Rise Gwadar

THE opening of the Suez Canal in 1869 provided the British with a much shorter route to access their colonial possessions in India. With that, the importance of Aden as a transit and refuelling stop multiplied — sitting as it does, at the point where the Red Sea enters the Indian Ocean. The British made Aden part of its Indian holdings and by 1937 had turned it into a full-fledged crown colony. With that, Aden became one of the most important ship bunkering, trans-shipment and duty free ports in the world.

A direct conduit to western China could be many times more valuable in the event of a blockage in the Straits of Malacca.

A direct conduit to western China could be many times more valuable in the event of a blockage in the Straits of Malacca.

By 1967 decolonisation had almost run its course. Arab nationalism also peaked. When a local rebellion and uprising in Yemen forced the British to evacuate their naval base and ultimately get out of Aden, it was clear that its age of maritime pre-eminence was over.

Even before the oil riches had started to arrive in his little emirate, Dubai’s Sheikh Rashid Al Maktoum was envisioning Dubai as the alternative to Aden. As the British were evacuating from Aden, he began constructing a deep water harbour, one that could service the world’s largest vessels. Six years later, in 1972, Dubai’s Port Rashid opened. A few years later as the oil riches arrived, the world’s largest man-made port was constructed at Jebel Ali, opening Dubai’s second port in 1979.

That was followed in 1985 by the Jebel Ali Free zone, a veritable entrepôt; complete with a free zone, an industrial area and sprawling warehousing and logistic facilities. Dubai’s rise followed. Driven by political vision, executed on a master plan and enabled by a corporate structure, DP World, Dubai transformed itself into one of the world’s largest trading hubs that it is today.

Of course, Japan’s economic ascendency, followed by the Asian ‘Tiger’ economies and after 1980, the Chinese economic miracle, only bourgeoned Dubai’s fortunes as world trade also flourished. The key trade corridor now ran along the Southern Eurasian rimland, which starts in Aden and runs all the way to Hong Kong. Now sitting on this corridor, waits Gwadar.

Its military utility apart, from a commercial perspective Gwadar can claim three distinct advantages over Dubai and the other Gulf ports that have followed a similar template. It lies on the main route, without vessels needing to enter the Straits of Hormuz. It has a large hinterland, which includes Pakistan, Afghanistan and at some point in future, Central Asia. Third, it offers a direct conduit to western China, which could be many times more valuable in the event of a blockage in the Straits of Malacca, a critical bottleneck. Dubai on the other hand enjoys the huge advantage of incumbency.

Gwadar’s game plan needs to be ambitious, grandiose even. But hoping for things to fall in place by themselves is not good business strategy. ‘Build it and they will come’ is a dangerous mind trap. Gwadar’s success will depend on the quality of the commercial strategy it pursues.

The first key will be crafting Gwadar’s business model. This will detail how to make it a viable destination. It will include a marketing plan and an associated traffic forecast explaining how it will be achieved. Why will they come? What will they gain from coming here as opposed to going to other competitive ports in the region? Why would they switch from their traditional preference? The best consultants in the world cannot build your business models. That is a job the government’s own ‘Team Gwadar’ must do.A general view of Pakistan's Gwadar deep-sea port on the Arabian Sea

The second key to success will be to build the critical mass of vessel traffic and cargo handling volumes needed for the port operator to break even. Gwadar port’s business plan must achieve break even quickly. The port will drive the whole port city ecosystem, but only after it commercially takes off. The hard truth is that either it will achieve early commercial success or it will languish forever; like the railways where you have the infrastructure and even ready traffic but can’t seem to make it work.

As I see it now, critical missing pieces include rail and pipeline connectivity, a processing zone, a cargo break-bulk area as well as a coherent investment attraction strategy that would lure break-bulk operators from neighbouring ports to relocate to Gwadar.

As it proceeds to operationalise the port the government must think about the answers to questions like who will use Gwadar. For instance, why will a container destined for Afghanistan or China opt to land in Gwadar as opposed to say Karachi or the neighbouring Iranian port of Chah Bahar? The time to play in the sand is over. It is time to start talking specifics. And that means talking business.

2015 – Dawn Media Group


Regional connectivity

IT is easy to be wise after the event. And one such wisdom has it that our blocking India’s commercial access to Iran and Afghanistan was bad strategy. We have lost out on benefits that would have come from improved commercial and political ties among the regional states.

Decades of shunning economic interaction with a large next door neighbour, while linking everything to the dispute over Kashmir was also bad policy. India’s economic growth rate in recent years has galloped and we found ourselves fenced out from an economy with which all other trading nations were lining up to do business with.

Similarly, trying to cultivate proxies in Afghanistan has not paid any dividends. That adventure has gone horribly wrong.

These inelegant strategies resulted from a strategy formulation process that, as one of its flaws, did not take economics into account.

The IPI gas pipeline was one initiative that would have given the regional countries a stake in the other’s peace and stability while easing the energy constraint to economic growth. However, while that could not progress as a result of exogenous factors beyond our control, the others are clearly a result of our own bad choices.

In any event, the net result has been regional isolation. In a world where countries now trade mostly within their regions, we barely have any economic interaction in ours except for the Afghan transit trade.

The gradual opening up with India is a breath of fresh air. It has the potential to become a growth driver for Pakistan’s economy.

Another key strategy piece to advance regional trade is the Gwadar port.

However, six years since its inauguration this port has still not earned its first million dollars. In fact Gwadar’s true calling is to become the region’s break-bulk hub. Presently, this business goes to ports and associated economic free zones in the United Arab Emirates. But Gwadar trumps these ports because its hinterland extends much deeper — into Central Asia. Why hasn’t the government been able to attract break bulk operators to Gwadar? A business plan to make this happen should be an utmost urgency.

Further down, on the same shoreline is Iran’s Chahbahar port. Blocked of overland access, India, Iran and Afghanistan reached a trilateral understanding in 2003 agreeing to develop a north-south corridor that would link Chahbabar with Afghanistan. India helped upgrade the port and in 2005, built the Afghanistan segment of the highway linking to the Afghanistan ring road. This meant that all major cities of Afghanistan could now connect with Chahbahar (in addition to Bandar Abbas).

The development fuelled Pakistan’s paranoia of ‘encirclement’. When construction crews working on the site came under relentless attacks from Taliban insurgents and a number of Indian engineers and Afghan workers were killed, the stakes went up. Shortly afterwards, Pakistan’s Baloch regions experienced unrest with insurgents specially targeting energy infrastructure. The mutual mistrust deepened and the antagonism widened to include Iran and Afghanistan as well.

In 2009 the highway — Route 606 as it is known — was inaugurated and today is open and busy during daytime though not totally safe, so vehicles have to travel in convoys and with armed escorts.

The 3000-km Afghanistan ring road itself is a giant carousel with exits that branch out to Iran (at Chahbahar and Herat), to Turkmenistan, Uzbekistan and Tajikistan and to Pakistan (taking you to the Khyber Pass, the next one to Miramshah and the third one to Quetta). The proposed Trans Afghanistan pipeline or Tapi is planned to transport gas and its 1200 km journey from Daulatabad to Quetta will follow the alignment along the ring road.

A common regional vision needs to be developed within a regional matrix. It needs to serve the interests of the people that inhabit this region. All the regional countries stand to reap a substantial peace dividend if they can lower mistrust and mutual suspicions.

This will immediately reduce the levels of conflict and we will see trade, traffic and energy flow across national borders. Major initiatives can include extending land access, opening borders, building logistic infrastructure, and entering currency swap and free trade agreements.

Pakistan can gain substantially by connecting the Gwadar port to the Afghanistan ring road and get the port operating at capacity. It would also stand to gain from allowing overland access to the regional countries. A virtuous spiral of peace, economic activity and prosperity can be created that will heal wounds that have been festering for decades. And in this Pakistan has the most to gain.

2014 – Dawn Media Group