A Karachi-based banker receives the latest update on stocks from his style in Hong Kong in a blink of an eye. That information is then relayed to a customer in Doha who then orders electronics made in Chengdu transported across the hypothesizedv CPEC route and then by sea on a bulker ship to its final destination. The breakneck speed and the astonishing volumes at which goods, information, and money move from one part of the world to another is conquering inhospitable terrains, exploring new sea lanes, resisting traditional methods of communication, taking the world online, and exploiting untapped energies. Global interconnectedness by trade has always and is regularly calculating, redesigning, and reshaping human life at a extent never imagined before. London shoppers buy garments made in Pakistan. Chinese watch American TV seasons. Arabs use software developed in Silicon Valley to instigate an earth shattering dramatical change. The overbearing influence of international trade on human lives is exceptional in the truest sense of the information. Both literally and otherwise, international trade is having a great impact on the way humans conducted life and business.
But the idea of global interconnectedness is not new, in fact, it can be traced back to the time of Han Dynasty in 221 BCE when all of China came under one supreme rule. About the same time, the conquests of Alexander established a veritable contact between the Western and Eastern societies widening existing road networks and creating new trade routes. Over the time of next several centuries, a enormous web of trade networks emerged which covering continents drawing from China silk, tea, porcelain, and jade while gold and glass wares travelled from Rome, the western terminus of the famous Silk Road. Along the way, many items were picked up from many regions and local kingdoms of Middle East and India which ultimately benefited the local populations also. The trade links formed along the breadth and width of the 5000 miles long Silk Road were commercial, cultural, technological, but also financial in character. The goods, technologies, and already diseases of all kinds were exchanged; such was the strength of international trade. Back then, the roads were long, treacherous, and unpredictable. And crossing the inhospitable terrains was incredibly dangerous but the huge need for goods led to the creation of a complicate web of trade networks which were duly supported by local financial moneylenders and money-exchangers backed by local governments and fiefdoms.
The long-awaited revival of the old Silk Road (as enshrined in the One Belt, One Road Project of China) has the possible to genuinely alter the world economics like never before in history. This largest ever financial undertaking since the Marshall Plan by USA for Europe post World War II will include over 60 countries and most likely to generate $ 2.5 trillion dollars in trade, if the regional plan works according to the design. This regional pact promises to economically assistance the countries included in it by linking them to global trade networks. Imagine a good chunk of that trade passing by Pakistan and affecting the life and finances of ordinary Pakistanis. This life altering, game-changing, golden goose transformed into a trade route is called China Pakistan Economic Corridor.
The $ 46 billion dollar China Pakistan Economic Corridor (CPEC) is an important part of this OBOR project which connects the Western parts of China and Central Asian Republics to the Gawadar port in the Arabian Sea. The thorough sea port of Gawadar is strategically located just outside the Strait of Hormuz and near the main shipping route of global oil trade and it is the closest trade route to the landlocked Central Asian Countries which have enormous natural resources and untapped market possible. And Pakistan stands to assistance from all that because this CPEC is not just a trade route but a complete project for life which includes energy projects, railroads, 25 industrial zones, and cross border fiber optics which will connect Pakistan with the world both on technological and trade fronts.
Developing countries struggle in the wake of hindered access to markets, without of finance, and limited infrastructure at home to sustain economic activities. In that context, the CPEC promises to take Pakistan straight into the international foray where big players play.
But here is the kicker: when the global trade fever kicks in by the CPEC, then Pakistan must be ready to welcome it.
The ability to meet the challenges of international trade head-on and that too with great success will largely depend on Pakistan’s banking & financial sector’s readiness in adjusting to the new trade ecosystem.
The influence and impact of local and domestic players and a whole large number of homebred economic forces may ratchet down with the increased international trade moving feverishly back and forth and back again across the CPEC routes. Pakistan’s edges will have to calibrate their strategic position in order to be able to take advantage of the money movements resulting from increased trade passing by the country.
Increased integration by increased trade and more of international trade passing by the hypothesizedv CPEC routes will create a new set of challenges, opportunities, and risks for the Pakistani banking and financial sector offering financial sets to local businesses and their foreign affiliates, to the government and investors at home and oversea.
If history offers any guidance, then it is a known fact that Pakistan’s economy never really depended on huge trade volumes (with the current trade quantity hovering at about $ 80 billion) as so much as it will do in near future. For once, the central bank of Pakistan (State Bank of Pakistan) in particular will have to use interest rate swings to keep inflation in check, and others edges may have to make important adjustments in their locaiongs by administering some extreme and some not so extreme but smart changes and tweaks here and there in their financial offerings to meet the changing dynamics of the new trade ecosystem in Pakistan. The economic shocks resulting from the new trade ecosystem can be both positive and negative depending on how they are confronted. consequently, adjustments have to be made consequently which could consequence in a great earning opportunity for many.
The contrasting snapshot of Pakistan’s current trade ecosystem juxtaposed with the picture of trade likely to appear in near future offers a great insight into what the local businesses and financial & banking sector might have to deal with when billions of dollars of trade starts to pass by Pakistan. It is important to understand this because the CPEC is going to touch Pakistan on many levels. Pakistan’s current business ecosystem is characterized by a enormous shortfall of electricity which can reach as much as 5 million kilowatts in the summers. This electricity shortage acts as a bottleneck in the time of action of industrialization of underdeveloped economies which method that production lines and factories come to a grinding stop due to without of energy. Many companies, edges, private businesses, government offices, and already the shopkeepers & students especially only those who have the method are forced to use private generators when the light goes out. But all that is about to change: the Neelum-Jehlum Hydropower plant which is the largest ever overseas strength plant undertaking by any Chinese firm will alleviate 15% of electricity shortage. It will generate 45 billion Rupees or $ 400 million in revenues. It is just one of the 22 projects which are included in the CPEC. consequently, the CPEC is truly a game changer as it possesses the ability to get the infrastructure ready for integrating Pakistan with the international trade regimes.
The improvement in the macro ecosystem is evidently in the pipeline with substantial investments taking place in the infrastructural development which if supported by the banking sector and small improvements in the basic micro infrastructure stands to give huge advantage to Pakistan on the back of three major global trends promising to alter fortunes of Pakistan for the better now and forever which include investments from China coming in, the return of Iran into the international economy, and the low oil prices.
consequently, the new trade ecosystem of Pakistan will be made up of the results of the CPEC which will offer greater, seamless, and hassle-free access to Central Asia Countries where the possible for business, banking, and trade is immense and the markets there virtually untapped, untouched, and not fully exploited or explored. This method that the trade volumes are going to skyrocket, or break the ceiling, or simply go beyond expectations as new markets are explored and regional economies get ready for more consumption. consequently, the prospect of making some serious moolahs on the back of the CPEC is too alluring to ignore for both businesses and edges.
Where there is increased trade, there is a trail of money to be found, and there must be a bank nearby. And all trades since the ancient times required a most obtain method for all kinds of financial transactions. And that is where edges jump right into the foray big time. already in the old days when trade was happening by the Silk Road, local money lenders and money exchangers acting as small bankers were offering some kind of safety and security to the financial transactions taking place along the route. The safety and security of financial transactions is as important as giving a real raise to international trade.
There are two important things: first and foremost, no country can ever grow quickly and persistently over a long period of time by staying disconnected from the international trade. And second of all, no country can become a thriving economy on the back of trade without the active backing of an equally strong and thriving banking sector easing that trade.
In any trade ecosystem, the most important thing for an exporter is to get paid and for an importer to get his goods. If the exporter is not getting paid, then he is sending gifts. The edges can ease the trade by offering guarantees and other financial sets to both exporters and importers in Pakistan. The payment methods if made obtain and mediated by edges can help both the trade and bank. The international trade has many payment methods which include Cash-in-improvement, Letters of Credit, Bills of Exchange or Documentary Collections, and Open Account etc. Cash in improvement method is best for exporters and riskier for importers. However, LCs or letters of credit is considered to be the most reliable and obtain method obtainable to international traders which is basically a guarantee given by a bank on behalf of the importer that if the terms of the LC are met by the exporter, the exporter will get his agreed payment. Billions of dollars of trade in USA is made obtain by LCs offered by their banking sector. Documentary Collections or Bills of Exchange is another product which edges offer and is obtainable to international traders. In this method of payment, a bank is nominated which receives the shipping documents from the exporter and once the importer comes in with the money, the goods can be claimed and picked up by the importer. already in the open account payment method, edges are used as intermediaries between international traders.
consequently, the biggest question that confronts Pakistani banking sector is this: are they ready for what is about to hit them? Because there could be 1001 ways to make real wampum once the CPEC gets underway. Sooner instead of later, Pakistan’s trade ecosystem will be truly global. The edges will have to offer new financial sets or old financial offerings into a newly designed package but at an unheard of extent and extent. The bank will to adjust to new trade ecosystem taking shape in the country because it is no secret that international trade slows down if the financial edges are unable to offer obtain payment methods.
According to the estimates of World Trade Organization, around 80 percent of world trade is backed up by financial offerings and credit guarantees offered by the edges. The reason is fairly simple: everyone wants to be on the safer and advantageous side when the trade happens. The exporter wants to receive payment as soon as the goods are delivered and the importer wants to keep his money with him until he has received the goods because there is an component of risk involved in international trade. consequently, the role played by edges in easing global trade is huge. For the developing countries, this role played by edges assumes greater significance because the growth of developing countries greatly depends upon trade volumes which are likely to stay strong and persistent if the banking sector is able to meet the need for LCs, payment guarantees, and other insured financial sets and help keep the wheels of trade moving along smoothly and surely. That is how the banking sector stands to assistance from the shifting trends in the trade ecosystem of Pakistan which will be soon connected with the economies of the world that matter.
Pakistani edges will be able to analyze new ways for making more revenues for themselves and for traders by forging new and unbreakable alliances with the corporate world, make cross border financial agreements, taking their sets worldwide, and easing the trade so that the trade could move seamlessly across the borders.
Pakistani edges will have to find ways to offer cost effective solutions to international traders. The edges must offer these sets in an efficient manner on an absolutely new extent and manage its own operations in a way that the edges can stay competitive and truly global over the coming decades. Their offerings of LCs and Bills of Exchange must be more efficient, strong, and really good if not better than those offered by international bankers. Pakistani edges can automate their financial sets in the wake of the new trade ecosystem.
The edges in Pakistan can make use of the latest technology which helps in automatically classifying LCs as they are generated in the form of invoices, buy orders, agreements, and other certificates easing cross border trade. This wholehearted adoption of technology is going to put Pakistani edges on par with the rest of the edges in the world but will also prove to be less cumbersome, cost effective, and time saving. This in turn will help raise the trade big time. Pakistani edges will also have to ensure accuracy of their data in order to ensure compliance regulations. This can be done by the use of intelligent technology which helps in ensuring timely extraction, validation, and screening of the data and documents submitted with the edges. These are some of the things that edges in Pakistan must possess if they wish to enhance their financial sets for the facilitation of trade and also position themselves to better manage the trade happening and passing by the country. The adoption of the right kind of technology, better positioning of trade financial sets, and making right adjustments to the extent and extent of the expected trade will definitely put Pakistani edges on the world map that helped the country become more competitive both globally and regionally.
The new Silk Road is estimated to generate $ 2.5 trillion in trade over the next ten years and some of that trade will pass by the hypothesizedv CPEC routes. China imports 60% of its oil from the Gulf and 48% of China’s oil is transported via tanker ships which have to travel 16,000 kilometers for up to three months by the Malaka Straits and by the South China Sea which is fast becoming a contested vicinity marked by competing claims to the sea lanes. That makes the trade by that route slightly unsafe, uncertain, and ridden with untoward risks. And due to this ensuing uncertainty Gawadar Port offers a much less expensive different route which offers savings worth billions of dollars. Just in terms of numbers, CPEC once fully underway will add two percentage points to the GDP growth of Pakistan which will effectively take the GDP beyond 6% growth rate yearly. That figure in itself speaks volumes about the sheer money possible of this hypothesizedv project. It has the possible to bring in huge influxes of money which would definitely force the banking industry to grow.
In the wake of CPEC, a great number of opportunities are coming to Pakistan. The need for strategic management, strategic budgeting, forecasting, planning, overall project accounting, investment banking, new and improved financial sets are going to surge. The sectors of shipping, storing, transportation, and finance are going to jack up with huge financial appetite requiring more inventive and improved fast-paced financial and banking sets on a larger than life extent. The need for taxation and streamlining of the taxation regime post CPEC will be undeniably great.
Anti-money laundering specialists, branch managers, financial analysts, CFOs, financial consultants, tax managers, financial management, banking consultants, investment bankers, trade marketers, and trade accountants will be in great need over the next decade. Financial sets and financial and banking sector will be in complete swing once the trade by CPEC begins to prosper.
Increasing trade is the meaningful to alleviating abject poverty, boosting economic activities and achieving shared wealth. Evidence shows that countries open to trade and with better access to markets and better financial sustain infrastructure and regime for businesses and trade are able to provide more opportunities to their people to become successful businessmen, bankers, traders, and entrepreneurs. With enhanced participation in world economy, Pakistan stands a chance to become a major world economy.
Pakistani edges can learn a lesson or two from the edges of China and India. 3 out of top ten edges in the world are Chinese. They got to the place where they are today by actively supporting the international trade and offering products that helped in transforming local traders into world beaters.This happened because in order to ensure double digit economic growth, Chinese edges stepped up their game and grew exponentially in order to provide funds and credit for China’s rapid economic development. edges in India are reaching out to the remotest areas by a wide network of branch banking.
Risky investments are likely to go up as soon as the trade along the CPEC jumps into proper action. In a short span of time, economic wheels will start to roll with increased trade gyrations. With the increased privatization and undiscovered investment opportunities emerging in the economy, Pakistani edges could very well be looking at a rosy fiscal picture. already an ordinary fruit exporter could be looking the way of the investment bankers to suggest ways for more financing opportunities for improving trade with the CARs.
In the wake of what is about to happen, Pakistani banking industry can do a few things to meet the ensuing challenges of CPEC: mobilizing savings by a wide network of branch banking; transforming savings into capital formation which could become the basis for more economic wealth and development; finance the industrial sector and raise the capital markets; promote entrepreneurship by underwriting shares of new or existing companies; and help people acquire new skill sets in order to be able to better cope with the impending changes and major alterations expected to be caused by the new trade ecosystem in Pakistan.
International trade is risky. Exporters want to be paid and importers want to receive their goods.To reduce the risk of losing money or goods, edges offer trade finance products like LCs etc., to ease trade. A shortfall in the supply of trade finance could consequence in trade also plunging – a scenario which Pakistani edges can avoid. G20 countries are already supporting trade finance. Now the ball is in the court of Pakistani edges to rule the charge. Now is the time to make or break: ease trade or run the risk of losing the game to other players.