CPEC a game changer for economy

A MASSIVE US$62 billion investment project underway in Pakistan - the China Pakistan Economic Corridor (CPEC) - is seen as a game changer for the country's economy. It is a flagship project under China's ambitious Belt and Road Initiative (BRI) which is designed to run through Asia, Europe and Africa connecting over 60 countries.

The CPEC is a collection of a wide variety of infrastructure projects throughout the country which were initiated as far back as 2013. While an investment of US$47 billion was planned when CPEC was conceived, the figure has gone up over the years as more projects were added along the way, taking the total to US$62 billion at last count.

Pakistan says that the CPEC aims to rapidly upgrade its infrastructure to strengthen its economy by the construction of modern transportation networks, several energy projects, and special economic zones. A vast network of highways and railways are to be built under the CPEC plan, which will span the length and breadth of the country of over 220 million, ranked as the fifth most populous in the world.

For instance, the new port being developed in Gwadar is linked to the one in Karachi and the two ports are to be connected to northern Pakistan as well as points further north in western China and Central Asia. The CPEC plan includes building a 1,100 km long motorway between the key cities of Karachi and Lahore, while the Karakoram Highway from Hasan Abdal to the Chinese border will be completely reconstructed and overhauled.

The Karachi to Peshawar main railway line is also being upgraded to allow for train travel at up to 160 km per hour. Eventually, Pakistan's railway network will also be extended to connect to China's Southern Xinjiang Railway in Kashgar. The estimated US$11 billion required to modernise transportation networks will be financed by subsidised concessionary loans.

While some analysts compare CPEC's potential impact on Pakistan to that of the United States' Marshall Plan on post-war Europe, another group of analysts see CPEC as a debt trap for the country. Pakistan says that this is a myth as the total debt relating to CPEC projects is less than 10 per cent of its total debt. Furthermore, the public debt on funds from China has a maturity period of 20 years and the interest rate is a low 2.34 per cent. If grants are included, the interest rate drops to just 2 per cent.

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The country hopes that the CPEC project will help in the creation of over 2.3 million jobs between 2015 and 2030, which is the end date of the project, and add 2 to 2.5 percentage points to its annual economic growth rate.

"CPEC, a flagship project of BRI, is a transformational project. Envisaging an investment of US$62 billion financed by China, it entails greater connectivity and trade linkages between Pakistan and China through a network of road, rail, fiber optic cable, energy pipelines and power generation projects. It aims at bringing prosperity to the region," Pakistan's Foreign Minister Makhdoom Shah Mahmood Qureshi tells The Business Times in an email interview from Islamabad on the occasion of his country's National Day today.

The vision of CPEC also includes establishment of Special Economic Zones (SEZs), industrial parks, trade centres, and technical cooperation. Many of the projects are in implementation phase while extensive planning is under way on others, he adds.

"Pakistan believes that regional economic development and connectivity, accentuated by CPEC, will provide a stimulus for creating broad-based growth across the region. According to the long-term plan of CPEC, projects must be completed by 2030. Pakistan and China are committed to making it a high-quality demonstration project of BRI," says Mr Qureshi.

Asked if there was any setback from the Covid-19 pandemic on the ongoing work on the various projects of CPEC, he says that notwithstanding Covid-19, CPEC projects are being expeditiously completed. "We have ensured that under relevant SOPs in place, the work on CPEC remains uninterrupted. We are confident that post Covid-19, BRI and CPEC will become the hub of trade and economic activity for the region."

While CPEC is a long-term project, Pakistan says it has already reaped early benefits from it as the first phase principally focused on energy and development of infrastructure in the country. Nine energy projects with a total installed capacity of 5320 MW have been operationalised and they have created 5,000 local jobs. Eight projects with a total installed capacity of 4470 MW are under construction and five energy projects with a capacity of 3244 MW are in the pipeline. Most recently, agreements on Kohala and Azad Pattan hydropower projects have been signed. Both projects add up to an investment of almost US$4 billion and will create 3,000 jobs.

Mr Qureshi says that under CPEC, Pakistan's infrastructure and transport network is also being modernised. Various sections of Karakoram Highway-II and Peshawar to Karachi motorway have been upgraded and opened to traffic. Pakistan is working with the Chinese authorities on the upgrading of the Main Line-I railway track from Karachi to Peshawar which is 1,687 km long.

A new fiber optic cable under CPEC has been operationalised from Khunjerab to Islamabad, the national capital city. In the next phase, it will be laid from Islamabad to Karachi - the country's commercial hub - and then Gwadar, which is being developed as Pakistan's second major port, as part of a Digital Highway Plan.

Says Pakistan's Foreign Minister: "Over the past seven years, CPEC energy projects have directly created 26,795 jobs and boosted local power industry significantly. On the other hand, CPEC's infrastructure projects have created almost 50,000 jobs. This testifies to the fact that CPEC's contribution to our economic development has been real and substantial."

Asked what role is seen for Pakistan's private sector in the development of CPEC, Mr Qureshi says that the CPEC will complement the private sector's efforts to consolidate and expand Pakistan's economy.

"We believe that in five to 10 years CPEC will substantially raise our GDP, improve and modernise our infrastructure, and help Pakistan optimally realise its true potential. CPEC is currently in its second phase with focus on industrialisation, socio-economic development, agriculture and technological advancement," says the Foreign Minister.

"We are developing Gwadar port as an energy, trade and logistical hub. Gwadar can reduce logistical costs substantially and can give access to Central Asia, Afghanistan, and the West of China apart from serving as the regional hub of trade and commercial activity. The establishment of Gwadar Free Zone has presented Gwadar as a tax haven for investors and has already attracted multiple investors. The businesses under the Free Zone will enjoy tax benefits for 20 years.

"I think that the agriculture, manufacturing, industrial, logistical and IT sectors stand to gain most in the years ahead," says Mr Qureshi, adding that Pakistan is strongly encouraging other countries to invest in CPEC. He invites investors to make use of Pakistan's liberal investment environment and reap economic dividends from CPEC, especially its SEZs. The various SEZs in CPEC provide investment incentives such as tax exemptions, 100 per cent repatriation of profits and exemptions on custom duties for the imports of capital goods.