Impact of a Lack of Intrastructure Spending in Pakistan
Mitigating Risks Associated with a Lack of Infrastructure Spending in Pakistan
January 29, 2016
Mahdi Gokal – Primary Article Contributor following AfPak
Nathan Sukhdeo - Team Leader following AfPak
Keywords: Pakistan, PLPA, Exports, Karachi, Infrastructure
With over 199 million people and the world’s 27th largest economy based on purchasing power, Pakistan is a country gleaming with potential and endless economic possibility. However, since independence in 1947 Pakistan has been marred by internal political disturbances, ranging from military coup’s to presidential assassinations, which have detrimentally impacted foreign investment. One sector that has bore the brunt of negligible investment is the transportation infrastructure of the country.
According to the last Global Competitiveness Report from the World Economic Forum, Pakistan ranked 119 out of 148 countries surveyed. The dire state of the transportation industry according to the World Bank has generated inefficiencies that are costing Pakistan’s economy roughly 4-6 per cent of GDP per year. The economic potential within Pakistan is still present, as highlighted with the recent election of Nawaz Sharif. The transition to a new political administration, trade and transport are likely to play a more substantial role in the country’s economy. This has been evident with the various infrastructure undertakings with China as well as its regional neighbors. The Kashghar-Gwadar trade corridor with China is one of the most notable., as it links with Afghanistan , and extends towards Central Asia. Additionally, the extending of railway tracks with Iran, up towards Turkey, reinforces the notion that Pakistan is making amends.
According to the 2015 Pakistan infrastructure report, the government is attempting to address some of the significant shortfalls it faces and has said the budget for FY14/15 will include a multi-billion dollar infrastructure programs to improve Pakistan's transport links. The Pakistan Land Port Authority (PLPA) aims to make the existing land ports more efficient, while addressing comprehensive security issues, such as smuggling.
With improvements in the Pakistani infrastructure sector underway, businesses can help further this by taking an integrative approach to managing their risk. One potential way to mitigate risk would be to foster public-private partnerships. Chinese companies in particular, have been some of the most prolific investors in the country's road infrastructure sector as they enjoy fewer business risks due to the close strategic relationship between the Pakistani and Chinese governments. Additionally the Japanese government is also a keen financier of road projects in Pakistan. In February 2013, the Japanese government provided a grant of $5.4 million for the construction of the Mehran Highway in Karachi. The 11km project is aimed at easing road congestion in the industrials parts of the city and is due to be completed in 2014.
Through these various projects, China and Japan have taken the lead in the region, as foreign stakeholders. Having integrated themselves and their commercial entities into infrastructure investment, they are able to influence the economic potential of the region. The investment into highways, roads and rail, promoting logistical efficiency, has proven to be beneficial towards their foreign policy objectives
