World Economic Outlook report by IMF stated that the MENA region will suffer a loss of US$ 323 billion due to COVID-19 and lower oil prices. It is equivalent to 12 percent of GDP of region. Although all countries of MENA would be impacted but the major losers would be oil exporting countries from Middle East. The outlook highlighted that energy export dependent countries will suffer a loss of US$ 295 billion. It has been foretold that oil exporting countries of region can lose revenue up to US$ 23 billion in 2020 due to lower demand of oil in global market. COVID-19 and lower prices will also introduce many other problems. For example, it will also give rise to debt of countries which will touch the figure of US$ 1.46 trillion. Fiscal deficit will be much higher and can reach to the level of 10 percent of GDP. The situation will be further complicated due to active conflicts in the region.
It will have spill over affect for other countries, as millions of workers from other countries are working in Middle East. The social and economic cost would be much more than these figure. For example, most of the Middle Eastern countries are dependent on the imported food to ensure food security. It has been warned by UN agencies and many organizations that due to COVID-19 the food trade and supply chains will be impacted. There is fear of escalation in prices of food, which will further aggravate the problem in the region.
The situation will become more complicated as the traditional partners of Middle East like USA, Europe etc. are also going through the worst attack of COVID-19. Their economies are also struggling to bear the shock. Millions of people have lost job, which will have severe implications for economy and consumption of those countries. On top of that the domestic energy market of USA will not allow it to help region, rather it will be a competitor. Therefore, traditional partners would not be able to help the Middle Eastern economies.
Hence, the region will have to look for new avenues for its economic revival and ensure availability of food and daily essential. Fortunately, CPEC has emerged as one of such avenues. Middle East has already experience to work China and Pakistan for decades. China is already engaged with region and in recent times it has emerged as the biggest trade partner and investor in the region. A report by BESA Center stated that the bilateral trade between China and Middle East has crossed the figure of US$ 294 billion. China’s investment in region has been exhibiting a positive trend and it has crossed the figure of US$ 93 billion between 2013-2019. In 2018 China at China-Arab Forum announced that it will be investing US$ 23 billion in oil and gas sector in Arab countries. China is also busy in striking deal with individual countries. China signed a deal of US$ 10 billion to invest in refinery in addition to copper, food, energy and other sectors. China has also signed deal with Iran for 25 years to invest almost US$ 400 billion in different sectors. China will be given preference for future bidding and investing in Iran. It has also signed deals with other countries in the region.
Pakistan is also a close ally of region. Millions of Pakistanis are working in different countries and are contributing billions of dollars in national economy. Pakistan is among one the bigger importer of oil from the region.
COVID-19 has provided an opportunity to further strengthen the relation. As all countries are facing problems due to COVID-19 and there is need of cooperation to revive the economies and give impetus to growth. Moreover, there is need to pool the resources and work together, as no individual country or region will be able to revive economy at individual level. In present circumstance, China-Pakistan Economic Corridor (CPEC) can provide an opportunity to pool resources, overcome the problem and revive economy. It would be a win-win proposition for Pakistan, Middle East and China. Middle East will be able to diversify their investment portfolios. The biggest catch for Middle East would be to ensure the food supply to meet the local demand. China will benefit by finding new place for export of their products to Middle East under the umbrella of CPEC. It will also help to ensure un-interrupted supply of oil to China through CPEC route.
However, to materialize the proposal China, Pakistan and Middle East will have to devise a formula to materialize the proposal. The entry point can be Special Economic Zones (SEZs). China and Pakistan should look for individual countries from Middle East to invest in different SEZs. Each country from the region should be offered a dedicated zone for cooperation. Then devise a formula for investment and benefit sharing. The investment should be divided in two categories, 1) construction of SEZs, 2) industrial development in SEZs. Second area of cooperation can be investment in backward linkages of SEZs. It will give impetus to local economy and will create good investment opportunities for all countries. The construction will also create good livelihood opportunities for un-skilled labour.
Third area of cooperation can be agriculture sector. For that purpose, Pakistan and China can look for ways to enhance the scope of MoU on agriculture and try to expand it to Middle East. Pakistan has vast land, China has technology and Middle Eastern countries have resources. It presents an excellent proposition for cooperation. Therefore, MoU can be refined on these lines. It would be extremely important and win-win scheme. As China and Middle East both are looking for quality food and Pakistan is looking for investment in agriculture to modernize it.
Fourth, all partners can work to identify areas for work to benefit from the Fourth Industrial Revolution. The MoU on Science and Technology under CPEC provides a good opportunity to start the work. The cooperation will help Pakistan and Middle East to lessen reliance on Western markets. It will also help to create domestic capability to benefit from the fourth industrial revolution.
Lastly, to materialize all these proposed intervention China, Pakistan and Middle East need to work on the possibility to transfer the CPEC into a tri-lateral venture. The starting point can be to work on possibility to establish a “CPEC-Middle East Forum” like China-Arab Forum.