The $62 billion investment under CPEC promised tremendous dividends for thePakistani economy, jobs for Pakistani youth, development infrastructure anda “game-changer” for Pakistan and the entire region.
After approximately six years of CPEC, the question arises of how much thisproject has delivered in its objectives. CPEC is an amalgamation oftransportation infrastructure, energy projects and industrial zones. Insimple words, the impact of CPEC is dependent on the completion of allprojects, particularly the Special Economic Zones (SEZs). SEZs are a sourceto attract foreign investors, boost the country’s exports, open newindustries in the country.
CPEC’s energy projects are critical to meet Pakistan’s energy demands,boost and bust cycle of energy production, fuel industrialization andminimize dependence on expensive electricity exports, while the transportinfrastructure projects are expected to indirectly benefit Pakistan’seconomy through connectivity. China made CPEC the flagship project of theBelt and Road Initiative (BRI) and owing to the rhetoric advanced by boththe Chinese and Pakistani governments, CPEC took the position of a casestudy for BRI partners.
An analysis of CPEC’s overall performance is not the most promising firstowing to a slowdown in CPEC projects after 2019 and major structural flawsin the Pakistani economy that resulted in a huge balance of payment crisesin 2018. Out of 122 projects designed for CPEC, only 32 projects worth $20billion had been completed by 2020. Most of the completed projects includetransport infrastructure and energy generation endeavors. In terms ofenergy generation, forty percent of the projects are coal-fired powerplants, raising serious concerns about the toll on the country’senvironmental and health hazards. Moreover, a number of energy projectshave also been shelved owing to multiple reasons.
However, the country’s overbearing energy crises have been mitigatedsuccessfully. The second phase of CPEC was planned to addressindustrialization and make uplift Pakistan’s manufacturing sector in orderto make the country an export-driven economy. SEZs are the main instrumentto propel the country towards industrialization. However, out of the elevenSEZs planned, only the one in Gwadar has been completed so far.
Improvement of the industrial sector and the success of SEZs can transformthe Pakistani economy, firstly by attracting foreign investment andsecondly through manufacturing activity which in turn would increase thecountry’s exports. China’s investments under CPEC are in the form of debtwhich the Pakistani government must payback. Most of the projects completedcan cut public spending but are not an active source of generating revenueor exports. SEZs are crucial for generating revenues for Pakistani’seconomy but also to pay back the looming Chinese debts. In case theprogress on SEZs remains as it is, Pakistan could face repayment crises ofthe Chinese debt.
Pakistan’s transport and energy sector undoubtedly improved under CPEC,though not without shortfalls. The development of Gwadar Port and the citywas expected to transform the country into a regional hub. The localcommunities in Gwadar claim that the advantages of CPEC have not trickleddown. Though in terms of Gwadar port operation, the promise of Pakistanbecoming a route for regional trade has also not been fully realized.Pakistan still deals with the balance of payment crises, IMF bailouts,unemployment and inflation.
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Pakistan’s official position on CPEC overinflated its potential whileignoring the structural flaws, planning and governance issues thatconfrontthe country’s economy. The political issues between China andPakistan after the formation of a new government in Islamabad effectivelystalled progress since 2018. This coincides with the country’s balance ofpayment crises that stood in stark contrast to the miraculous advantages ofCPEC cited by theauthorities.
Though putting the entire onus for economic growth on CPEC is unfair, therhetoric advanced by both governments did create an impression of amiracle. Another issue now facing CPEC are the consistent security concernsarising out of Balochistan, particularly in light of recent high profileattacks on Chinese citizens. Both security and political concerns haveemerged as major bottlenecks towards the success of CPEC.
China and Pakistan cannot afford more delays in the planned projects.Though CPEC witnessed some revitalization in energy projects in 2020, thestatus of SEZs remains the same. Along with completing major CPEC projects,both China and Pakistan need to pay attention to SEZs and ICT projects. Thestabilization of the Pakistani economy depends on industrialization andgrowth in the export sector. The growth of the industrial sector would bethe true game-changer for Pakistan.
By: Peer Hafizullah
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