Tag Archives: energy

Good Governance in Pakistan is Crucial for Greater Trade

Despite new export opportunities, Pakistan's textile factories are shutting down due to energy shortages. (Photo: Dawn)

Despite new export opportunities, Pakistan’s textile factories are shutting down due to energy shortages. (Photo: Dawn)

Huma Sattar was a CIPE-Atlas Corps Think Tank LINKS Fellow at the Heritage Foundation

Successive governments in Pakistan have shown profound interest in increasing trade with the rest of the world by pursuing various trade and investment agreements. From a significant Free Trade Agreement (FTA) with China signed in 2006 which will soon enter its second phase, to a trade and transit agreement with Afghanistan, as well as several free or preferential trade agreements with Malaysia, Indonesia, and Sri Lanka, Pakistan is also negotiating possibilities of trade agreements and cooperation with Turkey, Thailand, and the ASEAN region. The country is also part of the regional trade agreement South Asian Free Trade Area (SAFTA) together with India, Bangladesh, Afghanistan, Nepal, and other South Asian countries. Though the agreement is not yet fully operational, it is a source of much discourse and tremendous unrealized potential for all countries involved.

Pakistan’s trade has increased overall, going from $24 billion in 2003 to $72 billion in 2014, and opening Pakistan’s markets may be a positive indicator of some improvements in Pakistan’s economy.  From importing primarily oil and fuel products, Pakistan is now also importing machinery, electrical and electronic equipment, and industrial inputs. The industrial sector, particularly large scale manufacturing, witnessed a growth of about five percent in fiscal year 2014.

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Time to Re-Think Development in Africa?

Naledi Modisaatsone is a CIPE-Atlas Corps Think Tank LINKS Fellow at the Urban Institute.

Africa is in the news. The U.S.-Africa Leaders’ Summit is being held in August, the first of its kind. President Obama will be welcoming leaders from across the African continent to the nation’s capital in less than two months. The summit holds many promises; it could mark a turning point in U.S-Africa relations.

While there are many issues that can be discussed, not all of them should be on the agenda for this summit. To achieve the maximum benefits, it is very critical for African leaders to prioritize just what to put on agenda, and what to leave out. It is tempting to want to bring all the issues, but highly focused interactions are more successful. Topics for discussion should reflect the most critical issues regarding African economies and address challenges to sustainable growth and development.

One important issue is private sector development. Development finance and private sector entrepreneurship are powerful, but under-utilized, assets for development in Africa. While most countries have set goals for inclusive growth, they will not be achieved without better harnessing private sector resources that are ultimately the drivers of development.

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Energy Sector Short-Circuiting Economic Growth in Lebanon

Panel on energy reform. (Photo: Wilson Center)

Yesterday, CIPE, in partnership with the Safadi Foundation, Stanford’s Center on Democracy, Development, and the Rule of Law, and the Woodrow Wilson International Center for Scholars, held a conference entitled “In the Middle of the Storm: Development and Governance in the Arab World.” As part of the conference, CIPE Executive Director John D. Sullivan moderated a panel on energy reform and economic development in the Arab world.

During the panel, Safadi Scholar of the Year Katarina Uherova Hasbani presented a paper on electricity sector reform in Lebanon. Hasbani described electricity provision in Lebanon as woefully inefficient. According to Hasbani, due to an inefficient state electricity monopoly, Lebanese households and businesses deal with blackouts that average six hours a day. With a quarter of their needs unmet by the state, those who can afford them employ generators to fill the gap.

This arrangement causes significant social and economic harm to the country. Businesses and households must pay more for poorer service. Aside from the harmful environmental impact of generators, their high cost widens socioeconomic inequality by making consistent electricity a privilege of the wealthy and “well connected.” Finally, subsidies to the state-owned Electricite du Liban, which absorb 20% of the annual state budget, drive up interest rates on loans that could otherwise finance job-creating enterprises.

This status quo is unsustainable. According to Hasbani, Lebanon needs to form a broad-based coalition that includes members of government, the private sector, and civil society to develop a more efficient national energy strategy and implement it.

Lebanon is not alone in its energy sector shortcomings. Panel member Inger Andersen, vice president of the Middle East and North Africa division of the World Bank, painted a dire picture of the dampening effect of shoddy service provision on the ability of people throughout the region to open businesses and grow them to create jobs.

According to Andersen, the average business in the Arab world must wait nearly two months to be connected to the power grid and spend an exorbitant amount of money for electricity that is frequently and often unpredictably interrupted. The cost to the average business in the Arab world of this shoddy service is about 4.3 percent a year.

Poor energy sector governance is symptomatic of larger governance shortcomings in the region. During the panel, Under Secretary of State for Economic, Energy and Agricultural Affairs Robert D. Hormats pointed to a heavy state role in the economy as a major factor hindering entrepreneurship throughout the region. According to Hormats, longstanding economic problems coupled with the dislocation of transition have produced stagnation that could threaten transitions to democracy.

Throughout the Arab world this year, people have called for a change far deeper than a reshuffling of leaders. Rather, in calling for freedom, dignity, and opportunity, people in Arab countries have demanded a new social contract. While energy sector reform may not grab the headlines that national elections and the formation of new political parties can, it is nonetheless a key piece of rewriting the social contract in the Arab world.

Under the old contract, Arab governments controlled the allocation of services and jobs in order to co-opt support. This social contract produced shoddy services and economies incapable of delivering widespread dignity.

Under a new social contract, citizens will most likely hold governments more accountable for their ability to protect their political rights. They will also demand that those governments allow them the opportunity to prosper, too. Better governance is essential for creating that environment and honoring that contract.

Advocating for Energy Reforms in Pakistan

Pakistan's private sector seeks to diversify the country's energy supply. Pictured is a diesel power plant in Pakistan. Photo: http://www.power-technology.com/

Pakistan’s inability to generate enough energy is one of the key reasons for slow economic growth in the country. Pakistan generates around 10-12,000 megawatts per day, which is not enough to meet the demand for over 20,000 megawatts. Circular debt and lack of investment in power plants have prevented the country from meeting its energy demands, leaving business, industry, and regular citizens to suffer.

In fact, regular power outages ranging anywhere from 4 to 12 hours a day are becoming a norm. There have been protests across the country, some resulting in violence and deaths.

Pakistan’s business associations estimated earlier this year that the ongoing energy crisis may lead to 1.6 million job losses. Refusing to stand back and watch the economy suffer, they launched an advocacy effort to reform the energy sector and attract the needed investment to increase power generation.

As a result of continued pressure from business associations, in April this year President Zardari formed a taskforce to look into power sector reforms in the country. After months of work, last week the National Assembly of Pakistan finally passed a law to facilitate investment in the power sector. According to the law:

There is also a shift in emphasis from thermal to hydel and coal-based power generation, and private investors are already showing interest in undertaking such projects. For this purpose, PPIB [Private Power & Infrastructure Board] will be required to play a more proactive role in power sector, which is being transformed into a competitive power market in Pakistan.There is growing realisation in power sector of Pakistan that for the envisioned objectives to promote, encourage and facilitate private investment in private power sector and for that matter to implement the Power Policy, a permanent statutory body must be created to fill in the current legal and administrative vacuum that is bringing about various technical, legal and administrative issues.

For the past several years, CIPE has brought chambers of commerce together at an annual presidents’ conference to get the business community to coalesce around a common set of issues and become a voice for reform in Pakistan. This year’s meeting ended with a declaration on much needed reforms in the energy sector, which are beginning to bear fruit with a passage of a new investment law.