The statement “the China Pakistan Economic Corridor (CPEC) is Pakistan’s last chance for industrialisation” published last week in the print media is a statement that merits a fair analysis of ground realities.
That the CPEC is a game changer for Pakistan’s economy and strategic interests is a fact. It has undoubtedly opened up new venues of growth, notably, in infrastructure and the energy sector, of which mega hydro projects are of significant importance to Pakistan. The country was facing difficulties in obtaining financing for such projects from other global lenders. Hydropower projects constitute the flag ship of the CPEC project and we should have more of them. But we have to be cautious to avoid potential problems and dangers. In other words, we need a more balanced and realistic approach and strategy to work on.
So far, the Foreign Direct Investment and industrial commitments of China under the CPEC have not been found to be promising. The PTI government has therefore rightly diverted its focus from mega infrastructure projects to projects which could spur development in its industrial and agro sectors to generate employment opportunities and a more sustainable revenue generation base. Establishment of Special Economic Zones (SEZs) is one such land mark in this direction. China had shown its interest in moving much of its low-end industry to SEZs for re-export. Unfortunately, however, this shift has not taken place so far.
For CPEC Authority of Pakistan, the population and engagement of China in many SEZs that are being established all across the country is a challenge to justify the CPEC as Pakistan’s last chance for industrialisation. The Free Trade Agreement (FTA) between Pakistan and China is skewed towards the latter and the balance of trade is therefore heavily tilted in favour of our neighbour. The price advantage of mass production of Chinese products and import duty concessions of products imported from China into Pakistan out-price the products that are produced locally. This has resulted in a significant de-industrialisation in Pakistan. Further, many foreign investors in Pakistan, notably those from Europe and the USA with a large industrial base in Pakistan, felt deprived of a level playing field or an environment in which everyone has a fair and equal chance of succeeding in the face of flooding of market by Chinese products. Majority of them moved out of production or scaled down their presence in the country. This added to de-industrialisation in Pakistan.
In the past, the lenders from Europe, Japan and other global financing entities provided long-term financing on concessional terms to fund mega projects in Pakistan. KFW, a state-owned lender of Germany, funded most of the public-sector energy projects in Pakistan through long-term and concessional lending, whereas JIBIC, the state lender of Japan, volunteered to fund our infrastructure projects such as Lahore Mass Transit and Karachi Circular Railway revamp projects through long-term concessional loans. In the presence of the CPEC, Pakistan has lost its focus of maintaining relationship and sourcing of funding from these state lenders.
In conclusion, it can be stated that it is in Pakistan’s strategic interest to improve upon its engagement with CPEC for mega hydro projects and industrialisation but at the same time revive its focus and relations with our past lenders such as KFW, JIBIC. Also, to retain the interest of existing FDI investors in Pakistan and to mobilise fresh FDI for our industrial growth the government needs to come up with a strategy aimed at offering meaningful incentives and ensuring a level playing field to all the investors.
(The writer is former President, Overseas Investors Chamber of Commerce and Industry)
Copyright Business Recorder, 2021