mood-of-the-moment

The CPEC Question

By: Editorial Team
Published: April 1, 2017
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The China-Pakistan Economic Corridor (CPEC) has taken centre stage in Pakistan’s economic landscape and is being described by nearly everyone as a game-changer.

The country is becoming increasingly attractive for investors and economic partners, with everyone seeking a windfall from the changing dynamic.

With a population of 1.3 billion, China has recently become the second largest economy in the world and is increasingly playing an important and influential role in shaping the global economy.

With its rapid economic and social development and GDP growth averaging nearly 10 percent a year, China has lifted more than 800 million people out of poverty and reached all the Millennium Development Goals (MDGs) by 2015.

Many developing countries eye China’s rapid transformation, from a sluggish centrally-planned economy to a vibrant market-based economy, with some envy. A

nd Pakistan is in the process of riding the wave of China’s success.

But the Pakistani business community and several economic analysts have started asking questions about the terms and conditions of the Chinese investment.

Is it largesse or a heavy loan? Will Pakistani entrepreneurs gain from Chinese collaboration or will they be wiped out?

Prime Minister Nawaz Sharif’s government has been accused of lack of transparency in negotiating multi-pronged deals with China.

While the project promises future economic prosperity and stability, many questions remain unanswered by the government.

Narratives’ talks to a cross section of the business community and analysts to determine the mood of the moment for the vaunted CPEC.

Strategic Integration

Sardar Shoukat Popalzai, President of Balochistan Economic Forum

The CPEC is a star project. Its energy and infrastructure development programmes under One Belt One Road imitative are going to be a game changer in the region and a pillar for much needed economic growth in Pakistan.

It is certain that Pakistan has put all developmental eggs in the CPEC basket.

CPEC will offer an economic boost to the underdeveloped province of Balochistan, and much needed infrastructure to capitalise its resources for improved economic growth and regional connectivity; railways, airport, roads and ports will aid the Free Trade Zone at Gwadar, linking it to Kashgar in China.

Development in Balochistan province will shape the national economic agenda as Balochistan has 16 CPEC projects and recently 12 new projects were also included.

It’s necessary to gain the confidence of the people of Balochistan by publicly sharing details of all the CPEC projects as a majority of the people living outside Balochistan are ill-informed

One would never come across many people who oppose development and mega projects in Balochistan. Their only concern has been whether these projects are really going to improve the socio-economic conditions under which the people of Balochistan live.

It’s necessary to gain the confidence of the people of Balochistan by publicly sharing details of all the CPEC projects as a majority of the people living outside Balochistan are ill-informed about the situation in the province, especially since many issues are not discussed in the media.

PRESENTLY KNOWN DEVELOPMENTS UNDER CPEC

  • 1,100km roads are being constructed in Balochistan
  • 60 countries are likely to invest in Gwadar
  • A Chinese company is to start work on the Quetta Mass Transit

Train (QMTT) Project, 48km QMTT from Spezant to Kuchlak, the QMTT funds will come from CPEC kitty

  • The Ashgabat agreement is a multi-modal transport agreement between Oman, Iran, Turkmenistan, Uzbekistan, Kazakhstan and Pakistan including India for creating an international transport and transit corridor facilitating transportation of goods between Central Asia and the Persian Gulf; CPEC routes from the province of Balochistan would supplement such developments
  • The Shanghai Cooperation Organisation (SCO) is an intergovernmental body founded in Shanghai in 2001, comprising China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, which looks at Gwadar very positively
  • Economic Cooperation Organisation (ECO) will look for opportunities in the Balochistan province
  • There are three major pipeline projects on the books, the merging point of all these three pipelines will create opportunities for the province of Balochistan particularly downstream industries such as oil refinery, fertilizer plants and petrochemical, etc.

CPEC JEWEL

Gwadar is located on the southwestern coast of Pakistan, close to the Strait of Hormuz in the Persian Gulf, through which more than 13 million bbl/d of oil passes. It is strategically located and  will pave the way to the generation of billions of dollars in foreign investments in the state-of-art port city of South Asia.

There are many challenges in doing business in Pakistan, ranging from unresponsive bureaucrats, inadequate infrastructure and a pre-modern mind-set among much of the population, to name a few.

Balochistan province presents many of these challenges and a few more in a purer form. The province also offers great opportunities to those willing to look for development under CPEC projects in this promising part of the world.

Twelve Questions

Dr. Kaiser Bengali, renowned economist and former adviser to Balochistan chief minister

The China Pakistan Economic Corridor (CPEC) does promise to be a game changer. It is a project of a magnitude that will change the economic geography of Pakistan.

An earlier project that changed the economic geography of the country was the Indus Water Works: construction of Mangla and Tarbela dams along with thousands of kilometers of canals.

Resultantly, two crops a year is now grown where not a blade of grass grew and bustling towns exist in place of dusty landscapes.

Much, however, depends on how a scheme is designed. As such, to what extent CPEC will be beneficial to Pakistan will depend on how the component schemes are devised and implemented.

Several stakeholders will be affected by the CPEC project and the interests of all need to be factored into the equation

All projects have benefits and costs. CPEC too has its downsides and it would be necessary to identify the downsides and adopt mitigating measures. At times, the mitigation of human and social costs are as important as the project itself.

Many claims and comments are being made about CPEC. Most, if not all, do not appear to be based on empirical analysis – on account of the fact that data or information regarding CPEC is not publicly available.

Here are a set of 12 questions, the answers to which will help form a basis of informed discussion.

  1. Has Pakistan prepared an overall CPEC Feasibility?
  2. Has Pakistan prepared a CPEC Environment Impact Assessment
  3. What is Pakistan’s share in Gwadar port revenues, if any?
  4. What is Balochistan’s share in Gwadar port revenues, if any?
  5. Is the Gwadar-Khunjrab Highway a toll road? If yes, what are the shares of provinces through which the Highway passes?
  6. What will be the (positive and adverse) impact of China Transit Trade on Pakistan’s manufacturing sector?
  7. What will be the impact of tax exemptions to CPEC-related Chinese imports on Pakistan’s manufacturing sector?
  8. What will be the (medium and long-term) Balance of Payments impact of foreign exchange inflows (Loans, FDI) and outflows (debt repayment, profit remittance)?
  9. What is the budgetary burden on Pakistan for protecting Chinese road and sea convoys?
  10. What percentage of security units, being raised for CPEC related protection, recruited from districts through which the Gwadar-Khunjrab Highway passes?
  11. What is the water provision plan for Gwadar? If desalinated, what is the financing plan to cover the high cost?
  12. What is the plan to ensure that Gwadar does not become a Baloch minority city?

Any discussion about the merits and demerits of CPEC would be incomplete without answers to these questions and subsequently a thorough analysis to assess the impact.

Several stakeholders will be affected by the CPEC project and the interests of all need to be factored into the equation. Furthermore, conclusive answers to these questions will also help put Pakistan-China cooperation on a surer footing with a common, mutually beneficial agenda.

Fears for Local Manpower

Zubair Tufail, President of Federation of Pakistan Chambers of Commerce and Industry

The China-Pakistan Economic Corridor (CPEC) is a very good initiative and, in the long term, will foster a strong economic environment that will increase the confidence of other nations to also invest in Pakistan.

But we have to ensure we also protect our own economy and businesses. There are undeniable advantages for us. An estimated US$ 51 billion will flow into Pakistan, of which US$ 15 billion will be spent on infrastructure, including roads, railways and communications.

The money to be spent on infrastructure is in the form of a long-term loan at a low interest rate. This will immediately benefit Pakistani industries as well.

The most essential demand we have is that only Pakistani labour be used in all facets of the project, be it skilled or semi-skilled labour. What would be the benefit of Chinese labour if our own workers can’t get even basic jobs for Rs. 20,000?

Initially, there has been involvement of Chinese labour, but the Chinese have made a commitment that Pakistani labour will be employed going forward. This is something I must emphasise repeatedly and on which we must not compromise.

The second point  , such as a 23-year tax exemption and duty free imports of machinery. I have discussed this issue with Islamabad and they have agreed that Pakistani businessmen will get the same concessions as their Chinese counterparts.

Some of our business community leaders have expressed fears that our local industries would suffer with the influx of Chinese companies. But our key industries like surgical instruments and footballs don’t need any protection, as our local manufacturers are competitive and the Chinese are expensive in both fields.

Electricity tariffs will reportedly be lower in the special economic zones being set up, which could have a negative impact on domestic industries operating outside these special zones.

The government needs to be more transparent about the entire project and take us into confidence about it. We are facing multiple problems and the debt crisis is a significant challenge for us. We all have to sit together and find solutions, in consultation with opposition parties. CPEC projects can help in reducing our fiscal deficit.

But it is also important that Pakistani industries and businesses are not put at a disadvantage by giving further concessions to the Chinese companies. To increase exports, local businessmen have no option but to diversify.

There is a global demand for steel, cement, petrochemicals, minerals, and engineering goods. These are potential areas where Pakistani industries can compete effectively. The automotive industry, including spare parts, offers a potential source of diversification.

Pakistan still has an edge in the agriculture sector but we must invest in research and development to obtain better seeds to improve the crop yield.

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Editorial Team
The Editorial team of Bol Narratives