By Hassan Arshad Chattha
The world seems to be fixated on the ambitious logistics of the Belt and Road initiative and the breathtaking Chinese economic development of the last couple of decades. Due to the focus on those aspects, some details vital for developing nations are overlooked.
China has been successful in tackling and avoiding many problems that seem to have a stranglehold on the economies of developing countries and it is of great importance to understand the manner in which those problems were handled. The key focus on OBOR/CPEC and related projects remains fixed on the massive investment of over $50 billion dollars into Pakistan for development and economic uplift ranging from the infrastructure, economic development, and the power sector.
However, it is possible for Pakistan to achieve something of even greater potential through this 'once in an era' opportunity. Pakistan has the opportunity to learn immensely from China as through its phenomenal economic growth, China also underwent great socio-economic changes as well and has been incredibly adept developing and harnessing its massive human resource advantage to the fullest.
Pakistan needs to get into the fundamentals and can resolve core issues that are a chronic impediment to tangible and sustainable growth. The issue that any country desirous of positive economic and socio-cultural change needs to tackle is that of taxation. This is an area in which Pakistan, and many other developing nations have tried to make some meaningful strides over the decades but progress has largely been of the one step forward, two steps back variety.
Pakistan's taxation problem is directly linked to vast undocumented economy that functions in the country and renders most tax and economic reform redundant due to the veiled nature of the undocumented economy. One key factor in the resilience of this economy is the prevalence of a paper currency based society in Pakistan.
Current figures put the Pakistan economy at the $250 billion dollar mark, with estimates by experts claiming that the black economy accounts for an astounding 36% of the size of the documented economy. To make matters even worse, later figures obtained through different methodologies by experts at the PIDE (Pakistan Institute of Development Economics) peg the informal economy at a shocking 74% to 91% of the formal, reported economy. This basically deprives the state from a sizable chunk of tax collection, and renders most economic growth very difficult as the state implements dizzying levels of indirect taxation, toxic foreign loans and cutting off development projects to cover expenses. Often times, programs pertaining to education and human resource development are the first to get the axe as those ramifications take time to manifest themselves.
For a country with a tax-to-GDP ratio hovering at 8-9% (much lower than the regional average), these are quite worrisome facts and figures. Similar conditions prevail in India, which recently tried a drastic measure borne of desperation to cut down this issue by removing large denomination currency from the system in a poorly implemented manner, much to the chagrin of the populace.
China took a very different approach and rather than use coercion, it managed the seemingly impossible through convenience. Using technology, and ubiquitous smartphone apps, the Chinese managed to turn the majority of their consumer and retail culture into a cashless, digital, app-powered model. Applications such as WeChat and Alipay offer everything from simple payments, online shopping, purchasing of travel and tickets, online banking, to retail and utilities payments as well as wealth management into one unified, safe, hassle free and fast platform that is ubiquitous. Immense benefit may be reaped from implementing such a system on both micro and macro economic levels for countries like Pakistan.
Rather than forcing poorly implemented draconian measures (though that might also help), the Chinese used technology to leapfrog from paper to digital, cutting out for the most part the plastic (credit card) phase. The combined user bases and regular users of these apps are close to 1 billion. That is a sufficiently large portion of the population that is plugged into the system and prefers the convenience over everything else. This has been so successful that tech giants of the west are also scrambling to implement something close to this system with initiatives a'la Apple Pay and Samsung Pay.
Of course, it is understandable that this is just one aspect of a much more complex issue, but this is one that can be implemented the least painlessly and also enables other benefits with great future potential through vital data collection that has previously been impossible.
These systems though do exist in some rudimentary form in developing countries such as India and Pakistan but it is the typical Chinese holistic implementation and political willpower that makes it very effective. Also, it would be prudent to seek practical and technical assistance in these matters from those that have successfully implemented them to avoid reinventing the wheel through trial and error.
Thus, it can be said that if developing countries like Pakistan pay attention to the true potential offered by understanding its own problems and its closest allies' solutions for them, it can take steps to fundamentally alter its socio-economic prospects for the better, and therein lies in the true potential of the OBOR/CPEC initiative.
The author is an analyst with a background in journalism focused currently on transition of legacy media to the digital realm, who is currently a senior visiting fellow at the Renmin University of China. email: email@example.com