Economic Breakthrough Opportunity

Spearhead Issue Brief

Pak-China RelationsThe business environment in Pakistan has perked up as the corporate world eyes the opportunities that have opened up with the 46 billion dollar Chinese infrastructure and energy package. And it’s not just the business men in Pakistan it is the global business world that is looking at Pakistan. The power generation projects will vastly increase the need for curtailing power losses and increasing revenue recoveries—already foreign investors are offering expertise in the areas of conservation and efficiency.. The railways improvement package has sparked interest in a high speed train in short heavy traffic sectors like the Islamabad–Lahore Sector. There is bound to be interest in dam building too. Gwadar Port development and hinterland connectivity especially in Baluchistan has the potential of generating jobs and small business enterprises thereby sidelining the insurgents and militants. No surprises then that anti state elements and their sponsors have increased their activities.

The big picture shows that Pakistan’s interests merge seamlessly with China’s plans for road and maritime threats westwards. This brings Central and South Asia closer and should logically speed up Pakistan–Afghanistan cooperation as both rightly see themselves as the hub. The Joint Afghan-Pakistan Business Council is active as is the government in ironing out issues in transit trade. The Chinese Pakistan Economic Corridor promises to uplift the fast deteriorating infrastructure and the critical energy shortage. The internal security situation will continue to be a matter of concern but the military push to establish governance in the west and its determined drive in urban Karachi has raised hopes. Baluchistan will probably be the next focus and plans are afoot for a special security force to protect specific projects. The viability of the Chinese package should not only be viewed through the lens of advantages to Pakistan because China stands to make huge gains in its westward projection plans and the reduction in transit trade costs. It is a Chinese company that will be setting up the world’s biggest solar park in Bahawalpur to deliver 900 MW.

Local and foreign investors will invest but it is up to the provinces to start doing some very serious home work about taking advantage of the changing environment. The education, health and internal security sectors need to be upgraded and law enforcement capacity built up together with effective governance. Provinces need to follow Punjab in identifying mass transit and other projects that could be add ons to the overall development environment.

There is another project that will change the energy landscape and foster cooperation with Afghanistan and Central Asia and even Russia. This is the recently approved CASA 1000 project that links Pakistan, Afghanistan, Kyrgistan and Tajikistan in a startup 1000 MW energy flow to Pakistan that would eventually rise to 2800 MW with Afghanistan getting 300MW. Details of the project including geographic locations and implementation responsibilities and financing arrangement by World Bank and others have been made public. The transparency in the project clearly indicates its viability and potential. Construction is expected to start in October 2015.

There are concerns especially in the Chinese package. The corporate world wants transparency especially in the involvement of the private sector. There are also questions on the aid, loan and grant combination. There are fears of political bickering over routes especially if changes are made and full information is not shared. Kalabagh and Reko Diq are cited as past failures because of inept handling at all levels. Finally it must be noted that investors—at least most investors—want quick returns and this is not possible in long term projects. There is therefore a requirement to attract the right investors.

The coming breakthrough can be a game changer for Pakistan. Failure is not an option. Implementation capacity must be rapidly built up and all interference warded off. The US and India could and may oppose the developments but the fact that a stable Pakistan is the best bet for peace in South Asia should lead to serious introspection over short term expediencies. Pakistan’s Foreign policy should move into high gear.