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Ambassador Naghmana A. Hashmi (R)

The writer has served as an Ambassador to China, the European Union, Belgium, Luxembourd and Ireland. She has also authored and edited several books including Magnificent Pakistan, Pakistan-China All Weather Friendship, and Lost Cities of Indus.E-mail: [email protected]

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Hilal English

Dividends of Regional Connectivity

July 2023

Pakistan is situated at the nexus of the four most dynamic regions of the World__China, South and South-East Asia, the Middle East, and Central Asia__and thus has the potential of becoming an economic hub and linchpin in connecting the four sub-regions of Asia.


Humans have always craved community and connection. It is evident from a cursory look at history to realize that the world today, with all its technological and social development, cultural diversity, languages, and heritage, is the result of millennia of intermingling of different peoples sharing ideologies, cultures, and enriching each other. The creations from shared experience have built our societies and led to our most monumental inventions and deepest insights about the world. 
Connectivity has emerged as a leading trend of the 21st century and a defining feature of the modern economy. It is now considered a cornerstone not only for regional, but also for global economic cooperation and integration. It has become a key priority, particularly for the countries of Asia and the Pacific, for creating better access to larger markets, increasing trade and production, and encouraging the growth of local economies. Ease of movement lowers transport costs and increases supply reliability, strengthening a region's comparative advantages. Reduced costs also encourage the creation of stronger production networks, which drive trade and investment. Improving connectivity is thus essential for the region's prosperity, continued growth, and, most importantly, poverty reduction.
A comprehensive perspective on connectivity has emerged in recent years to unlock the potential of closely interlinked production networks and value chains. This connectivity is not sector specific, but is envisaged as part of an integrated whole, encompassing the development of corridors of prosperity through networks of trade, transport, ICT (information and comunication technology), energy, people, and technology. The concept is an important pillar of economic development and regional integration.
Pakistan is situated at the nexus of the four most dynamic regions of the world–China, South and South-East Asia, the Middle East, and Central Asia, and thus has the potential of becoming an economic hub and linchpin in connecting the four sub-regions of Asia. In the changing world scenario, connectivity in all its forms and manifestations, including barter trade and currency swap agreements, has assumed great importance in our region for pursuing peace and stability.  
The world is witnessing a significant political, strategic, and economic transformation. In this scenario, crucial geopolitical variables that will influence global development over the next few decades include the ability of main emerging markets to deliver substantial economic and political reforms successfully and the willingness of leading powers to cooperate economically and on global governance issues, including monetary and financial mechanisms. Under these uncertain circumstances, a sustained effort by the Global South to reduce its dollar dependence is also becoming increasingly evident.  



To protect its vital economic and national interest, Pakistan has officially announced implementing a “Barter Trade Mechanism 2023” with Iran, Afghanistan, and Russia on specific goods, including petroleum and gas, to strengthen its foreign reserves and economy.


Increased reliance on financial sanctions by the U.S. as a foreign policy tool has led to the search for alternate currencies for trading. While the true effectiveness of these sanctions is still debatable, the measures have led Russia, as well as other countries in the Global South, including Pakistan, to seek potential alternatives and lead to the slow, but steady rise of alternative financial infrastructures, eventually pushing countries to seek different currencies, including their own. As the U.S.-led controls and sanctions restricted Russia’s access to the U.S. dollar and severely damaged the Russian economy, Putin called on its partners in Asia, Africa, and Latin America to adopt the Chinese RMB for cross-border payments.      
Many capitals, including Beijing and Pakistan, cannot rule out that they could also become a target of U.S. sanctions at any time in the future if they are not in agreement with the U.S.’ point of view. Therefore, reducing reliance on the dollar is essential to act as a buffer against the threat of U.S. sanctions. Likewise, the BRICS (Brazil, Russia, India, China, and South Africa) countries have long aspired to de-dollarize, and now ASEAN (Association of South East Asian Nations) finance ministers and central bankers are also considering dropping foreign currencies in exchange for local ones.
To protect its vital economic and national interest, Pakistan has officially announced implementing a “Barter Trade Mechanism 2023” with Iran, Afghanistan, and Russia on specific goods, including petroleum and gas, to strengthen its foreign reserves and economy. This will allow us to bypass Western sanctions on those countries and ease pressure on their declining foreign exchange reserves. The barter trade system will stabilize the economy and provide valuable opportunities for expanding and diversifying trade. 
The implementation of this barter trade mechanism will have a positive impact on Pakistan’s economy. Pakistan, a country of approximately 240 million people, is facing significant challenges related to the balance of payments crisis and soaring inflation which reached an alarming rate of nearly 38 percent in May 2023. Pakistan's foreign currency reserves have dwindled to a level that can barely sustain imports for a month. 


According to the 'business-to-business barter trade mechanism 2023,' both state-owned and private enterprises in Pakistan will have the opportunity to trade with Russia, Iran, and Afghanistan. Pakistan hopes to export a diverse array of products under this mechanism.


This strategic initiative aims to foster bilateral economic cooperation between Pakistan and other willing partner countries on a bilateral basis. By adopting this innovative approach, Pakistan seeks to enhance trade relations and explore new avenues for collaboration with its neighbors and friends, particularly Russia. The barter trade mechanism offers a unique platform for both countries to exchange goods and services without the need for traditional currency transactions. This novel arrangement allows Pakistan and Russia to leverage their respective strengths and resources, paving the way for mutually beneficial partnerships.
With the implementation of this mechanism, Pakistan envisions a diversified trade landscape encompassing various sectors, including agriculture, energy, technology, and manufacturing. The exchange of agricultural products, such as Pakistan's high-quality rice and Russia's wheat and dairy products, promises to strengthen food security and meet the growing demand in both countries.
Furthermore, the barter trade mechanism allows energy collaboration exploration. With its vast renewable energy potential, Pakistan can offer clean and sustainable solutions to meet Russia's energy requirements. Simultaneously, Russia can contribute its expertise and advanced technology in the energy sector, facilitating the development of renewable energy projects in Pakistan.
This progressive step fosters technological advancements through knowledge transfer and research collaborations. The exchange of expertise in fields like artificial intelligence, aerospace, and information technology can pave the way for innovation and economic growth in both nations. Pakistan could gain particularly from oil and energy imports from Russia and Iran without adding to dollar demand.
We import 84 percent of our petroleum products and have historically relied on friendly Gulf states for shipments. Hence, the official implementation of a barter trade mechanism between Pakistan and Russia signifies a bold stride toward strengthening bilateral ties. This innovative approach holds immense potential for expanding trade horizons and unlocking new opportunities for economic cooperation. Its inherent perplexity reflects the significance of this strategic decision, showcasing the complexity and dynamism surrounding Pakistan's trade relations with Russia.
According to the 'business-to-business barter trade mechanism 2023,' both state-owned and private enterprises in Pakistan will have the opportunity to trade with Russia, Iran, and Afghanistan. Pakistan hopes to export a diverse array of products under this mechanism. The list of exportable goods includes milk, cream, eggs, cereals, meat, fish products, fresh fruits and vegetables, rice, pharmaceutical products, chemicals, perfume, cosmetics, plastic, rubber, leather, wood products and furniture items, textiles, readymade garments, paper, footwear, iron and steel, electric fans, home appliances, sports goods, motorcycles, tractors, surgical products, and sports equipment.
Pakistan will acquire essential commodities from these three neighboring countries like fruits, vegetables, spices, dry fruits, minerals and metals, textile machinery, oil seeds, minerals, coal and its products, raw wool, iron, and steel articles. Additionally, imports from Iran include petroleum crude oil, LNG (liquefied natural gas), and LPG (liquefied petroleum gas). From Russia, Pakistan will import coal and its products, petroleum oil, LNG and LPG, fertilizers, minerals, and metals, wood and paper articles, plastic and rubber items, chemical products, iron and steel, and industrial textile machinery, as well as pulses and wheat.
The first shipment of Russian oil to energy-deficient Pakistan arrived in Pakistan in early June. These Russian oil shipments will be paid for in Chinese Yuan with Pakistan's U.S. dollar reserves dangerously low and Russia pivoting away from the U.S. Dollar. Pakistan's first government-to-government (G2G) deal with Russia consisted of 100,000 tonnes of crude oil, of which 45,000 tonnes were docked at Karachi port, and the rest is on its way. The arrival of ten containers of LPG in Pakistan from Russia through the Pak-Afghan border at Torkham also marks the beginning of a new trade route. It opens up opportunities for cost-effective gas supply to Pakistan. This will undoubtedly reduce power and energy tariffs, revitalize the manufacturing industry, and create more employment opportunities.


If Pakistan wants to be part of the global production networks and value chain, it must fully grasp economic corridors and cross-country partnerships.


Currently, Pakistan spends the biggest portion of its import funds, around USD 18 billion annually, on energy and fuel. The purchased quantity of discounted crude oil from Russia (approximately 1.7 million barrels) will save USD 40 million. The National Logistics Cell (NLC), in continuation of TIR (Transports Internationaux Routiers), commonly known as International Road transportation services, has successfully transported export goods to Uzbekistan and Kazakhstan via Afghanistan on June 7, traveling over 4000 km.
This is the first time a road convoy from Pakistan has entered Kazakhstan. TIR can potentially reduce the traveling time of goods in the region by 70-80 percent. This achievement is part of the government's policy to explore new markets in Central Asia by increasing regional connectivity. Previously in September 2021, the NLC TIR convoy also transported export goods to Turkey via Azerbaijan. The expected potential of transit cargo is around 70,000-100,000 containers annually if only 10 percent of Chinese trade with Europe is rooted in Pakistan. With the capacity building of NLC/transport fleet to handle the potential of transit trade, average profit can reach up to USD 15-20 million a month, making USD 240 million per year. 
To find cost-effective ways to import energy, Pakistan also imported cheap LPG from Turkmenistan via the land route through the Chaman border in May 2023, and the import of LPG from Iran is being considered via the barter system (trading rice for LNG). The first of six to be constructed, the ‘Mand-Pishin Border Sustenance Marketplace' will provide a platform for increased cross-border trade, fostering economic growth and opening up new avenues of opportunity for local businesses.  
Pakistan is about to finalize a free trade agreement that will reduce barriers to imports and exports, such as government tariffs, quotas, or prohibitions. The development comes as Pakistan looks to increase its exports and bolster trade relations with other countries to shore up its foreign exchange reserves. As per Pakistan Industrial and Traders Associations Front (PIAF), the barter trade mechanism signed between Pakistan and Iran during the Joint Trade Committee will create business opportunities and jobs and jack up bilateral trade to USD 5 billion annually. This would be a massive improvement over the USD 2 billion achieved between the two nations in the financial year 22-23.
These game-changing events have happened in a few weeks only. If pursued with consistency, good policy support, and earnest implementation for 5-7 years, these policies can rejuvenate businesses, create many job opportunities, and boost revenue generation in Pakistan by a staggering USD 27 billion.
Pakistan gradually realizes its position as a regional connectivity hub and the importance of geo-economics. Gwadar has a great strategic location, and this sand will become gold. However, for this dream to become a reality, Gwadar Port needs to become fully operational and handle much greater volumes of cargo than presently. This will only happen once all the planned Special Economic Zones (SEZs) are developed, and industries start operating and exporting products in both East and West. Without this, Pakistan will neither be able to tap the full potential of its location, nor will it emerge as the hub of production and export, irrespective of its will and infrastructure for regional connectivity.
Regional connectivity is expected to bring prosperity to around 3 billion people, including China, South Asia, Central Asia, and the Middle East. If Pakistan wants to be part of the global production networks and value chain, it must fully grasp economic corridors and cross-country partnerships. The success of economic corridors in Asia is based on how domestic trade and subsidy policy can be linked to SEZs and trade agreements. The barter trade mechanism is one of the significant modalities of the larger concept of regional connectivity, and to be successful requires a substantial capacity building of our agriculture sector, industry, and production capabilities. We can only barter if we can produce enough to export.


The writer has served as an Ambassador to China, the European Union, Belgium, Luxembourg and Ireland. She has also authored and edited several books including Magnificent Pakistan, Pakistan-China All Weather Friendship, and Lost Cities of Indus.
E-mail: [email protected]

Ambassador Naghmana A. Hashmi (R)

The writer has served as an Ambassador to China, the European Union, Belgium, Luxembourd and Ireland. She has also authored and edited several books including Magnificent Pakistan, Pakistan-China All Weather Friendship, and Lost Cities of Indus.E-mail: [email protected]

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