Gwadar & Chabahar: Competition of what?

When it comes to markets, fear and greed are in charge. When it comes to geo-politics, the sentiments in charge are still fear and greed, but their real boss is romanticization. Modern history is replete with examples of how the European colonizers romanticized about Asia, Africa and South America. Tomes of exaggerated reflections by European travellers were published that laid the foundations of European colonies. Closer to home, the fabled Silk Road (as if it was merely one road) kept historians fiddling with romantic notions of trade and bazaars in the scenic valleys when in fact life along the fabled silk route was often nasty, short, and brute.

Fast forward to today’s day and age and one finds that the discourse on geo-politics is led by fear and romanticization than economic reason. Since the day India, Iran and Afghanistan made a deal on Chabahar, Indian, Central Asian and Pakistani press are in frenzy; some in fear, some in optimism. The whole story is being romanticized with notions that India is balancing Sino-Pak presence in the Indian Ocean and that Chabahar will compete with Gwadar. But nobody is asking: competition of what?

Many years ago, when India’s interests in Chabahar were still on paper, and CPEC did not exist, the Delhi-based Institute for Defence Studies and Analysis warned that “Gwadar port being so close to the Straits of Hormuz also has implications for India as it would enable Pakistan to exercise control over energy routes. It is believed that Gwadar will provide Beijing with a facility to monitor US and Indian naval activity in the Persian Gulf and Arabian Sea, respectively, as well as any future maritime cooperation between India and the US.” As if Pakistani navy had no presence in Balochistan’s coastline before CPEC; and as if (if Beijing is really to have its naval force in Gwadar post-CPEC) the size of Delhi’s navy is a match for Beijing’s. Such notions are out of place with reality.

More recently, following the Chabahar deal, commentators at home and in India thundered that India-Iran-Afghanistan troika will give tough competition to the China-Pakistan axis emerging at Gwadar port. But how exactly?

True that India wants to invest $20 billion in Iran to develop Chabahar along with a downstream industry including LNG plant and plus petrochemical and fertiliser industries. So what? Doesn’t China have more financial muscle? Even when Iran was under sanctions and China had not explicitly rolled out its One-Belt-One-Road project, she had invested more in Iran than India did. According to UNCTAD data, Chinese stock of FDI in Iran was $2.07 billion in 2012 (the latest numbers available online), the biggest by any country in Iran. The second-biggest FDI stock was by South Africa at $549 million. India’s was so small that it didn’t even feature in Iran’s FDI stats. And just to put Sino-Iran investment relations in context, China’s total outward FDI stock in India and Pakistan was $1.1 billion and $2.2 billion as of 2012 respectively.

Recall also that China has been crucial in assisting Iran escape deep isolation by helping it become a part of global economy through the conclusion of the Joint Comprehensive Plan of Action. Acting as an arbiter between the US and Iran throughout the P5+1 negotiation, Beijing played a crucial role in helping Iran back up. In addition, Beijing had also supported Iran’s nuclear policy; it had turned a blind eye to Chinese contractors who supplied sensitive technology and material to Tehran for its nuclear programme and also secured international recognition for Iran’s ‘right’ to enrich uranium for peaceful purposes. Little wonder that Iran’s Supreme Leader Ayatollah Ali Khamenei was recently reported as saying that Tehran has “never trusted the West” and wanted to increase ties with “more independent countries” – like China.

Meanwhile, bilateral trade between Iran and China has grown from $4 billion in 2003 to about $53 billion in 2013; and it is only going to grow north as both sides have recently agreed to increase trade to $600 billion over the next ten years. By comparison, India’s trade with Iran has averaged about $14 billion in the last six years. Need one say more?

While these facts are suffice to shun the notion that Iran can afford to alienate China, there are sufficient reasons to believe that Chabahar is not in competition with Gwadar. The latter is to provide gateway to Chinese trade, the former is to provide India an access to Iran, Afghanistan and Central Asia. Not only are both ports aimed to cater to different markets, the numbers just don’t add up.

China’s trade-to-GDP ratio averaged about 45 percent in the last five years, according to World Bank data; whereas that of Afghanistan and Central Asia averaged between 45-90 percent (varying from country to country). However, the sheer size of Chinese economy (more than twice of India’s and Russia’s GDP combined) means that Chinese trade potential via Gwadar is far more than India’s trade potential with Iran, Afghanistan and Central Asia via Chabahar.

Then there are notions that India-Iran nexus will mean that Gwadar project will be meddled with through spy networks. But a few facts must be kept in mind. Pakistan army is closely involved with CPEC; it is in the army’s interest that CPEC is successful because that would mean expansion of Pakistan’s economic pie and therefore the army’s pie. Also, Chabahar is part of one of Iran’s most volatile regions where anti-regime Sunni insurgents have historically launched repeated attacks. If Iran wishes to play a meddling hand; then two can play that game, for if there is anything Pakistan is good then it is ‘strategic depth’, not that this column advocates it.

Some also fret about Chabahar’s advantage over Gwadar in terms of transit of goods to Afghanistan and Central Asia. But Gwadar isn’t being developed for Central Asia’s transit trade in the first place; it is being purposely built for CPEC; transit trade potential for Afghanistan/Central Asia will only be a by-product. In any case, by passing Pakistan by India and Afghanistan/Central Asia for access to Afghanistan/Central Asia and the world respectively is just bad economics. To that end, if and when Pakistan fixes its transit rules, regulation and practise (and pray it’s soon), Chabahar would face a dent. Also, with TAPI and CASA-1000 finally rolled, and considering that China is the biggest foreign investor in Afghanistan, Kabul would be playing bad economics if it insists on strategising against Gwadar (and therefore CPEC) because that would risk irking China.

The West can give all the aid it wants to Afghanistan but investments can stimulate economic growth in a way that aid money alone cannot; and investments in Afghanistan are being brought by China. Andrew Small whose recent book caused quite a stir aptly said that “China is the only actor which can foot the level of investment needed in Afghanistan to make it succeed and stick it out.” Already China has signed contracts to invest $4.4 billion through its two state-owned companies in Afghanistan’s copper industry, in addition to signing a $7 billion oil exploration pact. Recall also that Afghan President Ashraf Ghani sees Beijing as a strong support, and is influenced by his experience in dealing with China from his days at the World Bank.

The bottom-line is that there is no point glorifying Chabahar against Gwadar; both serve different markets. As far as geo-politics is concerned, China is the stabilising force in the region by way of sheer economics, and China seems to be on Pakistan’s side – at least for now. To say that the two ports will become a source of rivalry between China and India implies that both powers are equal, which they are not. China is too big to be alienated by anyone in this region, and to that end Pakistan is doing the right thing by doling out tax incentives and an open field to Chinese players.

If there is anything that Pakistan should be afraid of, it is not Chabahar, it is the freight train from China that recently pulled into Tehran via Central Asia. That route was a month shorter than sea route, though it is unclear whether the time saved is worth the cost difference between shipping and rail transport.

If CPEC is rolled out with speed and success, if ease of doing business is ensured, if Gwadar and western route is build on urgent basis, Chabahar stands in no competition to Gwadar.

The powers that be need to resist committing diplomatic faux pas (such as irking Iran by tweeting about RAW agents while the government plays host to Irani leaders). They also need to allow India to trade via Pakistan and thereby chip away that little transit trade competition that Chabahar may offer to Gwadar. Hopefully, good economics will prevail!