CPEC: Framing the right policy issues

Now that the majority of CPEC early harvest energy and infrastructure projects are well underway, Pakistan needs to think about what it wants to achieve out of CPEC. As Asad Umar appositely put in a recent BR Research interview “I keep asking the government that you are showing such beautiful black roads in Baluchistan, but can you tell me which Pakistani products will flow on this road to which Chinese market? What is our competitive advantage in those products? Where in Pakistan will they be produced? Who will produce them? And the answer to all of the above is we don’t know.”

Fortunately, these questions are now at least being asked, and research on these topics from chambers and business associations has kicked off. However, a strong partnership is needed between the public and private sectors to tap the most out of CPEC.  The Consortium for Development Policy Research (CDPR) hosted a policy talk last week titled “How local business can benefit from CPEC”, which identified some good points about this still elusive subject.

According to Hassan Khawar, a public sector reform expert, the government should take heed from the Chinese who let the private sector take the lead in formulating the economic strategy of setting up industries in specific regions.  Since the signing of the FTA a decade ago, Pakistan’s trade deficit with China accounts for 40 percent of our total trade deficit now.

Clearly, this fact highlights the importance of preparation when it comes to policy interventions for CPEC. Some pertinent questions that need to be answered include: How do policymakers wish to structure Pakistan’s economy in the long run? The aim here should be to transition from our current labour intensive low skill bracket to a high skilled knowledge economy. Granted it will take time, but that is the reason it is classified as a long term goal.

Another important aspect that needs to be taken into account is the negotiations with the Chinese to get a fair deal. But the fairness depends on awareness; so a lot of homework still needs to be done to frame the kind of policy initiatives that will transform the local industry.

The government also needs to put in a lot of thought in the upcoming renegotiation of the FTA with China in a post CPEC scenario.  It is imperative that extensive private sector consultation be done before analyzing any trade terms with our Chinese counterparts.

Lastly, when it comes to incentives, Mr. Khawar importantly pointed out that there should not be blanket incentives; rather they should be aimed at specific industries that need to be promoted for a given time period.  In addition, preference should be given to provide back loaded incentives for industrial zones such as tax credits for R&D expenditure.

CPEC has the potential to be more than some energy and infrastructure projects, and a big catalyst in making that happen will be the policy interventions for promoting Pakistan’s economy. If done correctly, these have the power to unleash the true potential that an economic corridor could provide.