BUSINESS CPEC investment pushed from $55b to $62b

THE EXPRESS TRIBUNE > By Salman Siddiqui  Published: April 12, 2017

China has approved additional financing for infrastructure projects in Pakistan under the China-Pakistan Economic Corridor (CPEC), taking the investment volume to $62 billion from $55 billion, announced Sindh Governor Mohammad Zubair on Wednesday.

“New investment has been approved for projects in various sectors including [establishment of] industrial zones,” said Zubair while speaking at a conference on “Infrastructure demand and financing” organised by credit rating agencies Pacra (Pakistan) and Dagong (China).

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“We are also in talks to place the Karachi Circular Railway under the CPEC banner,” he said.

China has been increasing investment in Pakistan’s infrastructure and power projects since it unveiled CPEC programme worth $46 billion in 2015.

The volume of investment was pushed to $55 billion when Federal Minister of Planning, Development and Reform Ahsan Iqbal, Federal Minister of Railways Khawaja Saad Rafique and chief ministers of provinces visited China about three months ago.

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“This [$62 billion investment] is good news. People will reap dividends of the investment,” remarked Zubair, who is an active member of Prime Minister Nawaz Sharif’s core economic team.

A major chunk of the multibillion-dollar investment, $34 billion, is going into electricity production and distribution.

According to Zubair, other countries are keen to become part of CPEC projects. They may become part of the project by investing in industrial zones, he said.

Electric cars icing on the CPEC cake

Additionally, CPEC projects also have huge indirect benefits as well. “Information technology firms from across the globe have arrived in Pakistan as each and every project under China’s investment would require IT assistance.”

Zubair added China had become one of the world’s economic superpowers by investing in huge infrastructure projects like highways, railways, power production and gas pipelines at home.

“We are doing exactly the same thing. CPEC will create massive economic momentum in Pakistan,” he said.

The governor pointed out that Pakistan was not the only country whose exports had gone down in recent years as China and India had also registered a significant decline in their exports.

“The uptrend in international fuel oil prices may widen Pakistan’s current account deficit,” he said.

Zubair announced that the federal government would soon unveil a financing plan for new projects across Sindh including Karachi, adding the Green Line public transport project would be completed by the end of the year.

Speaking on the occasion, Ministry of Finance’s former secretary Dr Waqar Masood pointed out that besides Chinese government’s investment in CPEC projects, the private sector of China was funding different schemes in Pakistan, which did not fall within the purview of CPEC.

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The volume of China’s investment in Pakistan would be significantly higher than $62 billion if its private sector investment was also counted, he said.

Pakistan Credit Rating Agency (Pacra) Managing Director Adnan Afaq emphasised that the establishment of power projects would help overcome shortage and play a positive role in achieving the required economic growth of 7% in the next two to three years.

He was of the view that managing such a huge investment of $62 billion or higher under CPEC would remain a big challenge for Pakistan as it had never done that before. “We need to make sure the process [of utilising the finances] remains transparent,” he said.

Dagong Chairman Guan Jianzhong stressed that infrastructure development would support economic growth in Pakistan over the long run, adding it would open Islamabad to the world and bring investment.

Other speakers urged the authorities concerned to float infrastructure bonds in order to attract public investment. The government should play its role of providing incentives for the proposed bonds to stimulate investment from new avenues.

Pakistan shining?

THE EXPRESS TRIBUNE > By Syed Mohammad Ali Published: May 26, 2017

The recent announcement of China’s willingness to pour in another $50 billion into the Pakistani economy to boost hydro-energy production, in addition to its CPEC commitments, could not have come in at a better time for our ruling party. With elections around the corner, every piece of good economic news helps boost the chances of the incumbents to win another term, despite the varied controversies which plague its present tenure.

Our current political leaders seemed to have borrowed our neighbour’s playbook on campaigning for elections, where politicians have been appealing to voters by pitching the ‘India shining’ campaign since over a decade. Although the ‘India shining’ campaign has been appropriated by both the BJP and the Congress, and produced varied results, the claim itself remains dubious given the ground realities within the country, especially for the common man.

In the case of Pakistan as well, the task of current political leaders to portray Pakistan as an emerging economic power receives a boost every time there is mention of its bourgeoning middle class, or a reassessment of its overall economic performance. Yet, the fact of the matter remains that despite these glittering assessments, Pakistan is yet a long way away from charting a sustainable path to economic and social development.

Despite being recently described as ‘the most underrated economy in the world’ by Bloomberg, for example, the fact remains that Pakistan is still ranked at 147th in terms of its Human Development Index, as per the latest UNDP assessment. And, despite all its recent accomplishments, Pakistan’s HDI ranking is 12 ranks lower than in 2000.

While our leadership may have set its sights on making Pakistan a vital link in the ‘new Silk Road’, the fact of the matter remains that our basic social indicators like infant mortality and primary and secondary enrollment are among the worst in the world. The number of out-of-school children in Pakistan is dismal, as is the quality of education being imparted to those who are attending school. Relative to countries of similar or lower its income level, Pakistan has systematically underperformed on most human development indicators.

Besides lacklustre health and education accomplishments, we, as a country, are also structurally biased against half the national population, which is female. Our female HDI value stands at 0.452 while the male HDI value stands at 0.610. An even larger gap is seen in the labour force participation rate where on average less than 25 per cent women are employed in contrast to an average of over 82 per cent of men. A mere 3 per cent of our legislators, senior officials and managers are women, and women hold only 20 per cent seats in parliament. This situation also does not bode well for making Pakistan a more progressive and prosperous country.

Our current HDI ranking still places Pakistan in the ‘medium human development’ bracket, which also includes India, Bangladesh, Bhutan, Kenya, Myanmar and Nepal. Yet, we are the last country to fall in this ‘medium human development’ group.

The current HDI ranking does not provide detailed information on regional disparities within the country, but there are other indicators which reveal that our national growth is also very lopsided and inter-regional, as well as intra-regional, disparities remain a serious problem. Yet, the gap between the haves and have-nots continue to grow due to structural biases which continue to marginalise and exploit already vulnerable communities and groups of people.

Our leaders must pay more attention to the plight of the common man and woman, and pay more attention to fulfilling their needs, instead of focusing on glittering projects such as metro rails or motorways. Otherwise, we will simply not have the required human capital which is needed to sustain economic growth in the long run, no matter how many infrastructure or energy projects are ushered into the country.

Published in The Express Tribune, May 26th, 2017.

Debunking myths on CPEC

THE EXPRESS TRIBUNE > By Ahsan Iqbal Published: May 25, 2017

Recently, quite a few stories have appeared on the China-Pakistan Economic Corridor (CPEC) in both local and international publications. A lot of traction was gained by the cynics of CPEC by reporting factually incorrect information. Consequently, myth spurring on CPEC is on the rise. I am going to take this opportunity to debunk these myths by stating the facts.

A pointless controversy was created on the Long Term Plan (LTP) by a recent article featured in a local English-language newspaper. The report published as ‘LTP’ in that article was an initial draft by the China Development Bank (CDB) and not a part of the agreed LTP. That article basically cherry-picked information from different sources to present a distorted picture of the LTP. The fact is that the government of Pakistan has prepared its own plan after multiple stages of consultation with provinces, federal ministries and their respective technical groups. The LTP has been prepared to develop Pakistan in line with the seven pillars of Vision 2025 which are predicated on the notion of inclusive and sustainable development. The main pillars of LTP are connectivity, energy, industries and industrial parks, agricultural development and poverty alleviation, tourism, cooperation in areas concerning people’s livelihood and financial cooperation. It was shared with the Chinese authorities following approval by the cabinet.

The Chinese side has given its approval in principle, however, its formal approval is expected by the end of this month, as our Chinese counterparts were occupied by the Belt Road Forum. As soon as we get the official approval from the Chinese side, we will put the LTP on the CPEC website.

 One of the biggest myths propagated on CPEC is that Pakistan might become a colony/province of China. Any historian would tell you that colonialism and imperialism are legacies of countries of the global north. China has never invaded any country nor harbored any imperial designs. Cynics point out towards rising trade deficit with China as a reason to show concern on CPEC. The reality is that China’s competitiveness in exports is universal and not idiosyncratic to Pakistan. Pakistan’s current trade deficit with China is $6.2 billion. In comparison, India’s trade deficit with China stands at $47 billion. The US trade deficit with China is $347 billion. Based on these trade deficit numbers, is it appropriate to infer that the US or India are becoming colonies/provinces of China? Certainly not. Similarly, it is ludicrous to make such claims about the Pakistan-China relationship. Both countries respect the sovereignty of each other and CPEC is based on the shared vision of both countries: Vision 2025 and OBOR.

At present, only a few thousand Chinese nationals are living in Pakistan and making a positive contribution towards our economy, the majority of them fall into the category of temporary labor migrants who will return back upon completion of the projects. In contrast, around 8 million Chinese are living in Malaysia, 400,000 in France; 600,000 in Japan; 900,000 in Canada and over 2.5 million are living in the US. Therefore, to say that Chinese are overtaking Pakistani society is nothing but a farce. Chinese nationals working in Pakistan are our national guests as they are helping us to build a developed Pakistan.

Another myth spread on CPEC is that China is dictating terms to Pakistan and the federal government is not consulting the provinces. The reality is quite the opposite. China and Pakistan work jointly in making an overall planning for a unified development of CPEC projects. In this regard, the Long Term Plan, Transport Monographic Study and respective MoUs guide the policy for CPEC.

All provinces have been consulted and invited to all meetings within Pakistan and abroad for their recommendations and review of CPEC projects. Earlier this month, the chief ministers of all four provinces under the leadership of PM Sharif attended OBOR Summit in China. On 29th December 2016, all CMs participated in the 6th JCC meeting which was held in Beijing. For institutional arrangement and development of CPEC, the National Development and Reform Commission (NDRC) of China along with the Planning, Development & Reform Ministry of Pakistan have constituted subsidiary working groups of the Joint Cooperation Committee (JCC) on planning, transport infrastructure, energy, Gwadar, and industry cooperation.

Since the signing of the MoU in July 2013, six meetings of the JCC have been held. The highest officials of every provincial government are represented in JCC meetings. It is impossible to hide or misrepresent any information on CPEC from provinces. Information on ongoing and agreed CPEC projects is available on the official website of CPEC. Moreover, the planning ministry is always available to address any queries regarding CPEC. All the Chinese companies involved in CPEC projects are nominated by their government. Therefore, there is no question of favoritism on the part of the government of Pakistan.

Another myth propagated around is that Pakistan is not going to gain any economic benefits from CPEC and it is tantamount to the 2006 Free Trade Agreement (FTA) with China. First of all, let me explain that an FTA works out on the basis of demand and supply of market forces. China enjoys a competitive edge in exports vis-à-vis all other economies of the world, including Pakistan, whereas CPEC is qualitatively different from an FTA. It provides the necessary stimulus to kickstart the processes of industrialization in Pakistan. Without sufficient electricity and adequate infrastructure, it is not possible to carry out industrialization.

CPEC brings $35 billion investments in energy projects. Alongside coal, clean and renewable energy projects are part of the CPEC energy portfolio. The existing energy policy was made before the CPEC MoU was signed between China and Pakistan. Prior to CPEC, nobody was interested in making investments in our energy sector. At that crucial time, China took a lead and demonstrated to the world that Pakistan is a reliable and secure destination for foreign investments. Energy investments under CPEC will remove a major bottleneck that is in the way of realizing high economic growth. It will reinforce the main grid structure, power transmission, distribution network, and improve power supply. Currently, 14 energy projects are in the implementation stage. Through CPEC projects, 10,000MW of electricity will be added to the national grid. Only 16,000MW was added to the national grid from 1947 to 2013. Moreover, energy projects under CPEC are not funded by Chinese loans instead they are undertaken in the IPP mode regulated as per NEPRA tariffs. The average cost of these projects is lower than the current cost of production of energy.

Under CPEC, new road and rail networks are to be built in all four provinces to enhance and improve connectivity within Pakistan. In addition to economic benefits of connectivity, social and regional cohesion will increase within Pakistan and in the region. Once energy and infrastructure bottlenecks are addressed, it is estimated that GDP will at least increase by more than 2 percent from its current trend.

Similarly, one of the important components of the CPEC framework is industrial cooperation. Nine industrial zones were included in it with equal representation of all provinces. The cost of production is steadily increasing for many industries in China due to increase in wages. It is estimated that 85 million jobs will be relocated and countries in the Far East, Asia and Africa are competing for these jobs. Pakistan wants to secure a big share of the relocation of these industries and jobs. Once relocated, this will create a huge demand for labor in Pakistan and enormous employment opportunities will be available for Pakistanis.

In the current projects of CPEC, two-thirds of the workforce is Pakistani and only a critical mass of labor force comes from China. This is a great opportunity for the Pakistani workforce to learn and update their skills from their Chinese counterparts. Already a boom in steel, cement and construction industries has created multiplier effects in the overall economy.

Economic benefits of CPEC are net positive for Pakistan. CPEC is a golden opportunity for Pakistan to undo the mistakes of the past and we, as a nation, cannot afford to be complacent about it.

Published in The Express Tribune, May 25th, 2017.