi debt. More importantly, debt or equity, both are not gifts in the true sense. Accordingly, irrespective of the different terms and conditions, the money will have to be returned, eventually, with profit or interest. Hence, the nature of this investment is hardly a fundamental issue; the attached terms and conditions, however, definitely are and, while firming up the MOUs, it would be appropriate to expurgate impossible preconditions to ensure that investments actually materialise.
Transparency in project costs is another key issue. Undeniably, beggars are never choosers; if the banks will not lend, borrowing from ‘Pathans’ to do business, which is the dilemma of Pakistan’s informal sector, will obviously cost a pretty penny. But even in the case of the latter, it would be prudent to carefully read the fine print. While Pakistan’s economy is on the up, arguably substantiated by its ability to borrow in the international financial markets, in the current global environment, there are definitely no apparent options other than China to fund this myriad of projects. Notwithstanding that Pakistan desperately needing investment in infrastructure is a no brainer, a meticulous review to ensure competitive prices will be a tactful strategy.
Let us not be swayed by etiquettes or mannerism or by undue good faith; this is a business transaction. The primary motivation behind every action on the global scene, today and perhaps always in the past, is and has been national self-interest. As MOUs evolve into agreements and agreements into actions, it would be a prudent negotiation strategy to fully understand counterpart interests to arrive at an accurate and fair trading of interests. To rehash Adam Smith’s most famous quote, “It is not from the benevolence of China that we expect our investment in infrastructure but from their regard to their own interest.”
A diatribe on the projects targeted under this economic corridor will hardly serve any purpose since the deed is done. In any case, it is acknowledged that the decision makers are definitely better informed in prioritising the many needs of Pakistan and would have been judicious in the selection thereof. However, in order to pay back these investments, the country will need to earn a fair amount of foreign currency, which should be a concern considering the quantum of trade deficits in the last few years. Generating electricity is indeed crucial for economic growth, but at what cost? Circular debt is already at distressed levels and exactly what is the return to the country on the road to Gwadar?
To understand the logic that increasing exports is essential, let us ruminate a bit. Depending on exactly how much machinery, material and labour are directly procured and imported from China for these projects, the direct beneficiary of all this activity will initially be the Chinese economy. Only once these projects are up and running can Pakistan turn a profit and that too only if the economic benefits generate sufficient foreign currency to pay back these investments. If the additional power is consumed for residential purposes, as an example, irrespective of the cost of generation, the country will be in a bigger miasma.
Considering that China is the manufacturer for the world, it would be cerebral to request our friends to facilitate setting up downstream manufacturing for their large-scale industry in Pakistan. The investment in infrastructure is greatly welcomed and appreciated but an investment in manufacturing will be the cherry on the cake of this friendship. China is already shopping for cheaper inputs for manufacturing outside of its borders. Guaranteed off-take for Pakistani manufacturing will significantly contribute towards Pakistan’s economic growth and employment. That should be Pakistan’s dominant strategy during future negotiations with our Chinese friends.
In addition to manufacturing, Pakistan can request assistance and learn a couple of critical soft skills from China. The current Chinese president is building a reputation for going after big-ticket corruption in a serious way. Contrarily, Pakistan’s each and every experiment in curtailing corruption to date has been an abject failure. It would be extremely beneficial for Pakistan to request expertise from China and emulate the latter’s endeavours to eradicate corruption in Pakistan. Secondly, China has been successful in operating its state-owned enterprises profitably for many decades. Once again, it would be useful to request China to provide guidance and policy dictates for the management of Pakistan’s loss making public sector.
The road to China is indeed a fortuitous opportunity for Pakistan and the need of the hour is for the leadership to get maximum mileage out it.

The writer is a chartered accountant based in Islamabad. He can be reached at syed.bakhtiyarkazmi@gmail.com and on twitter @leaccountant