Pakistan - News and Discussion -7

Naresh · 07-31-2006, 08:55 AM

The truth about Gwadar - Abdul Majeed <img src='style_emoticons/<#EMO_DIR#>/Flush.gif' border='0' style='vertical-align:middle' alt='Flush.gif' />

Part II

The Afghan transit traffic passing through Karachi makes up hardly 5-10 per cent of Pakistanâs exports and imports. No ship would call on Gwadar port for transit cargo and Karachi for Pakistani cargo. If Afghan transit cargo is forced to shift to Gwadar, the advantage of distance which Pakistan has over Iranian ports will be lost and Afghanistan would prefer to use Iranian ports of Bunder Abbas and Chah Bahar where transportation links are far better than Pakistan.

There will be no saving in shipping costs by using Gwadar. Shipping charges are more often than not the same for a region and a group of ports. For a ship coming out of the Suez Canal, there is little difference in distance to the ports at Karachi, Bombay or Madras. For calling at Gwadar port, the ship may have to turn back a little. The time and distance would not be less than Karachi.

The only saving in distance will be to and from the Persian Gulf ports. Since there is no consumption or production in Gwadar, all cargo would have to be carried to Karachi and further inland. In this case, movement by sea will be substituted by road transport which is 10 times more expensive.

The point about the Gwadar port providing an outlet to China is misleading. Karachi ports are nearer and can provide better facilities if there is any traffic to and from China. China is linked with Pakistan by the Karakorum highway, across the Khunjrab pass which is 17,000 feet above sea level and is snow covered most of the year. The border is open for 3-4 months in a year. If China had any need for a port in Pakistan, she could have used the Karachi port. The fact of the matter is that the south-west of China is as barren, sparsely populated, and under-developed as the north-east of Pakistan adjoining China. There is little economic activity for more than 1,000 km on either side of the border. Most of the trade with China takes place by sea. Another port in Pakistan, with a more difficult approach, would be of little help to China.

Handling of transit trade of the Central Asian States is another faux-pas. In the first instance, the Central Asian States are double landlocked. Kyrgyzstan and Kazakhstan can be approached through China while Tajikistan and Uzbekistan can be approached through Afghanistan. The use of Pakistani ports by these countries would have to make transit arrangements not only with Pakistan but also with China and Afghanistan. Goods through China would have to pass through the Khunjerab pass which is open for three to four months in a year. Trade through Afghanistan will pass through Quetta and Peshawar which are already connected with Karachi which is closer than Gwadar, with well established means of transport and communications. Had there been any potential of transit trade by these countries, they would have used Karachi port.

The economies of the Central Asian States are quite small. Their population is nearly half the size of Pakistan and the GDP is about 60 per cent of Pakistan. However, their exports and imports are of the same size as of Pakistan, but most of their foreign trade is among CIS states. They are also linked by rail with Moscow, and East and West Europe. There is thus little potential of transit trade through Pakistan.

The wish list of the authorities includes shipping related industries, oil storage, refinery and petrochemicals, export processing and industrial zones. Since there is no local market, anything produced here would require additional transhipment costs for movement to other places. Not worthwhile.

For location of industry, one or more factors of production should be available at a cost lower than at other places or there should be savings in distribution costs by way of proximity to the market. Gwadar does not have any factor of production, nor is there any market. Even basic necessities of life like water, power, and communication facilities are not available. There is no raw material of any kind, no skilled or unskilled labour, not even population. Existence of barren land and harsh climate are not sufficient to attract any kind of industry to such a location. It is not possible to import everything from outside and export products. No industrialist is going to risk his capital at such a barren place. If any industry is established with government incentives, it would be uncompetitive and suffer losses.

(i) On the basis of economic and operational considerations, the Gwadar port project is a non-starter. No commercial ship is ever likely to call the port, no matter what level of facilities are provided. Handling of transit trade of Afghanistan, the Central Asian States and China is out of the question. The location of industry is a pipedream.

(ii) When the port is not operational, all other projects, plans and programmes, based on busy port activity, will fall to the ground like a house of cards. Money being spent haphazardly on public sponsored projects is going to be wasted. At the end of the day, there will be nothing but disappointment.

(iii) If, to justify the actions of the authorities, operation of the port is forced artificially by tax exemptions, duty rebates or requiring government controlled imports and exports to be made through Gwadar, the port can become a dumping ground of foreign goods and a smugglers den. There will be loss of revenue to the government and damage to the local industry and the economy as a whole. If this is the objective, it can be achieved at any nearby place without any investment.

(iv) The reason why poor countries are not developing in spite of huge grants and loans from international institutions and developed countries is because it is a waste of money on useless projects. Investment is made to generate income and create employment. If we invest Rs100 and earn Rs110, it is development. If we earn Rs90 only, we are getting poorer. This is the case with most of the public sector projects and Gwadar port is no exception.

(v) Development of a place or an area is not an objective in itself. It is improvement of the lives of the people that matters. Therefore, the best course would be to improve the capabilities of the people of Gwadar. Their supplies and products can be carried to and from Karachi in small ships, with no extra capital cost and very low operating costs.

(vi) Transport is not a thing of personal use like a palatial house or a fancy dress of which one can feel proud. It is an intermediate good, a cost item in the process of production, which should be minimised. There is no use in investing money to do something which can be done at nominal cost without any investment. This is not development.

(vii) The investment on port and related projects is exceeding Rs100 billion. Its interest cost at 10 per cent will be Rs10 billion per year at least. To earn Rs10 billion, there will have to be a turnover of Rs100 billion or more. Would facilities at Gwadar create that much activity? Not possible by any means. The chances are that after investing Rs100 billion, the government will have to spend Rs10 billion per year on the maintenance of those facilities. Today the biggest drain on national resources are so-called development projects like Gwadar port.

(viii) Then why there is so much enthusiasm? Fools rush where angels dare not tread. There are vested interests, consultants and contractors. There is money for everyone in the implementation of projects. It is none of their concern if such projects are viable or not. The authorities, who are presenting the project at international forums and to rulers of Middle East countries, must have something at stake.

Concluded

The writer is a transport economist and served as chief of the National Transport Research Centre in Islamabad. Email: abdul.majeed@dsl.net.pk

Cheers <img src='style_emoticons/<#EMO_DIR#>/cheers.gif' border='0' style='vertical-align:middle' alt='cheers.gif' />

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