Spearhead Opinion – 19.02.2019
By Farrukh Karamat
Senior Research Coordinator, Spearhead Research
The Saudi Crown Prince, aka MBS, made his much awaited visit to Pakistan amidst much fanfare by the Government. The trip was delayed by one day and lasted for less than a day. No effort was spared to welcome the esteemed visitor in a truly Royal style. The Prime Minister himself drove MBS to the Prime Minister House, where arrangements had been made for his stay. A Guard of Honour was presented by the Armed Forces followed by a dinner and a lunch at the Presidency, where MBS and the Prime Minister travelled in a horse drawn carriage escorted by a smartly turned out contingent of the President’s Body Guard. The opposition leadership was deliberately barred from attending the dinner, as they were not deemed fit for the occasion, based on the cases pending against them. Apparently Islamabad was brought to a standstill as the Schools. Offices and Businesses remained closed and Section 144 was in force, with disrupted cell phone services. This was on top of the security arrangements made by the Saudis with their own team that had been flown in to ensure ‘foolproof’ security for MBS.
The Prime Minister in the joint press conference stated that if MBS had contested the elections today, he would have gotten more votes than the PTI Prime Minister. He also said that the Prime Minister House would always be available for the stay of the Saudi Crown Prince whenever he chose to visit Pakistan. In effect this means that the option of converting the Prime Minister House into a University has been shelved and it is now designated as a Royal Residence. The Saudi Crown Prince hinted at Pakistan being a part of the Greater Middle East on the eastern border – a significant statement given the current regional political situation.
Then came the signing of the Memorandum of Understanding (MoU) for potential investment by the Saudis in Pakistan totaling around US$20 Billion, including an oil refinery in the Gwadar area. The Saudi Foreign Minister in a separate press briefing categorically stated that the proposed investment was based on the viability of the projects and the potential of Pakistan, and should not be construed as Charity.
It should be clear that a “memorandum of understanding (MOU) is a nonbinding agreement between two or more parties outlining the terms and details of an understanding, including each parties’ requirements and responsibilities. An MOU is often the first stage in the formation of a formal contract.”
While the Mou’s are a welcome step for the potential development of the Oil, Power and Tourism sectors, they are far from final and will have a relatively long gestation period. To put the scale of investment in perspective, Saudi Arabia is currently investing US$44 Billion in an oil refinery in India and the focus of the current visit of the Saudi contingent to India is on Trade and investment as the Kingdom diversifies out of Oil. The proposed investments are a welcome step and one hopes that these will convert into final agreements and investments, it is a medium-to-long term venture that will take time to materialize. Till such time that the details and terms of the MoUs are made publicly available it is hard to assess their actual impact on Pakistan’s economy or comment on their viability.
The PML-N led government focused on China with the initiation of the CPEC-related investments and projects. A lot of work was accomplished, some good some questionable based on the opacity around the terms and the associated costs of those projects. There is still apprehension that Pakistan will actually not be a net gainer from CPEC investments and the local industry might be further diminished in the face of the Chinese competition. Also, the high rates of return on power projects would raise the cost of utilities to an extent that these might create a major affordability issue. Unfortunately, Pakistan in the absence of CPEC had no growth drivers available at that time and opted for it and agreed to the Chinese demands. The question of greater clarity on the projects has been repeatedly raised by different quarters but to date most of the projects remain shrouded in mystery.
The proposed Saudi investment is now emerging as the next growth driver in the absence of any viable alternatives as Pakistan has focused on the Gulf countries for assistance. It is imperative that the terms of the investment are debated as these could carry costs for the people of Pakistan and the relevant stakeholders including the business community. No agreements should be finalized that places the local industry of Pakistan at a competitive disadvantage or burden the people of Pakistan with high costs.
The Saudi investment comes at a time when Pakistan faces a difficult geo-political environment. The situation in Afghanistan in unstable and likely to deteriorate in the wake of the American withdrawal. The Indian government has adopted a belligerent attitude prior to the upcoming elections as Modi seeks to be reelected on the back of an anti-Pakistan tirade. Iran is being targeted by the United States and Israel and they are trying to garner support through friendly Middle Eastern states. Just prior to the visit of MBS to Pakistan there was an incident on the Iran-Baluchistan border where 27 people lost their lives in an attack on the Iranian Revolutionary Guards. At the same time there was an attack in Pulwama India in which some 44 soldiers were killed. Both these attacks were significant in the context of the visit of the Saudi Crown Prince. Pakistan needs to tread carefully to avoid being drawn into a potential conflict that is not of its own making against any neighbouring country, and at the cost of its own security. Use of Pakistan’s territory against any neighbouring country should not be allowed at any cost and economic benefit should not over-ride such considerations.
The Saudi investment in Pakistan would be a welcome and much-needed step. The country faces an immediate economic crisis where it is being forced to borrow to meet short term liabilities, as the Government tries to stabilize the macroeconomic vulnerabilities. However, a long-term plan needs to be put in place at the earliest to bring about improved investor sentiment, something which so far has been lacking. With the visit of the Saudi Crown Prince there are strong indications that we are leaning towards the Gulf countries for economic assistance, and history teaches us that we should be vary of becoming embroiled in a battle that is not ours to fight. It is all very well to envision a welfare state based on the principles of Riasat-e-Madina, but we should assert our independence and not aim to become a Riasat of Madina.