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CPEC faltering?

November 01, 2015


The writer is a business strategist & entrepreneur
The writer is a business strategist & entrepreneur

I HOPE I am wrong on this one. But early signs indicate that the Pakistani side has already started faltering on the China Pakistan Economic Corridor. This has happened within six months after its announcement with much fanfare during the visit of Chinese President Xi Jinping.

Last week the parliamentary committee was given a ‘status update’ by the executing ministries. The ‘briefing’ consisted of a presentation on the Frontier Works Organisation’s progress on the western route, another on the Suki Kinari power project and standard presentations on coal deposits that are available in Khyber Pakhtunkhwa and Balochistan and about which we have known for a long time. Another was on opportunities in the agriculture sector.

So the western route is being built and hopefully will be completed by the end of 2016. Trucks laden with shipping containers will be able to ply up and down. But does the government have any estimate or study that can quantify the economic benefits that will accrue from this? Nato containers also plied our roads for over a decade but what then? Sure there will be ribbon development effects and we’ll see refuelling stations, rest areas and tea shops crop up alongside the new route.

Hinterland access would also be improved as branches are developed from the trunk. But to be sure, CPEC is a north-south trunk that meets the Chinese objective of accessing markets for its manufactured goods. Do we have any ideas, apart from the usual platitudes, on leveraging it to create substantial economic benefits?

Clearly, the government is out of ideas.

To be fair, China has suggested for Pakistan to establish industrial parks and special economic zones where raw materials and other factors of production are available. Industrial parks can be considered for sectors such as steel, cement, automobiles, construction materials, gems and stones, household appliances, agricultural implements, textiles and garments. With some savvy business structuring, it may even be possible to relocate certain low technology industries from China.

For several weeks, the federal and provincial governments went through the usual standard motions, and identified sites for 29 industrial parks and 21 special economic zones.

But the government remained clueless on how these estates will be made attractive for investors. Who will invest here, what will they make and who will they sell to? What ails our competitiveness in most productive industrial sectors? Indeed, why so many existing industrial estates in the country remain underutilised.

Instead of any deep thinking on the matter the government was last mulling exemptions from duties and taxes on all imported machinery and a 20-year income tax holiday for new manufacturing plants. That is, until somebody mentioned the elephant in the room. How do we run industrial estates without electricity? And that was that. Now even this half-baked plan has been put off because there is not enough electricity. Clearly, the government is out of ideas here. If it had its piece together, the electricity bit was easy to solve. Let the estate developers and operators bring in rental power plants. Any excess could be fed to the grid and any shortfall drawn from it. They would need fuel to be delivered to their locations. And the fastest stop-gap solution would be furnace oil. At the present low world oil prices this may just be viable. Until we can get our power plants up and running that is.

Incidentally, most issues appear to revolve around the power sector. To the earlier problem of circular debt and delayed payments has now been added a decrepit grid that cannot evacuate and transmit power in the required quantities. And project sponsors in the power sector complain that there is no ‘one window’ as promised, instead they have to chase around AEDB, Nepra, NTDC and other power-sector agencies separately to get their files and paperwork processed; the work at each window is dependent on the other and the agencies do not talk to each other to resolve problems.

On to Gwadar port where 1,000 hectares have been assigned to the port operator, China Overseas Port Holding Company to develop a duty-free zone and industrial area adjacent to the port.

In my background discussions with the company, it was not clear to them yet what kind of business opportunities would be pursued at the zone, whether the investors would predominantly come from China or from the local market. There does not appear to be a traffic forecast with underlying assumptions indicating how many and what type of ships will arrive in 2018, 2019 and 2020? The port operator appeared to be struggling with these questions.

The government needs to step up and ask them what is it that we can do to help you get this port up and running. The government needs to allocate more imagination and will here.

The writer is a business strategist & entrepreneur

Published in Dawn, November 1st, 2015

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