Tuesday, February 21, 2017

Impact of CPEC on domestic products of Pakistan

Dr Shabir Choudhry

Published on February 21, 2017

Impact of CPEC on domestic products of Pakistan

Thank Almighty that some thinking people of Pakistan have finally started to note that all is not well with the mega project of CPEC, which is presented to the people of Pakistan, Gilgit Baltistan and Azad Kashmir as a ‘panacea to all its problems’, which will cure all problems of these regions.

On electronic and in print media of Pakistan people have started asking questions about lack of transparency and accountability. People ask why the entire CPEC is shrouded with secrecy. What is there which both China and Pakistan are hiding? Good thing is that these Pakistani critics are not accused of being agents of India. Perhaps this ‘title’ is exclusively reserved for the people of Gilgit Baltistan and Pakistani Occupied Jammu and Kashmir.

Pakistan has put all eggs in the basket of the CPEC, which has, apart from economic, geo-political, strategic and social implication for Pakistan and the region. However, the government is not even prepared to look at the counter narrative, even though they know a lot is at stake. There are Pakistani experts who can make a positive contribution to the narrative on the CPEC. The society has been divided in to two camps: pro CPEC and anti CPEC groups. Whereas the Pro CPEC group is encouraged and provided with all the propaganda tools to support the government and the CPEC; those who have genuine questions regarding the Project are discouraged to speak out.

Criticism on CPEC by Pakistani writers

Unfortunately, as it has always been the case in Pakistan, any genuine question about the role of army, secret agencies and the government is perceived as anti Pakistan. Similarly the CPEC has been presented as a holy cow not to be criticised. A Pakistani writer, Ahsan Malik in his article, CPEC - An Alternate Perspective, writes, pro CPEC narrative: ‘is largely based on bombast repetition with less focus on facts and more on proclamation of myths, neglecting actual ground difficulties and over-all impact analysis, their approach is overly simplified that pro-CPEC means pro-Pakistan and if anyone speaks against CPEC in any sense of the meaning whatsoever, then it means they are definitely an enemy of Pakistan or a foreign stooge. This abrogated practice is denting the positive-critical thinking phenomenon, marginalizing people and factions who are willing to put efforts to evaluate the impact of CPEC on the basis of facts and figures feel shy of sharing their opinion due to fear of prejudice oriented bashing barrage from this all in all pro CPEC entourage. 

Silencing views of those who have ability to present a counter narrative; and which can help to enhance the benefits of the CPEC is not a pro Pakistan policy. It may help the government to present one sided view for political gains; but surely it will be counterproductive in the long run. People of Pakistan and the government officials need to know that when a contract is made between two unequal partners, generally it is the stronger partner which has the final say. It is feared that the CPEC is also between two unequal partners from economic, military and strategic aspects; and the Chinese will always have an upper hand in dealing with matters related to the CPEC.

Pakistani policy makers need to understand that closing eyes like a pigeon does not remove the danger or solve the problems. Pakistani markets are already flooded with the Chinese goods and damaging the Pakistani industries. Pakistan and China signed a Free Trade Agreement (FTA) which came effective in July 2007, and a study by Pakistan Business Council in 2013 revealed that FTA did not benefit Pakistan. The Commerce Ministry at that time looked in hurry to conclude an agreement without doing its homework or even consulting with the Private sector. The result is Pakistan is already stumbling under 5 billion US dollar trade deficit with China.

Similar urgency and lack of homework and transparency is associated with the CPEC, and the future generations will surely question rationale of this, as the Project will harm Pakistan’s national interests. Since the government policies are inconsistent, and their main agenda seems to be winning the next general elections scheduled to be held in 2018; rather than serious economic projects that will benefit Pakistan in the long run.

Attitude and commitment to the CPEC of various Pakistani officials and departments could be understood from the following:

Pakistan Senate's Standing Committee on Communications has expressed dissatisfaction over the federal government's attitude regarding the China-Pakistan Economic Corridor (CPEC) project. Daud Achakzai, Chairman of the Committee said: "Whenever we ask about the progress on the western route, we hear the excuse that the funds and workforce are not available,"

Baluchistan’s Chief Secretary had his complain as well. He told the Senate's Standing Committee members that ‘a committee formed on the orders of Prime Minister Nawaz Sharif to acquire land in Balochistan and Khyber Pakhtunkhwa had not held any meeting, hence no area had been acquired’. 2

Seriousness of some officials and departments could be examined from the sad fact that Accountant General of Pakistan Revenues refused to release payment due to Support Staff of the CPEC, which created serious problems for families of the poor employees. The government claims that the CPEC will create more than 700,000 new jobs; however, some of those who are working on the project have not received their salaries for the past five months.

The CPEC Support Staff works in the CPEC Secretariat and coordinates between various ministries. The AGPR is delaying the payments on the pretext that the pay structure of the employees does not match the standard pay structure of the government. It is important to note that the Secretariat was established in August 2013 in the Ministry of Planning Development and Reform, Islamabad with the estimated cost of Rs409 million. Its main task is overall coordination and implementation of the CPEC projects/activities in collaboration with the concerned line Ministries.

Those whose salaries are being withheld include Acting Project Director, three Deputy Directors, an Accountant, a Web Manager, a Graphic Designer, an Administrative Officer and other staff. 3

Views of experts and the Pakistani business community

Pakistani society is marred with corruption, nepotism, inefficiency and peculiar attitude to work will also not help to bring economic or development brilliance required in the 21st century. And to make matters worse there is severe shortage of energy and trained manpower, the Pakistani businessmen are of the opinion that they: ‘Will not be able to compete with Chinese products which are cheaper, better and come with lesser restriction to the consumer market. Furthermore, economists see the top most importer with reduced or no taxes as a serious blow to a country which collects almost half of its total revenue through levies’. 4

For some strange reasons Pakistani governments don’t have very serious and sincere attitude in promoting exports. Despite the fact that China is a friendly country with geographical proximity and friendship taller than Himalayas and sweeter than honey, Pakistani export to China is only $5.5 billion. And amazingly, Pakistan imports from China around 500 billion US dollars worth of goods. This figure is before the CPEC; just imagine what will be the comparative figures once the CPEC is fully operational; and how it will affect the Pakistani industry.

Pakistani exports of surgical and sports goods are famous world over; and Pakistani city of Sialkot rightly takes credit for this. However, if industrialists of these items are to compete with the Chinese goods, ‘they definitely will require some sort of assurance as prices of Pakistani goods will be greater due to higher manufacturing cost, therefore it is natural that international buyers will definitely prefer cheaper Chinese products over Pakistani ones, as those will be available through same supply chain’. 5

Ahsan Malik, a Pakistani writer thinks that the CPEC ‘is over all a 75-25 deal mainly in favour of China protecting and expanding Chinese interest. Pakistan needs to make most of its 25%’. It means China will benefit 75% from the CPEC and Pakistan 25%, if all goes well. Also he says we are building roads for the transportation of the Chinese goods, for which China has given us a loan which we will pay back.

Apart from that a serious concern is about income from the CPEC. It is declared that Gawadar will be a tax free port. If that is the case, it means Pakistan won’t be charging any duty on the materials/goods Chinese will be exporting or importing via Gwadar. Doesn’t this mean Pakistan will be deprived of valuable income? In any case, where is the income going to come especially when it is still not clear if Pakistan will be charging any toll tax from the Chinese? It is quite possible that Pakistan may not charge China anything as they did not charge the American containers which went to Afghanistan during the war there. Ahsan Malik asks:

This raises a serious question about what we are actually going to get from CPEC. A number of power plants? Series of roads and infrastructures to be developed by Chinese for their own use? A  few hospitals financed on blur terms? How is Pakistan going to repay the Chinese debts? What will be the real source of revenue for Pakistan from CPEC?

The Pakistani business community is uncertain, and to some extent, nervous and scared because there could be ‘massive dumping of goods’ and smuggling of goods. Nawaz Sharif may win the next elections on the back of the CPEC projects and some improvements in energy sector; but will the government be able to provide sufficient electricity to the industry that can meet the production targets; or they have to close their mills and shift to Bangladesh or some other country?

Textile industry of Pakistan has also become a victim of infamous Pakistani negligence, mismanagement, corruption and wrong priorities. The textile industry of Pakistan is very important, as it employs more than 15 million people, almost 30% of total workforce; and its share in Pakistan’s Gross Domestic Product (GDP) is 9.5%.

At present Pakistan is the 4th largest cotton producer in Asia; and the 8th largest exporter of textile products in Asia. Whereas India’s share in textile products was 3.2% at the beginning of the century, now it has increased to 7.5%; and Pakistan’s share on the other hand has dropped to 1.8% to 2.2%. Pakistan’s textile export is above 13 billion US dollars; and that of India is $41.4 billion. Experts believe with a proper planning and investment Pakistani export could be doubled.

As noted in my last article, ‘Can CPEC land Pakistan in hot water’? Indian strategic planners are of the view that because of nuclear strength, Pakistan could not be taught a lesson militarily. However, they can bring Pakistan down on its knees with an economic collapse; and CPEC can help to achieve that objective. They are planning to undercut Pakistani exports by providing cheap products; and any loss endured could be settled by the government.

Pakistani economic expert, Osama Rizvi notes:

‘Recently Bloomberg also covered the hapless condition of our textile sector. While the world has seen a flurry of job cuts, especially in oil sector due to low oil prices that amounted to 300,000 people, no one noticed that Pakistan has shed some 500,000 jobs in textiles alone. An eye-opener, an alarming situation.

He refers to another expert Mr. Tahir Shakoor, who has more than 25 years of experience in textile sector, and writes: ‘Regarding the announcement of recent textile package and CPEC he opted a very practical approach: “CPEC presents a potential threat to our domestic industry. WE can face a fierce competition; it can choke our rail and road communication systems”.

In view of the above attitude to work and the CPEC, lack of transparency and hidden aspects of the CPEC one wonders if the CPEC has the ability to change the fortunes of citizens of Pakistan. Or it will mainly help Chinese to advance their agenda in the Arabian Sea, the Indian Ocean and the Central Asia. Furthermore, the CPEC will help to sustain Chinese economic growth and develop underdeveloped Western China.

Another Pakistani writer, Saima Tippu feels that the CPEC may ‘follow the footprints of Panama and Suez Canals – that became pawns in regional and international power games. Considering the potential sabotage activities of the powers across the fault lines: India and the US one wonders if CPEC’s majestic promise will start to fail even before its proper takeoff. There are three major reasons which may retard, impede or altogether fail this hugely ambitious undertaking’.

 Saima Tippu expresses her amazement on lack of Transparency, and feels both China and Pakistan are deliberately withholding information from the people, media and the world; and that makes it more suspicious. She says how can there be lack of transparency in the 21st Century in Mega projects which involves public debts, and this: ‘raises all kinds of doubts, concerns, and fears. It has also generated many unwarranted controversies besides feuding inter-provincial disharmony’, in her view ‘lack of transparency about costing of various projects included in the CPEC has led to all kinds of suspicions of mega corruption, extent of kickbacks, commissions and hidden payments. There are also reports, circulating in Islamabad’s diplomatic and development community that Chinese companies are being compelled to sublet contracts to cronies and front-men of “who’s who” in Pakistan and built in profits are being added to the cost of projects. Allegedly most projects are being undertaken at more than 100% profits. Forcing contractors to add “built in profits” to their biddings has been a well-established practice in Pakistan, called “padding” by the contractors and civil servants’.

It is imperative for all mega projects, especially which have great regional and international significance to be transparent; else there will be doubts about intentions and hidden agendas and conspiracies; and that can create rifts and fault lines. The learned writer concludes: ‘CPEC may remain a fantasy unless Pakistan finds sincere leadership, independent of Western and Indian influence. It is also feared that Pakistan will lose its political and economic sovereignty, owing to excessive foreign debt as happened with the owners of Suez Canal’.

 Conclusion

For the CPEC to be successful and beneficial to people of Pakistan, Gilgit Baltistan and Pakistani Administered Kashmir, it is absolutely essential that there is complete harmony among all the Pakistani provinces, and Gilgit Baltistan. Also it is extremely important that all the Pakistani stakeholders are on the same page, and they understand what is written on that page and what is required to be done. Unity of thought and action will enhance Pakistani position when dealing with the bigger and stronger partner in the CPEC. Alas, that is what is missing; and if anyone points this out he/she will be projected as anti Pakistan or agent of a foreign country.

However, the bitter fact is that there is no unity among the provinces and all the stakeholders on the Pakistani side. Pakistani provinces still have big complaints about the CPEC, because in their view, Punjab is getting lion’s share of rewards its rewards. It is important that there is peace and stability in Gilgit Baltistan, entry point of the CPEC; and in Balochistan where it ends after travelling volatile regions for hundreds of miles.

In Balochistan there is active insurgency going on, which started many years before the CPEC was initiated. In view of the deteriorating law and order situation and growing resentment and anger against Islamabad, it may not be possible to provide foolproof security along this long and volatile route.

Gilgit Baltistan, as we all know, is not legally part of Pakistan. They can lie, twist facts, bombard people with false propaganda, but this does not change the fact that Gilgit Baltistan is part of the Princely State of Jammu and Kashmir. Despite the Pakistani control and propaganda people of the region have their own ambitions and dreams. Another twist in this matter is that India also claims this region as its ‘integral part’; and may look for reasons to intervene in this region.

Many writers claim that there is hardly any working relationship between office of Ahsan Iqbal, chief of the CPEC and Commerce and Finance Ministries. Furthermore, the government and its key man on the CPEC lacks in-depth knowledge and have not done its homework properly, and by and large work in isolation, way from think tanks, universities and the business community.

Under China Pakistan Economic Corridor, 12 early harvest energy generation projects including Sahiwal coal fired project, Port Qasim power plant and Karot Hydro power station, should be completed by 2017-18, which should help to meet energy requirements of the country.

These early harvest projects are related to energy generation based on coal, solar, wind and hydel. The medium term projects should be completed by 2025; and the long term projects should be completed by the year 2030

Anyway, if all goes well, these projects will produce sufficient electricity and will overcome power demand in the country. Whether Pakistani economy gets the required boost from the CPEC or not, it should help Nawaz Sharif to win the next election scheduled to take place in 2018.

As far as the people of Pakistan are concerned, it won’t be the first time that they would be taken for a ride with wrong information and wrong priorities. They will find out what has happened to them, and what Pakistan has lost when the Muslim League N will be thinking about the next general elections. The same people will be dancing or shouting slogans either in favour of PPP or N League; and the story will continue

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