‘Regional cooperation to be a key theme in ADB’s new country partnership strategy for Pakistan’

An interview with Safdar Pervez, Director Regional Cooperation and Operations Coordination Division Central and West Asia Department

Mr. Safdar Parvez has 25 years of experience including 17 years at Asian Development Bank. He holds Master’s degrees in Economics from Cambridge University, United Kingdom and Quaid–e-Azam University, Pakistan and a Bachelor’s degree in Economics from Government College, Pakistan. Prior to joining ADB, he was a Programme Manager/Economist at Agha Khan Rural Support Programme, Pakistan where he conducted policy research, analysis and led overall direction for strategic planning, particularly in areas of growth, equity and sustainability.

Mr. Parvez is a senior economist with extensive experience in the ADB. Since assuming his position as Director CWRC, he has led the formulation of the CAREC 2030 Strategy, the new long-term strategic framework for the CAREC Program leading to 2030 and supervised and led economic and sector work and preparation of country partnership strategies. He has extensive knowledge and experience in Central and West Asia region, and his operational and research background supports ADB’s knowledge and regional cooperation work in the region.

Following are the edited transcripts of a conversation BR Research had with Mr. Pervez that revolved around the CAREC Program and other regional trade, infrastructure and transport related issues:

BRR: Transport seems to have attracted three fourth of CAREC investments. What’s the breakup of transport investments and will future CAREC investments also be heavily tilted towards transport, or other themes will begin to take priority?

Safdar Pervez: As of December 2018, transport projects account for 75.6 percent of the overall CAREC portfolio ($26.1 billion). Of these, 79.2 percent are road projects, 18 percent railway projects, 1.5 percent aviation, 1.1 percent urban transport, and 0.3 percent logistics projects.

The CAREC 2030 strategy, endorsed in October 2017, envisages a dual-track approach by deepening cooperation in the traditional areas of transport, energy, trade and economic corridor development, while selectively expanding into new areas of cooperation in line with CAREC member countries’ priorities.

Infrastructure development will remain at the core of the CAREC programme, with a greater focus on more sustainable, greener and integrated connectivity and energy solutions. At the same time, CAREC will promote regional initiatives in tourism, food security and agricultural value chains, water resources management, health and education, ICT and digital economy development, and promotion of economic and financial stability in the region.

BRR: As of Sep 2018, Pakistan’s share in CAREC investments was only 4 percent; do you think it will be increasing over time in the wake of BRI and CPEC?

SP: Pakistan’s share in CAREC investments is relatively low so far because the country joined the CAREC program in 2010—compared to those Central Asian countries that have been members since the inception of CAREC. Pakistan’s share is bound to rise as the country continues to implement regional cooperation and connectivity projects on the CAREC platform in the coming years. Regional cooperation is likely to be an important theme in ADB’s new country partnership strategy for Pakistan for 2020—2024, which is currently being prepared.

BRR: Given your vantage, how are CAREC countries responding to the idea of having Carec single visa for tourism and businesses purpose?

SP: I think there is a great deal of recognition for the need to streamline and harmonize visa regimes in the CAREC region. Several countries including Kazakhstan, Uzbekistan and recently Pakistan have announced expansion in visa-free and e-visa travel arrangements to promote tourism from around the world.

Within the CAREC region, there is talk about a Silk Road Visa so that tourists holding a visa for one country can also visit other countries in the region. More recently, the concept of a CAREC visa has been floated. We believe this thinking is moving in the right direction. More discussions and negotiations are needed among member countries to take these ideas forward. CAREC provides a useful platform for this purpose.

BRR: There has been some talk that CAREC will help grow Pakistan’s exports to China. Which sectors do you really think Pakistan has the potential in terms of exports to the Central Asian region, considering that informal trade between Pakistan and C-Asia is poor (which to some is a reflection of poor trade potential) and considering that C-Asian countries are small markets?

SP: We firmly believe that there is strong potential for Pakistan to expand trade and exports to other countries in the CAREC region, in addition to increasing trade with the Peoples Republic of China under the second free trade agreement. In fact, it is critical that Pakistan explores new markets in the region to diversify its exports markets.

Economic growth in Central Asia remains robust and the sizes of their markets are growing. As an example of the potential, Afghanistan’s trade with Uzbekistan last year was in the range of $500 million while Pakistan’s was in the range of $20 million. Trade has been hampered because of poor connectivity, trade related barriers, and geopolitical considerations. As these barriers are overcome, and connectivity improves, along with an improved security situation, Pakistan should stand ready to take advantage of positive market movements going forward. Uzbekistan and other Central Asian countries desire stronger trade partnerships with Pakistan.

BRR: Do we have solid economic and technical analyses to identify business opportunities in the region, resource allocation, infrastructure needs, policy and regulatory prerequisites, as well as an assessment of time and costs related to trade? Who is driving such analyses?

SP: Yes, indeed. For example, our recently released CAREC Integrated Trade Agenda (2018) specifies connectivity and ease of trading across borders improvements, mitigation of tariff barriers and non-tariff barriers including technical barriers and sanitary and phytosanitary regulation upgrades that are needed to expand CAREC’s trade both within the countries of the region and the world at large. Time and costs related to trade are regularly measured under a CAREC corridor performance measurement and monitoring program.

If we zoom in on Pakistan, according to the latest World Bank Doing Business ratings, Pakistan is ranked 136 among 190 economies in the ease of doing business, and 142 in trading across borders. In the latest Logistics Performance Index (LPI), Pakistan is ranked 122 among the 160 economies. Sustained commitment and financial, technical and human resources have to be mobilised for Pakistan to address all aforementioned areas to reduce the trading time, cost and uncertainties so as to expand exports.

CAREC region infrastructure investment need was estimated at about $77 billion annually for the period 2016-2030 to maintain its growth momentum, eradicate poverty, and respond to climate change, according to an ADB study from 2017. The report estimated the infrastructure investment gap at 3.1 percent of GDP for countries in Central Asia, 5.7 percent for countries in South Asia, and 1.2 percent in East Asia for the period 2016-2020.

BRR: Would you agree that the onus of CAREC leadership rests on China and Pakistan being biggest and strategically important countries; Pakistan not least due to Gwadar and CPEC.

SP: CAREC works by consensus and all countries take positions and decide matters from a level-playing platform. China and Pakistan are certainly important CAREC members and so are the other 9 countries, and it is only together that they can achieve the regional cooperation ambitions of CAREC. The ports of Gwadar and Karachi are among the nearest ports for Central Asian countries and these countries are keen to take advantage of this proximity to transport their goods to and through Pakistan to other countries of the world. A revival of the QTTA would help trade with Central Asian countries, particularly with the improvements underway through the China Pakistan Economic Corridor. A renewed agreement between Pakistan and Afghanistan to allow trade flows to and from Central Asia will go a long way in exploiting the potential for transit trade offered by Pakistani ports.

BRR: What are your analyses of Pakistan’s delay in TIR convention? Why are we holding back?

SP: The TIR system operates on six pillars: namely (i) secure vehicles or containers; (ii) international guarantee chain; (iii) TIR carnet which are internationally accepted customs document; (iv) reciprocal recognition of customs controls; (v) controlled access; and (vi) TIR IT risk management tools. These pillars ensure that goods travel across borders with minimum interference enroute and at the same time, provide maximum safeguards to custom administrations.

Since Pakistan joined the TIR Convention in 2015, the government has put a lot of effort into these pillars to ensure operationalisation of the TIR system. However, TIR operationalisation requires further sustained efforts by various agencies, including the Federal Board of Revenue (FBR), Ministry of Communication, Ministry of Commerce, National Highway Authority and others. Internal and external coordination needs to be enhanced to expedite this process.

BRR: Where do things stand in so far as reactivation of Quadrilateral Transit Trade Agreement (QTTA) among Pakistan, China, Kyrgyz Republic and Kazakhstan is concerned?

SP: Reactivation of the QTTA signed in 1995 faces various challenges. To name a few: there are matters concerning corridors include closure of the Karakoram Highway during winter months, limited transit routes among the four contracting parties, and weak overall demand of transit traffic among the four countries. Secondly, matters concerning border crossing procedures include cumbersome cross-border procedures, numerous inspections by different agencies, inconsistent application of rules and regulations, different working hours at borders, and insufficient border crossing infrastructure.

Third, matters concerning marketing and awareness-raising include low awareness among the private sector on the benefits of the QTTA leading to low demand. Fourth, matters concerning vehicles include lack of consistent standards among the four countries on vehicle dimensions, gross weight and axle loads. Fifth, matters concerning drivers including lengthy procedures for drivers and personnel to receive visas; and lastly matters concerning goods include lack of guaranteeing mechanism for goods in transit.

ADB, through the CAREC Program, has been facilitating talks among the four countries as well as Tajikistan. In a recent meeting held on 26 June 2019 in Tashkent facilitated by ADB and the CAREC Secretariat, concerned countries showed interest to reboot the QTTA by addressing the existing challenges.

There are also some positive developments, which give new impetus to trade and transport under the QTTA agreement. These include Pakistan’s section of the Karakoram Highway, which has been improved and can be operational all year-round under proper winter maintenance. Moreover, recently China opened several more border crossing points for TIR operations and the QTTA corridor can soon become TIR-operational. Lastly, with the operationalisation of TIR system in PRC and Pakistan, TIR customs transit guarantee can be established along the QTTA route. The five countries including Tajikistan resolved to continue discussions to reactivate the QTTA with the assistance of ADB and the CAREC Secretariat.

BRR: You think regional goods trade/transit trade will drive energy trade. Or will energy trade (CASA/TAPI) serve as the driver for regional goods trade/transit trade?

SP: We feel that the relationship runs both ways. Both trade in commodities and in energy are needed to capitalise on the full potential of regional cooperation in CAREC countries as both goods and energy exporting as well as importing countries stand to gain from such cooperation.

BRR: There is criticism that CAREC 2030 framework lacks capital, it doesn’t have speed of execution, and it ignores the region’s security and political dynamics that have previously affected projects like TAPI and CASA. How do you respond to that?

SP: CAREC is backed not just by ADB but by all major multilateral institutions and by member countries. The program has provided almost $35 billion for connectivity and trade projects over the years. Even now, the program is generously funded and is not short of capital. Having said this, the region has large development needs and there is definitely a need for more resources, including raising financing from the private sector for regional projects. The program works by consensus and brings countries together on an economic platform with a proven track to undertake complex and multidimensional regional projects.

BRR: Some of CAREC’s transportation projects in Pakistan seem to complement CPEC projects but are not highlighted as such. Why? Also, the ADB had previously identified highway nodes linked to CPEC that can connect Pakistan westwards. What is the progress on that?

SP: Good progress has been made on expansion and improvement of CAREC transport corridors connecting Pakistan to CAREC member countries and beyond. This work continues and is complementary to the aims and objectives and the progress being made under CPEC. Beyond infrastructure, we are also supporting knowledge and analytical work for strengthening economic corridor development and development of special economic zones along the various corridors. All this work is complementary in nature and is recognized as such.

BRR: Can CAREC provide the neutral, third-party channel to facilitate Pakistan’s trade with India and Afghanistan?

SP: CAREC offers the role of an honest broker to improve trade ties and expand regional cooperation among the member countries of the countries, including between Pakistan and Afghanistan if both countries choose to use this platform for bilateral trade discussions. India, however, is not a member of CAREC.

BRR: For Pakistan, is east-west corridor critical to the success of north-south corridor or will it only compliment it?

SP: Both corridors are important for Pakistan to take full advantage of trade possibilities with countries of the region.