CPEC misgivings and reality (By: By Dr Miftah Ismail)

CPEC : China Pakistan Economic Corridor

There has been a spate of articles by journalists and statements by business leaders expressing reservations both about CPEC-related industrial zones and also our nation’s ability to meet its sovereign obligations vis-a-vis various projects undertaken by the Chinese and other investors. Whereas most of the reservations expressed are out of sincere concern, they nonetheless are, in my view, unfounded and in this article I will endeavour to put some of these fears to rest.

Although Prime Minister Nawaz Sharif’s government has been able to increase our total investment as the ratio of our national income from 13% to 15%, it still compares poorly with our South Asian neighbours, where the average ratio is 30%. This in turn means that as long as we are investing so little, neither our national income, nor exports nor job opportunities will grow in Pakistan as fast as comparable countries. And although the reason for our smaller investments are many, the primary reasons are inadequate supply of water, gas and electricity, security fears, lack of efficient infrastructure, and a dizzying array of multiple regulatory and tax jurisdictions.

In a country where total annual investment is around $40 billion and total foreign direct investment around a billion dollars it is remarkable that China was willing to invest $46 billion over a few years. This $46 billion has since risen by a few billion dollars. And of the initial amount, about $35 billion were private sector investment in power projects and the remaining $11 billion were long-term concessionary loans to invest in road and rail infrastructure. In the last four years this government has undertaken a lot of effort to convert these paper agreements into reality and today we can see power plants and roads being built across Pakistan with Chinese and local resources.

CPEC and other initiatives of this government (for instance, the import of LNG and setting up of RLNG-fired power plants through PSDP funds) allow us to address some of the main reasons for inadequate investment in Pakistan. It is estimated that just electricity outages cost our economy about 1.5% of GDP (or an annual loss of about Rs450 billion). When we end power cuts soon and also limit shortages of gas and modernise our infrastructure by 2018, we will hopefully add at least Rs600 billion to the economy. This is not a transfer from one group to another. This is new income created in our economy that it did not have.

When a Western soft drinks or a shampoo company invests in Pakistan we are very happy and aren’t worried about the fact that every profitable company will always take more foreign exchange out of the country than it will bring in. And this is the right attitude, as the company that repatriates its profit will not do so out of our existing national income but it will have created a lot more income in the economy. The profit and interest it will take back will just be a fraction of the income it will have created or the economy it will have expanded. And in a market-driven foreign exchange regime we need not worry about the fact that the money it will repatriate will be in foreign exchange, as the market will take care of that.

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Similarly, when Chinese or other investors are investing in CPEC power projects, we shouldn’t be worried as the money they will send out as profits or imported fuel cost will only be a fraction of the income they will create or the economy they will expand in Pakistan. Same is true for the infrastructure the government is building both through its own resources and through concessionary long-term Chinese loans. This infrastructure, whether its gas pipelines or roads or fibre optic cables or railways signalling systems will improve the efficiency of our economy and render our industries more internationally competitive, thus allowing us to increase our exports.

I should also mention here that the new gas or coal power plants we are building are much more efficient than the existing plants that they will be adding to and eventually replacing (new gas plants have 61% efficiency as opposed to some furnace oil plants giving as low as 28% efficiency). Moreover, coal and gas, the fuel they will be using, is cheaper compared to diesel and furnace oil that they will be replacing. So there will be considerable saving of foreign exchange when we don’t have to import expensive and less efficient diesel or furnace oil.

But we don’t want to just run hot water geysers from the gas, we are importing or running air conditioners from the electricity we will be producing. We want to run factories that can compete in export markets around the world and provide jobs to our people. And this is where our new CPEC-related special economic zones come into play. We have suggested to our Chinese friends nine zones, one in each province, including G-B, AJK and ICT plus an extra one in Fata and Karachi because these two places have gone through a lot of strife in the recent past and are especially close to the Prime Minister’s heart.

And my fellow businessmen’s concerns notwithstanding, we will not ban Pakistani entrepreneurs from developing Special Economic Zones alongside CPEC routes nor from opening factories in the zones that are being developed. Chinese investors will neither get energy at cheaper rates nor will they get any duty or tax break which will not be available to the local investors. So let’s be very clear: there will be a level playing field. We want to give one-window facility in these zones on the pattern of the best international modern zones, we will provide them with gas, power and water without delay at the same rate as the rest of Pakistan, and we will provide good connectivity to the zones so they are able to compete with companies around the world. But we will in no way discriminate against our Pakistani investors.

For the last two decades, Pakistan’s economy has been suffering from low growth of 3% to 5% as compared to similar economies which have experienced growth of 7 to 10%. The average growth between 2008 and 2013 was less than 3% and it’s only now that we have achieved growth of close to 5% and will hopefully cross 5.5% this year. But for rapid economic growth that provides jobs to our young people and to lifts our people out of poverty, we need to grow by 8% plus for a couple of decades. And this can’t happen without power and infrastructure, and trade and investment. CPEC is a great game-changing opportunity that will provide us with the necessary ingredients for growth. Besides providing the impetus for industrial growth, CPEC presents a unique opportunity for us to become a part of the global supply chain. It is now for us to convert this opportunity into reality.

In our history we have missed many an opportunity. Are we going to sit again on the sidelines of development, and believe all kinds of conspiracy theories and let another opportunity pass us by? Or, are we going to be confident as a nation, work diligently and intelligently and leverage CPEC to build power plants, infrastructure and factories across Pakistan and provide a better future to our youth? I hope this time we will be on the right side of history.

CPEC : China Pakistan Economic Corridor

Published in The Express Tribune, April 26th, 2017.

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