The Real CPEC Plan

May 28, 2017

Special Report | By Hasaan Khawar | Daily Times | Sunday, 28th May 2017

http://dailytimes.com.pk/pakistan/28-May-17/the-real-cpec-plan

As Prime Minister Nawaz Sharif stressed the need for a dialogue with countries outside One Belt One Road to dispel apprehensions about the initiative, national media in Pakistan revealed a ‘long-term CPEC plan’, which apparently had not been shared with the public so far giving rise to a number of unwarranted co ncerns and rumors. The critics questioned not only the document but also speculated about the ‘real’ objectives of CPEC. Many of these concerns however, were completely unfounded and have done more damage than good.

The CPEC plan shared by media was an outdated document. The actual plan that sets the foundation for China Pakistan Economic Corridor is a different document and has seven areas of cooperation.

There is a need to objectively look at what CPEC is and how it is being planned. It is true that CPEC goes way beyond infrastructure development. In fact, the actual CPEC plan aims at forming a “1+4” collaboration pattern with ‘CPEC and its four priorities, namely the Gwadar port, energy, infrastructure construction and industrial cooperation’. It must be understood thatinfrastructure development is just the start of CPEC, paving way for much broader cooperation for economic integration and growth, ranging from industrial collaboration to agriculture development and from tourism to financial integration.

Pakistan is at a transformative moment, where CPEC is expected to usher in a new era of economic development with a newly developing Belt and Road alliance. CPEC is likely to provide a powerful stimulus to our national economy. This however would need building a national consensus, adequate preparation by the government and private businesses, anticipating and mitigating risks and reaping CPEC’s benefits beyond the infrastructure.

SPECIAL REPORT

In 1960, if Lee Kuan Yew, with his tiny city state of Singapore and a population of merely 2 million poverty-ridden people, had feared the forces of globalization, Singapore would still be ranking somewhere in bottom few countries of the world, if it all it had managed to exist. Instead Lee linked his country’sfuture to massive forces of globalization, using foreign direct investment to stimulate growth. Singapore now has world’s highest trade-to-GDP ratio.

On the other hand however history is marred with stories of failures, where countries refused to embrace opportunities coming their way or somehow failed to capitalize on them.

Recent media reports revealing a so-called CPEC plan caused concerns in many quarters and sprang a rumor factory in action. Pakistan, it seems, is at a similar crossroad of history. How the country will respond to the changing face of globalization and new economic imperatives would define where would itend up a few decades down the road. CPEC is the litmus test of how we choose our future.

There is therefore a need to separate myths from realities. CPEC is not merely about ‘agriculture’, ‘surveillance of cities’ or ‘visa-free entry of Chinese nationals’, as quoted by media. CPEC is about trade, infrastructure investments and increased Pak-China cooperation in a number of sectors.

 

The Long-Term Plan Passé

China initially developed a detailed draft document, which was shared and discussed with Pakistan. From Chinese side, China Development Bank (CDB) was commissioned to develop this document, sponsored by National Development and Reform Commission (NDRC). This draft plan, a 239-page document dated December 2015, provided many details on Chinese perspective on CPEC. Although the plan was quite broad in its scope, it did propose some very specific details regarding a few sectors.

 

The New CPEC Plan

More recently however, a 30-page summary plan, dated February 2017, replaced this initial detailed draft and formed the basis of developing a formal agreement on CPEC between Pakistan and China. This summary plan was structured around five chapters. The long-term plan is effective until 2030, spanning short-term projects that will be completed by 2020; medium-term projects by 2025; and long-term projects by 2030 or later. The summary plan only provides broad principles of cooperation, to set the tone for working out the details in future.

The plan recognizes that economic and social development ties between China and Pakistan have entered into a new phase in recent years, with both sides now developing “multiple wheels” to drive their bilateral relations forward. Its states that ‘the China-Pakistan Economic Corridor, starting from Kashgar in Xinjiang, China, and reaching Karachi and Gwadar, southern coastal cities in Pakistan via the Khunjerab Pass and several other nodal areas, constitutes a key platform and a central task for cementing China-Pakistan economic relations’.

 

What is CPEC?

CPEC represents a portfolio of projects that are either under progress or will be undertaken as a result of China-Pakistan cooperation under the landmark Chinese Belt and Road initiative, deepening China’s connectivity with the world. Presently, the total size of the projects envisaged under CPEC stands at USD 54 billion, upgraded from USD 46 billion. The portfolio primarily includes major road and other infrastructure projects, establishment of special economic zones and an improved supply of electricity, besides an ambitious optical fiber cable project. It is expected that road network developed under CPEC will link China with Gwadar and other ports and will lead to development along the route and beyond. From within the China, the northwestern autonomous region of Xinjiang specifically is expected to immediately benefit from this improved connectivity.

While all these projects have varying timelines, some of the projects are categorized as ‘early harvest’ projects under CPEC that are being fast tracked. Five joint working groups have been formed under Joint Coordination Committee (JCC) of CPEC to drive their respective areas including: long-term planning, energy, transportation infrastructure, industrial cooperation and Gwadar port. On Chinese side, National Development and Reform Commission of China houses the JCC secretariat, whereas in Pakistan Ministry of Planning, Development and Reforms of Pakistan has taken over this role.

 

Areas of Cooperation Under CPEC

Key areas of cooperation under CPEC, as provided in the plan are outlined below to clear the myths around what it entails:

Connectivity forms the cornerstone of CPEC as Pakistan fits the puzzle perfectly due to its locational advantage, whereby China’s traditionally backward region of Xinjiang can be connected with Gwadar port, thereby improving trade relations with ASEAN Central Asian and European countries. Any industry where transportation costs matter, it would make business sense for Chinese to relocate their industry closer to the port, and presumably in Pakistan, if possible.

Moreover China is looking to deploy its capital in infrastructure investments around the world and Pakistan with its critical infrastructure needs makes a good candidate for such investments. It is important that Pakistan’s investment in infrastructure should keep pace with the stipulated growth in economy.

On e-government front, Pakistan has taken up a number of safe cities projects. Two of the projects,which are already initiated in Lahore and Islamabad, were won by a large reputable Chinese company through competitive tendering. Other global companies with similar technical offerings are more expensive and therefore Chinese involvement has resulted in more competitive tendering. China knows that there is an opportunity to deepen this investment as Pakistani government has shown interest to expand the network of safe cities.

 

Energy takes the lion’s share of the committed CPEC investments, much of which would be invested in power generation projects. However, CPEC also encompasses other critical areas such as alternative energy, power grids, etc. Bringing such areas in the fold of CPEC does not mean that these opportunities will only be available to Chinese and instead would qualify these for financing under CPEC, if required.

Industries and industrial parks is one area, where Pakistan has the greatest potential to gain but there is a need to proceed with cautious optimism. How does China see these opportunities unfolding in this area are through following the private sector. All the industrial and business ambitions highlighted so far are based on existing Chinese investments. In household appliance sector for instance, the Haier &Ruba Economic Zone provides a perfect example, which was established in 2006 and considered a remarkable success. In addition to Haier, other famous enterprises from the Chinese household appliance industry, like Gree and Changhong have also invested in Pakistan. These investments have been successful and Chinese know that there is a potential to deepen these investments.

Moreover, there is no denying that Pakistan, with a population of 200 million people provides an attractive market, not just for Chinese but for any international player. Any initial investments are likely to be in industries catering to local consumer markets to ensure safer returns for investors. Whether Pakistan will be able to attract Chinese and other international investors to set up industries for export will to a great extent depend on how well the government attract and facilitate these investors through providing health investment climate and appropriate skilled workforce. The concerns about local industry facing tougher competition are well founded to some extent but in the longer run, such pressures have been known to beneficial for local industry making it more competitive. This however would mean local businessmen gearing up for this new scenario and look for new opportunities and partnerships to grow and transfer technology rather than be isolated, inward looking and rely on protectionist policies.

Agricultural development is a priority area under CPEC and there is a strong Chinese interest to invest in agricultural inputs production and agriculture infrastructure. Efficient logistics provide an essential pre-requisite for an effective participation in global agriculture value chains. Pakistan with its untapped agriculture potential provides a tremendous opportunity, where targeted investments can generate healthy returns for both sides. The priority interventions manifest areas, where Pakistan has long been trying to seek help from international donors.

Contrary to popular belief, there are no existing demands from Chinese to ‘give out thousands of acres of land’. Instead China wants to adopt a cautious approach in certain areas. That is the reason, why even the initial draft long-term plan mostly talked about ‘demonstration’ projects’ especially in areas of improved technological cooperation. Any future interest of China in agriculture would be contingent upon how Pakistani side responds these demonstration projects.

Tourismis likely to grow with opening up of national economy. Despite having numerous World Heritage Sites in the country, international tourism in Pakistan unfortunately claims only 0.4% of GDP. Foreign direct investment in tourism sector is likely to place Pakistan on international tourist circuit.

Financial cooperation forms an important part of CPEC. Free and unrestricted flow of capital provides an important pre-requisite for attracting foreign direct investment. The proposed initiatives stress on reducing the reliance of both countries on dollars or euros, for bilateral trade as well as to create access for infrastructure projects in Pakistan to newly created institutions for Belt and Road like Asia Infrastructure Investment Bank.

 

 

CPEC – The Future

Pakistan is a developing country, which has long faced economic constraints limiting its growth. China, our next-door neighbor, on the other hand is well on its way to becoming world’s largest economy. Fortunately, the world offers relevant precedents on what happened to countries in similar situations.

Mexico, a few decades ago, wrestled with the decision to join NAFTA, anticipating the adverse consequences of opening up to a mammoth economy like that of USA. History however provides evidence that within twenty years after signing of NAFTA, US imports from Mexico grew by 500 percent.

Turkey is another example that signed Customs Union Agreement with EU in 1996, subjecting its industry to far superior European quality standards. The country ended up gaining immensely from this economic integration. The McKinsey Global Institute (MGI) has shown that openness to global cross-border flows of goods, services, finance, people, and information promotes faster GDP growth, accounting for 15 to 25 percent of world GDP growth every year.

Economic isolation has rarely helped any country to grow. Nobody is expecting Pakistan to open the ‘floodgates’ and it is up to us how we plan to benefit from CPEC and the opportunity to integrate within a newly developing massive trade network. If China has laid out its objectives on how it intends to benefit from CPEC, it is very well within its legitimate rights. Now it’s our turn to stipulate how we envision our industry and economy to benefit from CPEC.

The CPEC plan lays out a number of important steps that need to be undertaken. These include making full use of existing arrangements such as Bilateral Investment Protection Agreement, Free Trade Agreement, Agreement on Service Trade in Free Trade Zones, Agreement on Expanding and Deepening Bilateral Economic and Trade Cooperation, and Framework Agreement on Energy Cooperation, which need to be re-worked in the light of opportunities offered under CPEC.

Such association at government-to-government level must be complemented with business-to-business partnerships and joint ventures between Pakistan and Chinese enterprises. There is a need to promote more meaningful collaborations, where Pakistani businesses can provide access to local market, trained workforce, licensing, existing supply chain, etc. and in return should look for sophisticated technology, newer capabilities and increased share in the global trade pie.

A private-sector led strategy, with a focus on economic integration with the Belt and Road network, is what Pakistan needs to stimulate it’s economic growth.

 

The writer is a policy analyst, development practitioner andan honorary fellow of Consortium for Development Policy Research. He advises governments, donors and non-profits.

Toilets and public policy

July 27, 2016

By Hasaan Khawar | Published: July 27, 2016 | Express Tribune

https://tribune.com.pk/story/1150759/toilets-public-policy/

The writer is a senior international development professional and a former civil servant. He has worked with Fortune 500 corporations in Pakistan and the US. He is an MBA from Washington University in St Louis.

Recently, I came across a number of posts on social media, protesting the imposition of a charge of Rs50 on the use of public toilets in service areas along the Lahore-Islamabad Motorway. These protests alternated between claims of exploiting the public to accusations of exorbitant profitability of multinational and local companies. Some of the arguments also bordered on allegations of corruption, mismanagement and inefficiency. On my subsequent visit, I especially visited these so-called exploitative facilities, only to find state-of-the-art, newly created, clean and well-equipped modern toilets. These were established in addition to all previously created facilities in the main service area, which were still functioning and were free for public use. Apparently, the petrol stations along the Lahore-Islamabad Motorway recently changed hands from one company to another, with the new management establishing these facilities and upgrading them with significant investments.

I did not mind paying the charge to use these impeccable facilities, with good quality hand wash, clean tissue papers and fresh paper towels. The issue does not pertain as much to the difference between perception and reality as it does to the approach to public services that can have serious implications for development.

Public facilities are not free to establish and maintain and rather need considerable resources to run. However, with the prevalent culture of free-of-cost services in Pakistan, the government has to absorb these exorbitant costs. In the modern world, the concept of charging citizens for the use of public services is based on the willingness-to-pay of consumers and depicts an important dimension of public-private partnership transactions. The greater the revenue recovery and willingness-to-pay, the better the sustainability prospects of a project are. This, primarily, is the reason why in many train and metro stations in Europe and the UK, public toilets are mostly paid facilities with a token charge. The money received is not a huge source of revenue and rather supplements the funding for maintenance of these facilities to keep them functioning.

Sustainability of public projects has posed a significant challenge in Pakistan and in recent years, many flagship projects of the incumbent government, such as the Metro Bus and the Lahore Waste Management Company, have been criticised on the grounds that it may be difficult for future governments to keep them running when faced with fiscal constraints. There is no doubt that both these projects offer state-of-the-art services to citizens, but they come at a highly subsidised cost, putting a burden on the public budget. While such decisions may be politically correct and popular, they can significantly constrain the government’s ability to improve the quality and availability of public services.

Another important concept in such paid services is differentiated service models with varying prices. The concept is not new and can be manifested in various other industries such as travel classes of airlines and railways, and express tickets for theme parks and visa application procedures worldwide. In the absence of any costs imposed on citizens, governments would be unable to create such models and at least partially improve the services for those who can afford them. A free service, by definition, cannot have various levels (or classes) as everybody would opt for the best one.

The arguments against such differentiated services are generally based on income-based discrimination and rights of low-income people to enjoy quality services. These arguments, however, are generally frivolous, not only because they are politically motivated and that society as a whole is classified based on income, but also because such free models actually undermine the very essence of such arguments. The provision of free services to all, including those who can afford them, takes away valuable sources that could be spent on lower income communities.

It is important to note that while some of these services seem free, somebody does have to pay for them. Without additional resource generation from such ventures, the contract fee for such facilities is likely to absorb the costs through an increased fee or reduced payout, thereby creating a dent in expected revenues and in turn, burdening taxpayers. This lack of a willingness-to-pay and the government’s decisions to give in to popular public demands of subsidies and free-of-cost services results in targeted subsidies enjoyed not only by those who deserve free services but also by those who can afford to pay for public facilities. This is worsened by excessive use of such services, without a system of checks and balances in place, further burdening the system and jeopardising the sustainability of public projects.

The only way of creating better public services that are widely available is to embrace a culture of revenue recovery. It must be carefully considered whether citizens are to be charged and if so, how much. Differentiating mechanisms and strategies must be adopted, whereby only the most deserving are subsidised. This would not only result in establishing more sustainable projects, but would also lead to better quality services for citizens and fair use of public infrastructure. This in turn can stimulate private investments in the public domain and expand the development canvass manifold.

Full cost recovery is one of the basic tenets of a sound public-private partnership, supplemented through viability gap financing in selected cases and looking for alternative revenue streams, where the core services cannot be taxed. The recent increase in toll fees on the M2 motorway, without much drop in traffic, is a good example of where existing tariffs stand in comparison to the actual willingness-to-pay of citizens, leaving significant money on the table and creating a drain on public budgets.

Party Coming to an End!

October 8, 2014

Hasaan Khawar
28th September, 2014 – Seoul

Last Friday night, I went to Itaewon – a happening cultural district and supposedly a haven for expats in Seoul – and did some bar and club hopping. Fun and festivity was in the air. Hundred of people thronged the area. Bars were filled with dancing couples, group of gossiping friends, chasing eyes, ravishing beauties and impressive hulks. I could see faces full of excitement and exuberance, with eager desire to participate in this evening of fun, let it all out and dance through the night.

Interestingly, as the night moved on, the spirit of the place took a different turn. After a few hours, the dancing couples were found sitting around the tables, calmly enjoying their drinks. The lovebirds started sneaking away, wanting to get back to their nests. The ravishing beauties now looked tired and dull. Even the energetic bartenders were now slowing down. Night was coming to an end and so was the party. It seemed that everyone wanted to go back to their peaceful abodes. The same night now seemed uninteresting and boring. People have had their share of fun and now it was time to rest.

While climbing the ladder of age gradually, the concept of death has often confounded me. If we were lucky to live a long life, how would we feel, when we are near the end? Would we want to leave this glittery world, full of colors, fragrances and excitements to the realm of unknown? How difficult is it to let go of our loved ones for good, who we would rather not miss for an hour? How painful is it to leave our precious material possessions that we have tried hard to gather all along your life? We look at the world from our own perspective, where we sit at the center of the world. But one day, we leave this aura of self-created kingdom and depart for permanent anonymity into the dust of time.

While watching the ebb and flow of the evening that day, it suddenly dawned on me that life is no different from what I was witnessing at Itaewon. Those, who are lucky to spend a fun-filled life, are excited when they are young, just like the colorful evening a few hours earlier. They were full of energy and emotion. But as the night goes through, just like our age, everyone starts to lose interest in the party, till the time, we are old, having little energy left in our frail bodies. That is when we sit by the table, look at the crowd, cherish what we had earlier, make the most of our last hour, by having a good conversation, before we take off to our final abode to take rest.

What is Love

September 30, 2014

By Hasaan Khawar

“What is love”, the little girl asked. The old man smiled and said: “Have you ever listened to a beautiful melodious tune, which when you hear for the first time, the clock tends to stop, the mind starts to wander into the less frequented corridors of your past, the heart comes into a perfect synch with the notes and you tell yourself this is just the right moment? That melody, my child, is known as love, and that very moment is the essence of it, no matter how short-lived it may be. And life is no more than a rare collection of those precious jewels. So live them to the fullest while they last, because they never come back just like a picturesque scenery, which you take a glimpse at, before the fast moving train of life takes you ahead.”

Juggling the balls!

September 24, 2014

By Hasaan Khawar

Life is about juggling many balls simultaneously. It doesn’t matter how fast they are or how high can you throw them. The key is not drop even a single one of them till the time the show is on.

Indelible Marks

September 17, 2014

By Hasaan Khawar

She was looking intently at the empty note pad, lost deeply in her thoughts. After a while I just couldn’t help it and asked her: “what are you looking at?” My question kind of shook her out of her trance. I noticed that her eyes depicted the traces of an untold story. She restlessly touched the page with her fingers as if a blind person is trying to read an urgent message through Braille and said: “Memories are like writings. You could tear the page and throw it away, but the words written with the pen of passion and ink of intensity would often leave an indelible mark!”

Life 2.0

September 10, 2014

By Hasaan Khawar

Sometimes I think life is like Instagram , a collection of happy moments and the memories we make, and on others it seems like Twitter, brief and spent mostly in making comments about others. But now I’ve realized that life is more like Facebook, where we are always putting up a happy face and perpetually fishing for compliments!

Knowledge is Power

September 3, 2014

By Hasaan Khawar

Knowledge is knowing who needs to know what. Power is knowing who does not know what. Access is having all the knowledge. Wisdom is exercising discretion in disseminating that knowledge. Confidence is not showing what you do not know. And sheer stupidity is posing that you know it all. But success is seeking knowledge, while being confident when you don’t know and acting wisely when you do.

Lahore, my beloved!

August 29, 2014

By Hasaan Khawar

The roads seem narrow, the air humid and traffic unruly! ‪Lahore‬ feels like an old beloved, who no more does care to get ready for welcoming her love. From a distance it seems that love has probably rusted away due to winds of time. But still when you see her, the old flame flickers and then re-kindles with full swing. You fall in love all over again!

Tricks of Time

August 27, 2014

By Hasaan Khawar

I have always wondered why my clock always moves in a direction opposite to my heart. When I want it to stop, it races. When I want it to race, it seems to stop. The moments I want to make eternal, pass through like a flash and the moments I want to pass quickly last for a life time.