PAKISTAN’S companies have long complained about the edge Chinese firms enjoy over them in the early harvest projects under the multibillion-dollar China-Pakistan Economic Corridor (CPEC) initiative.
It’s true that Chinese investments in infrastructure have helped Pakistan get rid of rolling power blackouts and push economic growth rate last fiscal year to the 10-year high. But questions have been raised about a lack of transparency in awarding contracts for power and other infrastructure projects, the use of equipment and raw material imported from China in these projects, massive tax breaks allowed to Chinese contractors, and so on.
An uneven playing field has virtually eliminated Pakistani businesses from the competition and helped Chinese establish their dominance in CPEC-related investments.
“There is no doubt that Pakistan has benefited from CPEC (investments in power and other infrastructure projects),” Abdul Razak Dawood, Pakistan’s former trade minister and chairman of Descon (Design Engineering Services and Construction), told Dawn in an interview last week.
However, he thinks Pakistan could have benefitted much more from the investments being made in different projects undertaken around the corridor initiative.
“Pakistani firms have been denied contracts for power and other projects; equipment and raw materials for the(se) projects are being imported (from China); labour (technicians, managers, engineers, etc) too are coming from China. (In other words) there is no restriction on (Chinese) firms to involve Pakistani contractors, and use local equipment and labour as they take the lion’s share of infrastructure projects,” he argues.
‘We should ensure that whatever benefits are given in these industrial zones (under the corridor initiative) are available to everybody,’ he says
Descon, a billion-dollar company with a 40-year experience of maintaining and implementing landmark projects in oil and gas, chemicals, and power sectors at home and abroad, also had made bids for engineering, procurement and construction (EPC) contracts of five CPEC power plants, but failed to win even a single contract as all went the way of Chinese companies. The power projects include two coal power plants in Sahiwal and Port Qasim and three gas-based plants in Bhikki and Haveli Bahadur Shah.
“We didn’t get even a single job because we were expensive. They (Chinese companies) were cheaper because they got certain tax benefits that were not on offer for us (Pakistani bidders),” Mr Dawood says. “If you know at the start that you are getting certain benefits, you price (your bid) according to the benefits (to undercut your competition). It is not a level playing field... they get a lot more benefits than we do.”
The way the government has given the Chinese firms every CPEC project whether financed through its own resources or Chinese loans along with generous tax and other concessions has led many to believe the corridor initiative may eventually prove a costly affair for both Pakistani people and businesses.
Analysts believe that the edge of the Chinese companies in Pakistan is likely to continue because a chunk of more than $55bn investments being made in power plants, port facilities, railway lines and roads in Pakistan under the Silk Road project is flowing from China in the form of commercial loans.
But there are businesspeople like Mr Dawood who believe that Pakistan could still use the CPEC investments to its advantage by putting in place a right set of policies that doesn’t favour Chinese firms and discriminate against domestic investors and businesses.
“Now we are moving into the second phase of CPEC initiative: special economic zones (SEZs). (If we want to take advantage of investments in these zones) we should ensure that whatever benefits are given in these industrial zones are available to everybody,” he says.
“(Moreover, these benefits) should be devised in such a way that these don’t put industries outsides these SEZs at a disadvantage. The existing industries at Landhi or SITE area (in Karachi) or in Faisalabad should not suffer (because of the SEZs being created under the CPEC cooperation),” he cautions.
Answering a question, Mr Dawood underlines the need for Pakistan to devise and implement a trade policy that lays out an export-driven growth strategy and curb imports if “we want to have strong manufacturing and be a large economy”.
“Pakistan will never be a large economy and our exports and manufacturing industry will continue to stagnate unless we bring our focus back on export-driven growth and continue with our extremely liberal import policy. No country can make economic progress if it relies only on the domestic market.”
He also feels that companies should expand into the export market. “You have to go into export market (because) that is the only way a company can grow. Some business houses have expanded overseas. But most of them are focused on the domestic market. Maybe one of the reasons our companies don’t go into export markets is that they are not competitive in the international markets and yet are so profitable in Pakistan. So why expand overseas (if you can make money here)?”
Descon chose to expand into overseas markets even as a very small company at its very inception. “Our view at Descon is that you must go out. We moved into the Gulf states when we were a small firm. I believe Pakistani companies should work overseas. That’s the only way we can increase our exports, and become efficient and internationally competitive. We gain by interacting with the outside world.”
Descon has its presence in Gulf countries since 1982, and until a few years back it generated 60pc of its income from overseas markets that helped it grow to be a billion-dollar company.
Though the fall in global oil prices has affected its income stream from the Gulf region, the loss has been compensated by increased revenues from its expanding business at home. Now Descon’s home operations generate 60pc of its income, with the rest still coming from the Gulf states.
As a company that strongly believes in exploring international markets, Descon is expanding its footprint into South Africa by acquiring an engineering firm, which Mr Dawood describes as a small version Descon, in a $10-million deal.
“It’s a strategic move. We had been examining the African market for couple of years and now we have found an opportunity in South Africa,” he says. “We are hopeful that we can build it into a big business just like we did at Descon. It will help us expand into other African countries like Mozambique that has recently discovered gas reserves. As soon as activity picks up in Mozambique we will try to move in there. Besides, we are also going back to Iraq, a market we left during the first Gulf war in the beginning of the 1990s.”
At home, Descon plans to expand into hydroelectric power. “We are waiting to see what policy on power is going to be,” Mr Dawood said, elaborating his future expansion plans. “It will be fantastic if we can double our business volume by the time we are 50 years old.”
Published in Dawn, The Business and Finance Weekly, January 8th,2018