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Regional Connectivity – Opportunities, Challenges & Way Forward

The fall of the erstwhile Soviet Union and the emergence of the Central Asian Republics (CARs) around three decades ago brought a new wave of hope worldwide, particularly in Pakistan. This optimism was fuelled by two significant factors: the end of the protracted Cold War and the possibility of opening new markets in resource-rich Central Asia. Pakistan was quick to embark upon bilateral engagements to open new chapter of regional cooperation with the Central Asian states, resulting in multiple Preferential Trade Agreements (PTAs) and transit trade agreements with various countries in Central Asia. These agreements reflect strong political will on the part of the people and governments of the Pakistan and Central Asian States to pursue the vision of sustainable development through enhanced regional connectivity and market integration. However, the realization of this vision remained hostage to fratricidal war in Afghanistan and sanctions on Iran.

Pakistan’s trade potential with Afghanistan, Iran, Turkey and CARs, cannot be overstated. The country has trade and transit agreements with these nations, granting access to the vast markets of Central Asia, the Caucasus, and beyond. Pakistan’s key exports to these countries in the region include textiles, chemicals, and food products, while major imports comprise energy products, minerals, and raw materials.

Regional cooperation organizations with Pakistan as its member have not been successful in fully translating the dream of economic integration and market connectivity to reality owing to several reasons. The most important among them are political instability, conflict, and security challenges that have hampered efforts to increase trade and investment in the region. Wide disparities in economic development and market size have created unequal trade relationships besides limiting the potential for regional economic integration. Lack of harmonized policies and regulations related to trade and investment have created barriers to trade making it difficult to take advantage of regional economic cooperation initiatives.

Addressing these challenges requires a sustained and coordinated effort by regional cooperation organizations, governments, and the private sector to increase trade and build a more integrated regional economy.

Why regional Connectivity is must for Pakistan.

Pakistan’s economic development largely hinges on diversification its exports base for which market connectivity is indispensable. It will reduce its dependence on any one market and mitigate the risks associated with economic shocks or changes in political relationships.

With opening new trade routes, Pakistan can increase the volume of goods and services it exports will help support economic growth. Multiple transit routes will enhance the resilience and security of its supply chains.

Transport Internationaux Routiers (TIR) is one of the most important instruments of regional connectivity. By streamlining the procedures at borders and doing away with frequent checks at borders, it can help save time and money. It is primarily due to the fact that TIR-authorized operators move cargo from origin to destination across the region using a single guarantee and submit their declaration data once for an entire movement.

How feasible are land routes for TIR?

In recent years, there has been a growing sense of urgency and realization among countries to take concrete steps towards regional connectivity by overcoming strategic complications. A ground-breaking initiative in this direction was the commercial run by the National Logistics Cell (NLC) using TIR instrument in September 2021. NLC vehicles completed round trips to Istanbul in Turkey and Baku in Azerbaijan within two weeks. Since then, NLC trucks have made dozens of trips to various destinations in Turkey, encouraging other logistics operators to follow suit. NLC diversified its TIR operations to Uzbekistan and Kazakhstan via Afghanistan opening new avenues for regional connectivity. Off late, NLC has started regular cargo service to regular cargo service from Islamabad and Karachi to Kashghar and Shanghai for export as well as import shipments.

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These initiatives have far-reaching implications for the business community of Pakistan as trade with the Central Asian Republics, holds immense promise for brighter future prospects. According to the World Bank and other International Financial Institutions, the potential for bilateral and regional trade exceeds several billion dollars. Regrettably, the actual trade volume between Pakistan and the Central Asian Republics has failed to meet these optimistic forecasts. Recent years have witnessed trade figures below the billion-dollar mark, falling short of the anticipated potential.

The Challenges & Way Forward

However, Pakistan encounters numerous challenges that impede the full benefits of international road transport and transit. Foremost among these challenges is the lack of cooperation between the public and private sectors, which adversely hampers the expansion of exports. To overcome this obstacle, it becomes imperative for the private sector, trade and transport entities, and producers of goods to forge more effective collaborations with the public sector regulators involved in export-related activities. These regulatory bodies encompass the State Bank of Pakistan, the Federal Board of Revenue, relevant federal ministries, provincial departments, and Pakistan Customs.

Another formidable hurdle lies in the inadequate implementation of global trucking industry standards and international regulation with regard to dimensions, vehicle fitness, safety compliance, and emissions by Pakistan’s trucking industry. This underscores the need for an immediate programme of fleet modernization and upgradation. In the absence of a dedicated transport ministry, the growth of logistics sector is stunted by overlapping roles spread over multiple government ministries and departments. It is, therefore, high time to establish a separate ministry to regulate the affairs of transportation and logistics.

The financial realm also presents additional hurdles for Pakistani exporters and importers, particularly in their transactions with landlocked countries. Although the State Bank of Pakistan has clarified that sanctions on transit countries do not apply to exporters and importers but private commercial banks still show reluctance in issuing financial instruments, thereby creating complications in trade proceedings. The complexity of trade finance practices, coupled with US sanctions on neighbouring countries such as Afghanistan and Iran exert considerable pressure on Pakistan’s foreign exchange market, further exacerbating the challenges faced by traders. It is worth mentioning here that Iran handles cargo worth billions of dollars under the TIR system. There is a need to dispel misgivings with regard to the movement of commercial consignment under TIR through Iran.

While the TIR Carnet offers permits for the transportation of goods as part of the customs convention, preserving the value of goods during border crossings, Pakistan must endeavour to meet international standards of transport legislation. Simultaneously, facilitating smooth visa processes, fostering people-to-people contacts, and ensuring safe routes for regional and international trade are pivotal in harnessing the full potential of trade.

In nutshell, strengthening trade and connectivity necessitates concerted efforts towards improving infrastructure, simplifying procedures, and embracing international instruments such as TIR and CMR. Additionally, digitization of processes which reduces bureaucratic delays are pivotal in this endeavour. Furthermore, Pakistan’s Single Window, beyond its primary purpose, can serve as a knowledge platform and a network of experts, propelling regional integration through inter-governmental agreements pertaining to integrated border management, transit and trade facilitation, and business-to-business connectivity.

Among other regional alliances, Economic Cooperation Organization (ECO) can play a pivotal role as a regional platform for collective decision-making, effectively translating regional initiatives into national priorities and practices.

Afghanistan, with its immense potential as a regional transit crossroad, remains hindered by its prevailing security situation. Unlocking Afghanistan’s true potential hinges upon regional cooperation and agreements. Regional countries have the collective responsibility, to take steps for ensuring stability in Afghanistan which will materialize the ideals of economic integration and shared regional prosperity.

Although challenges persist in the form of the policy and regulatory environment, high transportation costs, poor infrastructure, and limited customs facilitation at border crossings, they are not insurmountable. Key transit routes through Afghanistan presently offer reasonably favourable conditions, and concerted efforts to enhance Customs and trade facilitation are already underway.

The regional outreach initiatives undertaken by NLC, while still in their early stages, have proven the feasibility of new transit routes. Despite numerous challenges asdiscussed earlier, these obstacles can be overcome with determined political will from the respective governments. Undoubtedly, the key to achieving shared prosperity in the region lies indiscovering new drivers of growth. This can only be accomplished by establishing interconnected production networks and value chains. The more interdependent these networks become, the higher will be the potential for enhancing regional connectivity.