Regional trade in South Asia is the lowest compared with other regional blocs China through the CPEC could be the large economy that the region needs to supply low cost manufacturing and services to the global economic giant; as was done by Japan in ASEAN and United States in NAFTA.
Presently India is the largest economy of the region and is growing faster than any other economy in the world. Still 300 million people in India live in extreme poverty. This is 1.5 times larger than the total population of Pakistan. Its intra state disparities are very large. Its average per capita income is slightly higher than Pakistan and half that of Sri Lanka. There are some products that only India produces in the region, but it also fiercely compete in global markets for all the products that are exported by Pakistan, Bangladesh or Sri Lanka. Its per capita income in certain states is lower than that of Pakistan or Bangladesh. So if it needs to some goods and services it would prefer its poorer states. All other countries of the South Asian region face the same dilemma. Unemployment is as high in Pakistan, Bangladesh and Afghanistan as in India. None of the countries is prepared to transfer jobs to their neighbours even if they enjoy price advantages in certain fields.
China is also a close door neighbour of Pakistan, but due to logistic problems the two countries conducted trade with each other through a route that is more distant then even the distance from Pakistan to United States. Chinese products entered Pakistan because China has attained the status of global supplier of manufactured goods. Through economies of scale it competes even with Mexican products in the US market. Pakistan’s exports to China similarly were restricted to those that Pakistan has been successfully exporting to destinations like Europe or America.
Some of the products that Pakistan produces at competitive rates lose their edge when similar products are produced by North Korea, Cambodia or Vietnam that are nearer to the Chinese port of Shanghai. China has to relocate many of its industries for re-import components and accessories produced at low cost for making high value products in China. Had there been a direct road link with Pakistan, China would have preferred to locate many of those industries in Pakistan. All low value and labour intensive industries in China could be conveniently relocated in Pakistan once the logistic problems are solved.
The per capita income in China is $8,000 compared with $1,350 in Pakistan. The Chinese economy is very large, in fact, the second largest in the world. Despite a population of 147 billion the labour shortages have started manifesting in China where the population was shrinking until recently due to the one-child policy. CPEC would be a game changer for the entire region as China would act through this route in the same way as Japan and United States did to boost regional trade for the benefit of all. China has largely addressed its poverty problem and the unemployment level is very low. It can afford to outsource most of its unviable industries to the regional economies once the CPEC is operational. We may well see Chinese investments not only in Pakistan but also in India and Afghanistan.
This corridor is the only hope for promotion of regional trade. There are very slim chances of increasing trade through SAFTA as even the largest economy is afraid to open its economy to smaller neighbours. In fact, if we study the trade regime and non-tariff barriers erected by India most of them are directed towards the neighbouring economies as Indian planners cannot afford to transfer any job to its neighbours. China will have no such hang ups. It in fact has since long been seeking destinations for relocating its unviable industries.
India will also be forced to lower its guard against imports from Pakistan, because it would need the CPEC corridor to get shortest access to Chinese markets. Without this corridor it would be forced to adopt a longer route that would not be commercially viable.
In order to take full benefit of expected increase in economic activities, Pakistan need to accelerate upgrading its infrastructure which requires lot of capital and it is not available with the government. The entire infrastructure funding is arranged through borrowing. The availability of finances does not guarantee the success of a project. The absence of political consensus effectively kills the delivery of infrastructure. There is a need to create across-the-board political ownership of all infrastructure projects. The CPEC project is moving at a fast pace because the entire political leadership is on board and any hitch that occurs is promptly debated and removed.
Innovation as in any business model is essential in planning and executing infrastructure projects. However governments are generally wary of taking risks and for them innovation is an unknown territory they avoid innovation. This is the reason that the private sector is needed as a partner in infrastructure projects, that as a stakeholder could convince the government and the general public about the infrastructure risks and benefits.
The private sector on its part should develop a pipeline of development projects that are in line with the strategy of the state and for finances it should then seek funds from government, development finance institutions. Public sector delivery institutions should be strengthened to reduce political risk. The private sector should also look beyond traditional funding sources to get better risk-adjusted returns. For the government it is advisable to pursue long-term leases and operating agreements. Straight privatization is not a politically acceptable option.
Pakistan lags far behind its regional competitors in economic growth. Sustained growth is possible only if the productivity increases significantly; and productivity cannot increase to desired level unless a sound and stable infrastructure is in place.
Punjab model of execution of a project should be adopted where contracts are awarded on 24/7 operation basis wherever possible. It is true that the cost slightly escalates, but practically the cost is lower as the projects are completed on time; there are no delays which otherwise is the routine in mega projects in Pakistan. Another lesson learnt from Punjab is that the paper work and land acquisitions should be completed first before launching a project. The court stay orders inordinately delay the execution after all the construction equipment is mobilized. The recent delays in Orange Train project in Lahore is one such example. The contractors should work closely with the government keeping them in the loop about the progress and benefits of the approach adopted for executing that project. Private sector should encourage experimentation during the execution of the project that could improve the engineering design and reduce procurement time through innovative strategy. All the stakeholders involved in an infrastructure project must realize that owning assets alone will not create value, but it will come when the efficiency and productivity from the project increases.
Presently India is the largest economy of the region and is growing faster than any other economy in the world. Still 300 million people in India live in extreme poverty. This is 1.5 times larger than the total population of Pakistan. Its intra state disparities are very large. Its average per capita income is slightly higher than Pakistan and half that of Sri Lanka. There are some products that only India produces in the region, but it also fiercely compete in global markets for all the products that are exported by Pakistan, Bangladesh or Sri Lanka. Its per capita income in certain states is lower than that of Pakistan or Bangladesh. So if it needs to some goods and services it would prefer its poorer states. All other countries of the South Asian region face the same dilemma. Unemployment is as high in Pakistan, Bangladesh and Afghanistan as in India. None of the countries is prepared to transfer jobs to their neighbours even if they enjoy price advantages in certain fields.
China is also a close door neighbour of Pakistan, but due to logistic problems the two countries conducted trade with each other through a route that is more distant then even the distance from Pakistan to United States. Chinese products entered Pakistan because China has attained the status of global supplier of manufactured goods. Through economies of scale it competes even with Mexican products in the US market. Pakistan’s exports to China similarly were restricted to those that Pakistan has been successfully exporting to destinations like Europe or America.
Some of the products that Pakistan produces at competitive rates lose their edge when similar products are produced by North Korea, Cambodia or Vietnam that are nearer to the Chinese port of Shanghai. China has to relocate many of its industries for re-import components and accessories produced at low cost for making high value products in China. Had there been a direct road link with Pakistan, China would have preferred to locate many of those industries in Pakistan. All low value and labour intensive industries in China could be conveniently relocated in Pakistan once the logistic problems are solved.
The per capita income in China is $8,000 compared with $1,350 in Pakistan. The Chinese economy is very large, in fact, the second largest in the world. Despite a population of 147 billion the labour shortages have started manifesting in China where the population was shrinking until recently due to the one-child policy. CPEC would be a game changer for the entire region as China would act through this route in the same way as Japan and United States did to boost regional trade for the benefit of all. China has largely addressed its poverty problem and the unemployment level is very low. It can afford to outsource most of its unviable industries to the regional economies once the CPEC is operational. We may well see Chinese investments not only in Pakistan but also in India and Afghanistan.
This corridor is the only hope for promotion of regional trade. There are very slim chances of increasing trade through SAFTA as even the largest economy is afraid to open its economy to smaller neighbours. In fact, if we study the trade regime and non-tariff barriers erected by India most of them are directed towards the neighbouring economies as Indian planners cannot afford to transfer any job to its neighbours. China will have no such hang ups. It in fact has since long been seeking destinations for relocating its unviable industries.
India will also be forced to lower its guard against imports from Pakistan, because it would need the CPEC corridor to get shortest access to Chinese markets. Without this corridor it would be forced to adopt a longer route that would not be commercially viable.
In order to take full benefit of expected increase in economic activities, Pakistan need to accelerate upgrading its infrastructure which requires lot of capital and it is not available with the government. The entire infrastructure funding is arranged through borrowing. The availability of finances does not guarantee the success of a project. The absence of political consensus effectively kills the delivery of infrastructure. There is a need to create across-the-board political ownership of all infrastructure projects. The CPEC project is moving at a fast pace because the entire political leadership is on board and any hitch that occurs is promptly debated and removed.
Innovation as in any business model is essential in planning and executing infrastructure projects. However governments are generally wary of taking risks and for them innovation is an unknown territory they avoid innovation. This is the reason that the private sector is needed as a partner in infrastructure projects, that as a stakeholder could convince the government and the general public about the infrastructure risks and benefits.
The private sector on its part should develop a pipeline of development projects that are in line with the strategy of the state and for finances it should then seek funds from government, development finance institutions. Public sector delivery institutions should be strengthened to reduce political risk. The private sector should also look beyond traditional funding sources to get better risk-adjusted returns. For the government it is advisable to pursue long-term leases and operating agreements. Straight privatization is not a politically acceptable option.
Pakistan lags far behind its regional competitors in economic growth. Sustained growth is possible only if the productivity increases significantly; and productivity cannot increase to desired level unless a sound and stable infrastructure is in place.
Punjab model of execution of a project should be adopted where contracts are awarded on 24/7 operation basis wherever possible. It is true that the cost slightly escalates, but practically the cost is lower as the projects are completed on time; there are no delays which otherwise is the routine in mega projects in Pakistan. Another lesson learnt from Punjab is that the paper work and land acquisitions should be completed first before launching a project. The court stay orders inordinately delay the execution after all the construction equipment is mobilized. The recent delays in Orange Train project in Lahore is one such example. The contractors should work closely with the government keeping them in the loop about the progress and benefits of the approach adopted for executing that project. Private sector should encourage experimentation during the execution of the project that could improve the engineering design and reduce procurement time through innovative strategy. All the stakeholders involved in an infrastructure project must realize that owning assets alone will not create value, but it will come when the efficiency and productivity from the project increases.
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