The economics of peace

A new configuration of international relations is emerging in this region: old adversaries are becoming aware of new opportunities of prosperity through peace. Here we will analyse the economic and political dynamics that underlie the tendency towards regional co-operation that is now manifest. There are three key triggers to this process of change in interstate relations in South and Central Asia.

First is the imperative for the emerging global powers, China and India, to connect economically with the countries of the region in order to sustain their high economic growth rates. China has to increase its GNP growth rate from the present 7 percent to 9 percent to be able to finance its huge human development and other public expenditures. With investment in domestic infrastructure and capital goods peaking, it has to find opportunities for investment in infrastructure short countries such as Pakistan and India.

What makes this southward thrust of investment particularly attractive is its $3 trillion of Central bank reserves. The potential rate of return from infrastructure investment in the region would be far higher than what it can get from US Treasury bills. The $46 billion commitment by China in the China-Pakistan Economic Corridor is a key initiative in this direction. It will not only give China high economic returns at its southern doorstep, but also provide access through Gwadar to the Indian Ocean: passageway to most of the world trade, strategic raw materials and the new theatre of contention amongst global powers. However for this opportunity to be seized, China understands that it has to play a role in securing the region against terrorism as well as the interstate conflict between Pakistan and India.

The CPEC could carry Pakistan onto a new trajectory of high growth. However, this would require our policymakers to train the necessary technical personnel, provide the institutional framework for ancillary industries in the automotive and light engineering sectors along the CPEC route and bring local communities as well as provincial economies into an economic network for maximising the secondary multiplier effects. These policy actions by Pakistan would also be necessary to broaden the economic growth process triggered by the CPEC.

In considering the economic gains from the CPEC it may be helpful to indicate the magnitude of trade involved and its implications for peace. Currently China’s international trade amounts to about $200 billion annually. If China directs even 10 percent of this through the CPEC about $20 billion could flow into Pakistan. It could be as much as $30 billion due to the ‘funnel’ effect once the road becomes operational and safe. Under the present conditions it will require a major diversification of Pakistan’s economy to absorb even a fraction of this trade. Therefore to maximise the economic gains for Pakistan from the CPEC it would be advisable to build a west-east corridor as well, linking Iran through Pakistan across India up to Myanmar.

Thus the economies of the Middle East could get a road and rail link with South and South East Asia, thereby creating an economic stimulus of immense magnitude for a vast region with Pakistan as the hub. But this potential economic transformation requires new frameworks for interstate as well as intrastate peace between Pakistan, Afghanistan and India. Pakistan and indeed the other two countries too are beginning to become aware of the powerful imperative of a new approach to peace.

The third trigger for peace that reinforces the second one is the pressure on Prime Minister Modi’s government to fulfil its election mandate by pulling India’s economy from the dip of 4 percent GDP growth to the trend rate of 7 percent. The key to achieving this goal and long-term prosperity for India is to connect with the CPEC and facilitate a west-east corridor discussed above. But the necessary condition for this is establishing lasting interstate peace with Pakistan and cooperate to overcome the common threat of terrorism.

Modi had earlier been following an aggressive policy towards Pakistan, escalating border tensions and at the same time letting the RSS build up communal tension against Muslims within India. He may now have realised that such an approach is counter-productive for harnessing the great economic opportunity that has opened up with China looking South. It is an opportunity that requires reaching out to Pakistan for an institutionalised and comprehensive process of peace between the two countries and cooperation to counter terrorism.

It is now apparent that militant extremist groups seek to sabotage the peace process and the economic transformation of both Pakistan and India. Prime Minister Modi’s surprise visit to Raiwind and the spontaneous embrace with Prime Minister Nawaz Sharif indicated that a new paradigm in India-Pakistan relations has emerged. It is in this context that one can understand the mature and sagacious response of both Pakistan and India to the terrorist incident in Pathankot. In the past such incidents have induced a mutual blame game and rapid escalation of tensions between the two countries. This time it was different in terms of three dimensions:

First, Prime Minister Nawaz Sharif – in a superb display of statesmanship – talked to his counterpart in Delhi within hours of the terrorist incident and the two agreed that “swift and decisive” action would be taken by Pakistan in case of evidence that the Pathankot terrorists were linked with Pakistani citizens. Second, PM Nawaz Sharif and his cabinet colleagues held a meeting with the military leadership to discuss the matter. They demonstrated to the world that the military and the elected government were on the same page in preventing Pakistan being used by non-state actors to launch terror attacks across the border. And third, India quickly provided leads on the Pathankot terrorists. Equally quickly the leads were followed up in Pakistan and soon Masood Azhar the alleged mastermind of the attack was reported to have been detained, along with family members, and the offices of their organisation sealed.

The countries of South Asia are at a historic juncture with this unique opportunity of economic transformation. This possibility also carries new triggers for peace with the awareness in countries of the region that achieving national prosperity requires cooperation, not conflict. The question is: will the security establishments of the two countries and those elements that are suspicious of any forward movement in relations overcome their path dependence to grasp this historic opportunity of achieving both national security and prosperity through peace?

The writer is a professor of economics at the Forman Christian College

University, Lahore.

Email: akmalhussain@fccollege.edu.pk