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ECO403 Macroeconomics GDB Solution Spring 2013

The Case:

The port of Karachi is one of the South Asia’s largest and busiest ports handling about 70% of nation’s cargo while Gwadar port holds immense potential to meet Pakistan’s trade logistic. Gwadar port can also handle more cargo and trade than Dubai port because it is a deep sea port. This port is located at the mouth of the Gulf and is a gateway to both China as well as central Asia and this route is indispensable for oil trade. Nearly 19 million barrels of oil passes through this route daily but we are still thirsty and under developed.

After new government, for transportation, Beijing has agreed to spend millions of dollars to accomplish the 900-km road linking Gwadar to Indus Highway. China is one of the top economies of the world- expanding at the rate of 9% every year with a trade volume of $1.76 trillion, performing a key role to develop these projects.

Requirement:

Keeping in view the above situation, if we construct Gwadar port and Gwadar to Indus Highway, how this situation would affect Pakistan’s economy. Explain logically.

Solution:

Expected Economically affects of Gwadar port on Pakistan.

Running a port used to mean serving the import and export needs of a well defined hinterland, like Pakistan’s domestic ports have traditionally been doing. Pakistan’s decision to build the Gwadar port was driven by the projected requirements of trade, expanding requirements of transshipment ports, and most importantly, global lust for a strategic alternate to natural resources. The Gwadar port is being build to handle not only domestic trade, but to act as a transshipment port, which besides boosting trade volume generates additional revenue just by handling some one else’s trade.

It is worth noting that for a majority of the world’s top economies, sea-borne exports alone make up over 10 percent of the national income. Hong Kong’s port contributed over 20 percent of the country’s total 161.5 Billion Dollar GDP in 2002, and Dubai’s trade was 16.5 percent of a $20 billion economy. The port of Salalah, which started just five years back, broke the world record twice for the number of container moves achieved per hour and is now earning over $58 million through handling of transshipment trade.

In the Soviet era, millions of tons of cargo a year passed from Europe to Iran via the Soviet Union and India. If revitalized, this corridor is likely to generate around 15-20 million tons of freight annually, and annual trade worth $10 billion, and the Gwadar port is suitably located to attract this trade. In addition to revenue generated through port operations, toll collection will be another venue for resources. The flow of 10-15 million tons of Central Asian trade would generate millions of dollars per year in taxes and services. Large volumes of trade from western provinces of China are also expected to be routed through the Gwadar port, generating similar amounts of revenue.

The Gwadar port will bring an industrial revolution in the area and generate thousands of jobs. A large support and services setup will also evolve along the entire path of trade flow, generating income opportunities for a large population. In countries like Pakistan, a single job is the means of living of entire families of average 4-5 family members, which would translate into income for millions of Pakistanis. Another facet of this development is the demographic change that would occur at Gwadar and its surrounding areas, relieving population loads at major cities like Karachi. It is a basic fact that the coastal areas achieve faster growth than do the inland areas.

The Gwadar port is still in its infancy and only assumptions can be made to establish the volumes of trade expected to flow through the port and corresponding revenue generation. The interpolation of above estimates I suggests that the Gwadar port has the potential to attract great volumes of trade, generate thousands of jobs and gather significant revenues. Given the potential, it is confidently argued that the Gwadar port will help to revive the economy of Pakistan. Translation of this potential into economic gains dictates that the port and its ancillary projects are handled professionally through carefully articulated policies.

 

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