National and International Issues

Second Phase of CPEC and the Role of CPEC Authority

Prime Minister Imran Khan led a delegation to China on October 8-9, 2019. The PM and his delegation spent extremely busy days interacting with multiple stakeholders including civil, military and business community. The prime agenda of the visit was to find an efficient way for the implementation of CPEC and enhance bilateral cooperation. PM engaged in meetings with government officials and the private sector with the objective of clearing the conspiracies, to share future economic and CPEC plans and concrete steps to resolve the issues. 
It is now an open secret that CPEC related interventions had been facing some serious hurdles as the process advanced during its second phase. Business community from both sides of the border had complaints regarding the issues. The second phase started at a very interesting time, the old government was leaving office and new was taking over. From the very first day the incumbent government championed the CPEC project. However, like other stakeholders it could not fully comprehend the dynamics of second phase. Lack of understanding of second phase created real problems, which led to a slowdown in the speed of implementation. Therefore, it is critically important to first understand the dynamics of second phase before devising any policy for implementation. 
The second phase would venture in seven areas: a) enrichment; b) expansion, c) financial and insurance services; d) eco-tourism; e) agriculture; f) joint ventures in education; and, g) industrial development. Enrichment will lead to expansion in existing initiatives in the fields of energy and transport infrastructures like ML-1 railway line and investment in new energy projects. Expansion means inclusion of new areas like social development, poverty reduction, human capital development, tourism, educational cooperation and assistance in agricultural sector etc. Unfortunately, we are stuck in the first phase and could not think beyond the infrastructure related projects. We have just started programs in the sector of social development and are laying the roadmap for skill development. Though according to CPEC’s long-term plan, the major thrust of second phase will be laying the foundation for the expansion of industrial base through Special Economic Zones (SEZs). 
Regrettably, Pakistan is stuck on SEZs, and lip service has remained the main tool to implement SEZs. Pakistan could not focus on the most urgent needs. The first crucial requirement was a comprehensive policy and implementation framework. After the six years of inception we only have Ordinance, 2012. The ordinance was devised well before the inauguration of CPEC, therefore, it does not cater the specific needs of SEZs. Owing to lack of policy and work on SEZs, after six years of inception of CPEC, Pakistan has been unable to operationalize any SEZs. The most advanced Rashakai Economic Zone is without the basic services like electricity, sanitation, and roads etc. which are the pre-requisite for any business. 
This situation is troubling for business community and other partners. Investors visit Pakistan with the hope that they will be able to find some good opportunity in SEZs, but they go back after learning the status of SEZs. 
Another area of critical importance is skill development for industry and other sectors. Pakistan is facing glitches on the skill development front. The picture becomes more disturbing when we look at the status of Pakistan on global human capital and human development index ranking. It falls among low human capital and human development countries. Pakistan was ranked at 134 among 157 countries on human capital index. It presents a grave situation as it is a well accepted and recognized fact that human capital plays a key role to transform any economy or society. A quick analysis of developed and rapidly developing countries clearly spells out the importance of human capital. Owing to low quality of human capital CPEC is also suffering. Chinese companies have trouble finding the required skills in the domestic market, therefore, they have to import personnel with required skills from China, which gives rise to conspiracy theories and even some interest groups start to compare it with East India Company.  Moreover, low skill development also leads to unemployment.
The poor state of skills and labor force can be assessed from the latest publication of Labor Force Survey of Pakistan. According to the survey, apart from the lack of skills, the majority of available labor force is uneducated or the level of education is very low. It is estimated that 40 percent of labor force is illiterate. Moreover, literacy level of 74.5 labor from educated class falls below matriculation (Graph 1).



Using data from the International Labor Organization (ILO), the survey concluded that job creation in Pakistan is mostly tilted toward low and medium levels of skills (Graph 2). It is a very interesting aspect as it tells us that Pakistan is struggling between primary and secondary stages of economic development. The distribution of labor among the three leading sectors of economy namely: agriculture (42.3%), industry (22.6%) and services (35.1%) further clarifies the situation. The problem becomes complicated when we look at the contribution of these sectors to the national GDP. Services sector’s contribution (60.3%) is way ahead of agriculture (18.86%) and industrial sectors (20.9%). This prompts a very important question: why is the share of services in GDP (60%) higher if we are still struggling between primary and secondary sectors of economic development? The answer has three dimensions. First, we never planned the economy according to our development status. We love fancy slogans and lose our focus. Second, in services sector major contributors are telecom industry and financial sectors, which are unequal in distribution of income. Third, unskilled labor is engaged in personal services like domestic servants, auto workshops, and barbers, etc.



The most thought provoking aspect of labor data is that 55.72 percent of total population above the age of 10 years does not fall in the labor force (Table 1). This is very strange because it shows that dependency ratio would be very high. Higher dependency and low income contribute to higher poverty and low living standards.



Another pre-requisite for enhancing economic and business activities is improvement in financial and insurance sectors and efforts to make it compatible with the Chinese system. Although Pakistan is trying to move quickly, the progress is not up to the mark. Pakistan and China have signed money swapping agreement, but the volume is low at this point in time. Both countries are trying to increase the volume and we hope it will be in a good state in the next few years.  
Against this backdrop Pakistan is entering the second phase of CPEC. A bird’s eye view of facts tell us that we are lagging behind in creating an enabling environment for business and development of skills. Moreover, the ease of doing business is still in a miserable state. Although the ranking is increasing but ground level actions are not complementing the claims of improved ease of doing business. On top of that, the speed of planning and designing intervention is also very slow. 
However, it is heartening to find that the government has started to ponder on how Pakistan can make CPEC a success story in our endeavor of economic revival and development. It is trying to tackle the most pertinent issues and hurdles which are hindering the rapid implementation of projects. The government is putting in a lot of effort to smooth over the process for CPEC. This is why the Prime Minister has created the CPEC Authority to address and mitigate the issues related to the execution of the project. 
The authority is an autonomous body with immense financial and administrative liberty. It will directly report to the PM as he is the Chairperson of the authority.  Day to day business will be run by Chief Executive Officer (CEO). The CEO will be assisted by two Executive Directors who would be heading two wings: research and operations. Building on the structure proposed in the ordinance, it is suggested that each Executive Director should be assisted by two departments for efficient working (Figure 1).
The creation of the authority is a good step, but the real change will start with recruitment and functioning of the authority. Government needs to be innovative in developing authority. It should be staffed with people who have a good understanding of China’s economic, development and governance models. Chinese models are different from the liberal economic and governance models, therefore, the experts who have good credentials in liberal economic and governance cannot be a good choice in dealing with China. The critical element of staffing would be to induct people with innovative ideas and have open minds. Pakistan should not induct those who are lost in past glory or liberal order. 
Government is also offering some concessions to the private sector in tax regime. It is offering special packages for investment in SEZs and tax holidays for investment, especially in Gwadar. 
The Prime Minister has taken these steps because he believes that without building confidence and creating an enabling environment for business Pakistan would never be able to revive its economy. However, one needs to be careful about doling out favors to business community and stakeholders. He should categorize all demands of business community and stakeholders in three categories: a) needed favors/steps; b) demands; and, c) undue demands. 
The needed steps should be taken immediately. For example, business community demands that ease of doing business should be improved, the government should act on it and provide a conducive environment for economic activity. The demands to cut taxes or give special licenses or special provisions should be analyzed on merit and the government should only provide feasible concessions. The demand for liberty from all types of taxes and a free hand to do business according to their own will or reluctance in registering business is undue and should not be met. 
Similarly, the government should also develop mechanisms, where big businesses are given tasks to meet economic and social targets of the state. For example, the government should introduce some program for developing connections among big business groups, SMEs and cottage industries. Government should tag benefits with a number of SMEs and cottage industries being uplifted by big business groups. Second, the government should also look at “social partnership” model of Germany. Business groups and SMEs should be encouraged to invest in human capital development through multiple programs like apprenticeship etc. 
It is high time to introduce these reforms or ideas. The government should start to pilot these ideas in the proposed SEZs. Linkages between business groups, SMEs and cottage industries will help in the trickle down of benefits of economic growth. It will also encourage the local communities to be a part of SEZs. In the long run it will help create ownership among the local communities and mitigate negative perceptions. CPEC Authority should be assigned tasks to deliver on this front.  
Lastly, the government should develop long-term agenda of reform and economic development. Long-term agenda should be divided in four stages: low-hanging fruit, short-term, medium-term and long-term. Each phase should be tagged with a GDP target (Figure 2).


Pakistan should adopt a systematic approach and try to build step by step. The country should depart from the revolutionary approach and try to be rational in its agenda setting and adoption of implementation tools and approaches. Moreover, Pakistan should assign specific targets to the second phase in overall agenda and avoid pinning all hopes on the second phase of CPEC. The purpose of this suggestion is that Pakistan must also work on other avenues and find new opportunities as diversification of opportunities will help us to grow faster.


The writer teaches digital diplomacy, negotiation skills and conflict transformation at Foreign Services Academy. He is also the Chief Operating Officer at Zalmi Foundation. 
E-mail: [email protected]
 

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