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Our dream of growth

February 18, 2019

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The writer is a PhD student in urban/regional planning at the University of Illinois.
The writer is a PhD student in urban/regional planning at the University of Illinois.

IN what is a long and ongoing discussion, let’s shake things up a little. Let’s go back to the drawing board and question the very basics of our CPEC dream; in doing so, let’s think of the ways in which this dream can either be realised or go awry.

Any investment, no matter the size, is only good for as long as it creates economic value. The definition and measurement of this value is debatable — but for starters, will these projects fulfil their projected benefits? Who decided what these projections should be? Some key concerns that we should have include the effectiveness of connectivity infrastructure that we choose, the efficiency and potential of new industrial activity, and the political process and ownership of both new infrastructure and economic activity.

Let’s start with transport and connectivity infrastructure. Transport economists have long questioned the logic of building motorways in areas where existing infrastructure is already underutilised. Do our planned investments in infrastructure adequately reflect the eventual traffic demand that may be generated, or are we still stuck in the ‘build-it-and-they’ll-come’ approach to road infrastructure?

If history is a guide, road and highway projects tend to fall on extreme ends of the utilisation spectrum. Some — like the Lahore-Islamabad motorway — are perpetually underutilised and never justify construction and maintenance costs. Others, like the Lahore-Gujranwala stretch of the GT Road, are congested and often poorly maintained, leading to losses due to bottlenecks. Political considerations mean that we overstate benefits, understate costs, and rarely get our infrastructural investments right.

The Chinese are clearly better prepared for the industrialisation process that CPEC can generate in Pakistan. But what do we want?

These problems are made worse by personal and political rent-seeking in decisions. Regionally (think Lahore receiving 50 per cent of the provincial development budget, or controversies surrounding CPEC’s western route) and locally, (like reports of politicians influencing the exact positioning of the Lahore-Islamabad motorway during its construction), rent-seeking is endemic in Pakistan. Combine these with grand political narratives of infrastructure-led development, and you have multiple fiscal and economic crises rooted in irresponsible development spending. What is to stop us from doing the same, especially when both China and Pakistan have a notorious record of infrastructural investments that destroy rather than create economic value?

The next immediate question concerns the kind of industrialisation that we may be about to witness. The Chinese seem to have measured their aims well: they would like to utilise the full agricultural supply chain in Punjab and Sindh to fulfil Kashgar’s needs, and use yarn and coarse cloth from Pakistan as cheap raw materials in their own industry. They are also — clearly — better prepared for the expected industrialisation process that CPEC investments can generate in Pakistan. But what do we want?

The aim of an industrial policy should include appropriate, clustered placement of different sectors to maximise the economies of scope and scale that such clusters can generate. Consider Sialkot, for example, which has been called an ‘accidental’ cluster of medical and sports equipment that emerged without significant government support. The entire region has now developed training, skills, and forward and backward linkages within sports and medical industries that ensure quality, facilitate innovation, and help keep costs low even in the face of fierce international competition.

While Sialkot developed as a world-class hub of small industrial establishments, the state fixated on large factories like sugar mills and automobiles that still can’t survive without extensive support and subsidies. The government now seems to be focusing on administrative difficulties that our special economic zones face to spur industrialisation. However, while such facilitation can help, the key to realising benefits of agglomeration lies elsewhere.

We must actively focus on encouraging close proximity between horizontal and vertical linkages within industries, training local populations to develop a valuable pool of human resource, and encouraging innovation at the regional level by all of small-, medium- and large-scale establishments. A good example is of the automobile industry in Thailand; the government used a mix of incentives and clusters to become a hub of innovation and leading exporter of vehicles from a net importer within a few decades.

These are all mechanical decisions that would require some background and feasibility studies to fix. The biggest impediment to the long-term success of CPEC and the growth we dream of remains political: who is calling the shots, and who gets to benefit from these opportunities? These questions are relevant both at the international and sub-national scale — we have already heard reports of the Chinese intervening in negotiating with separatists in Balochistan, for example, and the controversies about the corridor’s western route are becoming louder by the day. Stories of exorbitant interest rates charged by Chinese financiers of CPEC are also doing the rounds. We should remember that all the money flowing in is required to generate returns that which will inevitably flow out with equal ferocity. These outflows from foreign investment and loans will only be justified if the economy generates an order of magnitude more in local activity than what flows out.

Perhaps most importantly, we need to think about local and sub-national political ownership of CPEC projects. A corridor that needs a full division for protection within the country, a province that is represented by a military commander in Davos, and financial agreements involving taxpayer money that the government cannot even discuss or talk about openly do not inspire a lot of long-term political confidence. A corridor or set of industries that focuses on extraction while ignoring local political ownership of economic benefits can only survive for so long: we should keep in mind that even their trains and canals and paved roads could not sustain Britain’s presence in India for very long.

The writer is a PhD student in urban/regional planning at the University of Illinois.

faizaanq@gmail.com

Twitter: @faizaanq

Published in Dawn, February 18th, 2019