ECONOMIC DIPLOMACY

The New front in foreign policy of Pakistan

In the contemporary world, only those countries enjoy prestige and power in the global arena which have strong, prosperous economies as well as vigilant diplomats pursuing the interests of their countries in other countries. Although the concept of diplomacy, traditionally, is considered related to state-centric analyses of mainly political agenda, a new domain of diplomacy—Economic Diplomacy—has started gaining ground in recent years. It is a field hitherto unknown—or more rightly unexplored—in Pakistan. However, times are changing and the incumbent government has realized that promoting economic diplomacy is need of the hour, as it will not only strengthen bilateral relations with other countries but existing potential can also be exploited to the maximum level in the field of economy. It, indeed, is a good beginning and the government must pursue this initiative fervently and vigorously, and our diplomats in all parts of the world must also put in all their efforts to reap maximum dividends for their country.

 

There is no denying the fact that in today’s world, economic ties leverage political and security policies; while in Pakistan, economic relations are still treated as a subset of security and political ties. Given that we are living in an age of globalization where strong economy is a sine qua non to enjoy a better standing in the comity of nations, the whole security narrative must change. As they say ‘beggars can’t be choosers’, the countries with fragile economies cannot pursue independent foreign policies. Pakistan received a rude awakening last year when Prime Minister Imran Khan did not attend the Islamic Summit in Malaysia with a view to avoiding disturbing its ties with Saudi Arabia. We chose to flunk the summit because our trade with Malaysia and Turkey combined is less than 3 percent of country’s total trade value and we could not afford to annoy Saudi Arabia on which we are heavily dependent in terms of remittances and oil imports. This was, indubitably, the predominant factor which made Crown Prince Mohammad bin Salman leverage successfully his superior economic hand to pull strings. Had Pakistan’s economy not been so fragile and dependent on the kingdom’s financial largesse, the diplomatic trajectory since could have been very different. Such economic dependencies have restricted Pakistan from thinking and planning long-term relations.

However, it is very encouraging that this impediment has been realized by those at the helm of affairs. It was in this backdrop that Prime Minister Imran Khan, on September 23, constituted an ‘Economic Outreach Apex Committee’ that is tasked to promote economic diplomacy.

The committee will be headed by Prime Minister’s Special Assistant on National Security, Dr Moeed Yousaf, whose academic credentials (Masters and PhD from Boston University) and work experience (fellow at the Frederick S. Pardee Centre at the Pardee School of Global Studies at Boston University, and concurrently a research fellow at the Mossavar-Rahmani Centre at Harvard Kennedy School) are quite impressive. The government also constituted an ‘Economic Outreach Coordination Group’ for coordination among various relevant federal ministries, provincial departments and others and for achievement of targets. The prime minister directed that Pakistani embassies and missions abroad should fully focus on the promotion of this initiative. He also directed the Board of Investment chairman to ensure all possible facilities to foreign investors who were keen to invest in different sectors of the country. The military is also on board in this initiative as there is realization within the echelons of power that economic security is critical to overall national security paradigm. In the words of Dr Moeed Yousaf, “There is a complete consensus that our future progress lies in a strong economy and our ability to mould our diplomacy to market our economic potential.”

Pakistan is already conducting economic diplomacy every day in terms of promoting its trade and other economic engagements with the world. The current PTI-led  government launched an extremely successful economic diplomacy initiative soon after it took over the reins of the in August 2018. Within the span of less than six months, the country hosted the heads of government of two major oil-rich Middle Eastern countries notably Sheikh Mohammad bin Zayed of the United Arab Emirates on 6 January 2019 and Prince Mohammad bin Salman of Saudi Arabia on 18 February 2019. The two countries pledged a loan of 6 billion dollars (3 billion dollars each) as balance of payment support for one year with Saudi Arabia agreeing to another 3.2 billion dollars deferred oil facility for a period of three years. In addition, the Saudi Crown Prince pledged 20 billion dollars investment with 8 billion dollars for the construction of an oil refinery at Gwadar Port, the reported jewel in the crown of the China-Pakistan Economic Corridor, while the UAE also pledged a significant investment in the country.

The International Monetary Fund (IMF) noted in its July 2019 document titled Request for An Extended Arrangement under the Extended Fund Facility that “the authorities have already secured the full financing for the first year and have received firm commitments by key bilateral partners to maintain their exposure throughout the program period, including by extending new loans consistent with programme objectives.” By late 2019, reports indicated, the UAE had parked only one billion instead of the 3 billion pledged while Saudi Arabia requested the return of one billion dollars, a shortfall with respect to the IMF that was promptly met by China, while the deferred oil facility has not been renewed yet.

This fall in economic diplomacy has prompted the need to broaden the horizon in line with the global developments and the new opportunities around the world have opened up for countries like Pakistan. In these circumstances, Pakistan needs to gain maximum advantage from areas like tourism, information technology, role of diaspora and overseas Pakistanis, culture, among other areas that have traditionally not been considered in the remit of economic diplomacy.

But, to make the most of this initiative, a lot of ground work is required to be done to make the system flow in the right direction.

The first step in this regard should be to map the world in terms of our competitive advantage and appoint our diplomats, commercial consulates, and others on the basis of what Pakistan wants to sell in those countries. This focused diplomacy can yield results in the medium to long terms.

For example, tens of thousands of Africans are visiting India every year for medical tourism. Pakistan can grab its share through making right policies. The human resource deployed in Africa should focus on enhancing medical tourism. But at the same time, Pakistan needs to get its hospitals requisite international certifications to tap the potential. All these require coordination and implementation both at home and abroad.

Similarly, Pakistan has a huge potential of business process outsources (BPO), and IT-related services. India has cashed in on it. But there are frictions in Pakistan. A bigone is on the payment side. PayPal doesn’t exist in Pakistan. The country does not have any of its own digital payment gateway (one is in the process of making). Here the role of State Bank of Pakistan (SBP) is important. Swift payment system is of utmost importance. That holds true for becoming part of any global value chain.

Then there are tariffs and duties. Most of them are applied for revenue consideration. These need to be based on enhancing trade. Here coordination is required with finance and commerce ministries. There are issues in rules and regulations which in current form do not allow things from opening up. These are required to be changed. Someone has to anchor it.

Then the Key Performance Indicators (KPIs) of commercial consulates must be designed based on the target markets. Not the same plain vanilla approach can be copy-pasted everywhere. In current system, the commercial consulates report to commerce ministry while ambassador is linked to the foreign office. The roles are interdependent and key people in both posts are required to be deployed based on expertise in areas where Pakistan’s competitive advantage is with that country.

Moreover, our economic diplomacy strategy should focus on an in-depth partnership framework with China and regional players, a private sector-led model to undertake large commercial transactions, revamping of the ministries of foreign affairs and economic management and a new way of engaging with multilateral and regional financial institutions. This requires clear ownership of the revival of economic growth at the top and the prime minister needs to appoint a professionally competent leader to convene a series of dialogues with researchers, government officials, the private sector and international institutions. It is pertinent to note that it will have to be a change-management exercise led by indigenous resources capable of using evidence to lay the foundations of sustainable growth. No wonder that a country of over 200 million people is struggling to come up with a serious growth policy with an inexperienced conflicted team of generalists.

Moving ahead, Pakistan needs to demonstrate its capability to undertake a few large-scale trans-actions to give confidence to interested investors. The prime minister did a great job by opening doors for future investment from China, Saudi Arabia, the UAE, Malaysia and Turkey. The challenge was to quickly come up with a professional response to fast-track decision-making on these commitments. It was a big mistake to hand over these projects to the usual bureaucratic structure which has been perpetually failing to structure transactions linked to privatisation, state-owned enterprises or foreign direct investment. The only short-term answer is to insulate priority investment projects from the current system and hand over to a group of top professionals to fast-track the structuring of these transactions. Signalling a progressive way of engagement to investors is the first step towards economic diplomacy.

What is Economic Diplomacy?

The dynamics of globalisation and emerging regional markets have challenged traditional diplomatic practices by forcing countries to increase their sphere of influence through engaging with a wide range of partners. This is done through economic diplomacy which is a diverse practice and an evolving subject which generally involves three kinds of negotiations — trade, investment and development cooperation. The meaning, forms and ways of economic diplomacy vary from nation to nation, depending on their levels of economic development. At the same time, each country is redefining its economic value proposition in the rapidly changing dynamics of economic gravity towards a multipolar setting that tilts towards Asia.

Economic diplomacy involves using diplomatic skills with economic tools to advance a country’s economic, political and strategic goals.

Economic diplomacy not only promotes the state’s prosperity but also, as occasion demands and opportunity permits, manipulates its foreign commercial and financial relations in support of its foreign policy – as in the case of sanctions against Iran. Accordingly, economic diplomacy is a major theme of the external relations of virtually all countries. At home, economic ministries, trade and investment promotion bodies, chambers of commerce, and, of course, foreign ministries, are all participants in economic work. Other important actors of economic diplomacy include regional organisations, financial institutions, sovereign wealth funds, private companies and non-governmental economic bodies. Most recent literature closely links economic security with national security priorities where the role of economic diplomacy becomes crucial in neutralising the security threats emerging from weak economic fundamentals.

A serious debate has started on the future of multilateralism and new models of economic engagement with an increasingly multipolar world. Pakistan’s recent response to CPEC implementation and strategic engagement in Kuala Lumpur Summit has not been up to the mark. It will be prudent to pick up small doable transactions with key economic partners and avoid big talk until our economic realities and state structures are ready to deliver on promises. It is crucial to show pragmatism in our approach towards economic diplomacy by leveraging the low-hanging fruit in a proper manner.

The Foreign Office needs to review incentive structures to send its best envoys to countries with a promise to engage on economic terms. Major investment will be required to groom the skills of diplomats specialising in economic diplomacy. As economic diplomacy acquires more importance, diplomats, who have long thought this wasn’t their job, need exposure to the country’s trade and business environment to be knowledgeable and effective. Above all a know-your-country (not just its foreign policy) approach is essential as sometimes diplomats appear out of sync with the domestic dynamics of a changing Pakistan.

At the institutional level, there are too many cooks dealing with investors; this should be urgently streamlined. Several countries have merged the functions of trade ministries with foreign missions where ambassadors have been given clear targets regarding the delivery of commercial deals.

Finally, a crucial component of economic diplomacy strategy is to effectively manage relationships with international financial institutions (IFIs) and sovereign wealth funds. There are multiple pockets of regional resources that could be tapped rather than solely banking on the post-colonial World Bank or Asian Development Bank for financing all development projects. Pakistan has the weakest representation dealing with IFIs handed over to retired bureaucrats and junior officials resulting in unnecessary policy influencing by IFIs. It is time to revisit the approach towards key appointments in international institutions with clear targets to align with the country’s growth priorities. Economic diplomacy requires visible signals of a new approach to reposition Pakistan in a rapidly changing world.

The author has done her MA in Political Science and History. She can be reached at: wajeeha40@gmail.com