The high cost of inexperience

September 30, 2019

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The development of Special Economic Zones (SEZs) over the last one year could have partially cover the growth loss and provided some element of relief in the tragic story of the economy made insufferable by galloping inflation, falling investment and rising joblessness under the current government.

Privately, officers of the China-Pakistan Economic Corridor (CPEC) establishment in the centre and the provinces accept that things have been too quiet for too long on this front. They claim that now the ball is set in motion on the directives of the prime minister.

“It is not clear if the government’s stance on CPEC changed because the noise of economic discontent is growing louder with tycoons chiming in or diplomatic quarters exerted pressure. But now the PTI seems to be getting serious about CPEC. How well the Team PTI is able to match up to the task is too early to say, but I have doubts,” a top bureaucrat told this scribe in Islamabad early this month.

“The post-election talk of mutual collaboration with China was more of gesturing without concrete follow-up actions. It is not an accident that there is a 10-month gap between 57th and 58th CPEC project review meetings, but barely a two-week gap between the 58th and the 59th. The 57th review was held in November 2018 whereas the 58th review took place on Sept 14 and the 59th on Sept 27. If Sindh was excluded from the last meeting, it exposes the political immaturity of the team,” said another CPEC expert in Islamabad.

Planning and Development Minister Khusro Bakhtiar was busy and Planning Secretary Zafar Hasan forwarded the queries about the lack of progress on SEZs towards Board of Investment Chairman Zubair Gilani. “They have exact timelines, grant charts etc and are in sync with all federal and provincial stakeholders,” Mr Hasan said in a written response.

The second phase of CPEC demands a more pronounced provincial role. But analysts fear the current team can mishandle the politically sensitive issue of provincial autonomy

Efforts to reach Mr Gilani did not succeed, but his media wing emailed a long note contesting the impression of inaction on SEZs and pinning the blame on the last two elected governments for deindustrialisation and import dependence that led to a huge current account deficit. The PML-N was also targeted for not holding meetings of the SEZ Board of Approvals after 2015 although Section 5(3) of the SEZ Act 2012 obligates that “The (board) shall meet as frequently as required but not less than twice a year”. Four meetings of the board were held before 2015.

Some extracts are reproduced here: “… as soon as the PTI government ascended to power, it started focusing on export-led, labour intensive, industrialisation in the country, and immediately resumed the approval process of SEZ applications after a gap of four years”.

It failed to mention what took the party in power a year to hold the first board meeting in August 2019.

The board contested the charge of laggard progress: “… the (board) not only kick-started the existing CPEC SEZs by expediting the process of industrialisation and ensuring provision of utilities through the PSDP (Public Sector Development Programme), but also administered firm approval of six new SEZs while six applications are also in the pipeline.”

“The SEZ Act is being revisited to provide the SEZs with concrete legal backing, enhanced incentives and to rectify any existing anomalies to make it more investor friendly. Also, the (board) is in the process of formulating a lucrative incentive package to relocate the industries from China...”

A top business leader found the PTI’s claims of promoting industrialisation a cruel joke. “Automakers are shutting plants, cement, pharmaceuticals, electronics even the fast-moving consumer goods multinationals are in stress. Please tell PTI leaders and their cronies to just stop meddling in the field they know nothing about,” said a tycoon who actively supported Mr Khan’s party in the 2018 election.

People closely watching the economic manoeuvres in Islamabad lament the avoidable costly delay in the execution of the second phase of CPEC. They expressed fear that the current team could mishandle the politically sensitive issue of the provincial autonomy when this phase of CPEC demands more pronounced role of the provinces. After the 18th Amendment, the subject of industrial and social development is vested primarily with the provincial governments.

Higher-ups in Sindh, when reached for their input on the subject, were bitter. Their resentment can’t be dismissed as parochial when they shared the image of the meeting notice of the 59th CPEC project review meeting. None out of the 31 invitees belonged to Sindh.

“There is this autocratic, centrist attitude that can’t be condoned. We will not let them trample on our hard-earned rights,” said a defiant leader from Sindh.

Commenting on the status of the Dhabeji Special Industrial Zone, Board of Investment Sindh Chairman Azeem Uqaili said: “The Sindh government is on it. The procurement package, including the request for proposals (RFP), is at an advanced stage of finalisation. The Sindh government plans to roll it out through international competitive bidding in October to solicit a developer under the public-private partnership mode. The project needs better support from the federal government for the quick provision of gas and electricity.”

Khyber Pakhtunkhwa Planning and Development Secretary Atif Rehman was optimistic about the future of Rashakai Special Industrial Zone. “We are targeting to hold the groundbreaking ceremony in October, but if all goes well, it will take at least a year and a half for the zone to be ready for investors,” he told Dawn by phone from Peshawar.

Dr Amanullah, a leader of the Punjab team, said that his province is proactive on SEZs and allocated resources in the annual development plan for the Allama Iqbal Special Industrial Zone in Faisalabad. He expected it to be ready for investors by June 2020.

The second phase of CPEC, which is centred on the collaboration in industrial, agricultural and social development, coincided with the installation of the new government in Pakistan after the 2018 election. Prime Minister Imran Khan’s government was handed a ready-made set of opportunities on a silver platter.

Sadly, the maiden federal government of the new party took longer than expected to settle down and did not instantly grasp the value of the CPEC’s second phase.

In the first phase of CPEC that overlapped the five-year PML-N rule, the focus was on bridging the gaps of physical infrastructure and electricity through multi-billion-dollar, big-ticket projects. With the completion of most energy and road projects and the rest nearing their completion, Pakistan managed to tide over the retarding energy and transportation infrastructure deficits in record time.

The election and installation of the new government did disrupt the rhythm of mutual collaboration, but the country can make up for the lost time if the federal government stays focused, empowers the provinces and extends requisite support to move towards an industrial revival under CPEC.

Published in Dawn, The Business and Finance Weekly, September 30th, 2019