Day 1 – Press Release

Pakistan has freedom to benefit from the CPEC according to its own priorities – Mr. Sartaj Aziz

The 32nd Annual General Meeting and Conference of the Pakistan Society of Development Economists (PSDE) began today (Tuesday), December 13, 2016, at the Marriott, Islamabad. The theme of the PSDE’s this year’s Conference is “China-Pakistan Economic Corridor and Regional Integration”. The Conference was inaugurated by Mr. Sartaj Aziz, Advisor to the Prime Minister on Foreign Affairs. The three-day long Conference is being organized by the Pakistan Institute of Development Economics (PIDE), with the support of Ministry of Planning, Development and Reform. Other sponsors of the AGM/Conference include UNDP, FES, the World Bank, PPAF, OXFAM, IGC, ILO, IUCN, AKRSP, IFPRI, ADB, and ECO-SF.

In his keynote address, Mr. Aziz said that CPEC is indeed a landmark development and it is hoped that important insights and wisdom will come out of the three-day Conference. He said that the theme of this year’s Conference is very conceptual and practical, which sends a message to a large number of audience including policymakers, investors, and the private sector. Mr. Aziz, while highlighting the success of the present Government, said that we have achieved 4.5% GDP growth this year, which can increase further by overcoming energy shortages. In this regard, energy related projects in CPEC can prove to be very beneficial.

Mr. Aziz said that CPEC is a flagship project of the Chinese vision of “One-Belt-One-Road”. He said that the evolution of this project started many years ago when they realized that many parts of China, including Xinjiang, were far from ports. CPEC is a grand concept that would not only connect China but it would also connect the surrounding countries. He said that in the last twenty-five years, it was the South East Asia that contributed to the world growth. In the next twenty-five years, however, it is the West of China, Central Asia, and Pakistan that have the potential to lead the world development. China and Russia are developing Eurasia together but not just for the sake of trade but also to build institutions to aid in development of the entire region, he added.

Mr. Aziz said that CPEC has far-reaching consequences for the entire world. He said that China has allowed Pakistan to benefit from the CPEC according to its own priorities the most important of which is energy. Out of the total CPEC investment, dollar 33 billion is in the energy related projects. He stressed the fact that most of this outlay is in the form of investment. Contrasting the CPEC investment with loans from the World Bank, Mr. Aziz apprised that it takes many years to get a loan of one or two billion dollars from the World Bank. The CPEC loans for infrastructure are on soft-loan basis, at the rate of 2 percent and the payback time is twenty to twenty-five years. Highlighting the importance of the Gwadar Port, which is a part of the CPEC, Mr. Aziz said that developing Gwadar is not only important for Pakistan but also for the development and uplift of Baluchistan.

Mr. Sartaj Aziz said that each province has been asked to build one industrial park each and this is where more work and deliberations are needed as the development of industrial parks is very important to access larger markets and reap full benefits of CPEC. He said that where the CPEC project provides many opportunities, making it a success poses many challenges as well since there are many detractors and for this internal issues need to be overcome and providing security is imperative. However, overall investment-to-GDP ratio will increase due to the CPEC projects. He said that diversification is very important to increase our exports as at present as our exports are sluggish. He lauded the organizers of the Conference for choosing issues that are going to be discussed in the Conference. These topics include regional integration; how to manage industrial parks because our experience with the industrial parks has not been very successful unfortunately; and the domestic reforms that need to be undertaken to make CPEC a success. He also said that labor market dynamics are very important because once the industries are set up, we cannot expect the Chinese labor force to work in those industries. All in all, he said, we are on the threshold of a significant phase of our development and need to take full advantage of it.

Earlier in his presidential address, Dr. Asad Zaman, President PSDE and Vice Chancellor PIDE, said that as a Chinese proverb goes, we are living in interesting times. The Holy Qur’an also says that Allah circulates the kingdom among His people and this is exactly what is happening as the world is in the state of transition. The next hegemon of the world would be Asia, lead by China. In transitional times, he said, the power is up for grabs. The transition also creates opportunities to redefine the world and it is the scholars who carry the day by redefining the world. Dr. Zaman said that when the leadership changes hands, it is the leader who sets the terms and the followers do not have much choice but to look at the world the way the leaders wants them to see it. The VC PIDE said that there also existed an ancient Silk Road which is being revived through CPEC. In the end, he expressed hope that the new civilization that is emerging would be the opposite of barbarism which is currently the order of the day and that it would promote harmony and peace.

In his Secretary’s report, Dr. Ejaz Ghani, who is the incumbent Secretary PSDE, highlighted the growing interest in the AGM and Conference of the PSDE. He said that this year 140 papers were received, out of which 32 were selected after a careful screening process. Dr. Ghani apprised the audience that just as in the past, this year scholars from many countries including Canada, UK, USA, China, Singapore, Germany, and Tajikistan have come to participate in the AGM. He expressed hope that the deliberations at the Conference would prove very helpful in devising strategies for making CPEC successful.

Vincent Palmade, Lead Economist, PFSG, African Region, the World Bank, made a presentation on the World Bank’s book titled, “South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse”. Presenting the salient features of the book, Palmade said that it discusses what the South Asian region needs to gain competitiveness. He said that South Asia has the potential to change and Pakistan can play a pivotal role in boosting growth as it has a large market and have immense potential. However, he said that the productivity of Pakistani firms is quite low, especially of the SMEs. The skill intensity of Pakistani exports is low and although the ICT and tourism sectors are doing well, much more needs to be done. Similarly, productivity of the Chinese firms is quite high as compared to that of the Pakistani firms.

At the same time, he stressed, there is a great potential in Pakistan and the conditions are favorable. For example, Pakistan has excellence in the production of Basmati rice but market regulations are restrictive. Similarly, Pakistan’s sporting goods, surgical instruments, and leather apparel industries have the potential but the business environment is not conducive. He said that there are four policy levers that should be taken into account. These are improvement in business environment, connecting global value chain, leveraging agglomeration economies, and strengthening firm capabilities. Palmade said that the services sector is expected to grow and boost productivity. He said that the World Bank is also trying to help Pakistan to boost trade and regional integration.

The presentation by Vincent Palmade of the World Bank showed an erroneous map of Pakistan. It must be reiterated that the map, however, was not part of the report that was submitted to the organizers by the World Bank. The map was strongly repudiated by the Conference organizers, Pakistan Institute of Development Economics, Pakistan Society of Development Economists, and the Ministry of Planning, Development, and Reform.

Earlier, while delivering the Allama Iqbal lecture on “Role of Productivity, Quality, and Innovations in Making CPEC Work for Pakistan”, Mark Goh of the National University of Singapore, said that to make CPEC successful, every province must have an industrial park for manufacturing and exporting products. He reiterated the fact that politics must be left behind to focus on the wellbeing of everyone. Discussing the role of connectivity, Prof Goh said that connectivity is of two kinds, which are hard connectivity and soft connectivity. Hard connectivity is infrastructure development, including roads, ports and ICT structures, whereas soft connectivity is knowledge sharing and institution building. He highlighted that CPEC aims to improve infrastructure as 46 billion dollars have been dedicated to build 2,442 kilometer long road to link Kashgar to Gwadar.

Prof. Goh stressed the need to keep five factors in consideration while selecting the corridors. These factors are current traffic volume of people and cargo; prospects of economic and traffic growth; capacity to increase connectivity between countries and people; potential to mitigate delays and other hindrances; and economic and financial sustainability. The speaker stressed the need to create new processes that are time and cost effective and for that Pakistan need to create business houses that can deal directly with the already established Chinese business houses as this would reduce both cost and time. Thus, there is a need to develop business-to-business trade instead of business-to-consumer trade.

Another aim of CPEC is to transport oil and gas from the Persian Gulf to Xinjiang. The emphasis is on infrastructure to reduce the cost incurred by transportation. CPEC would ensure that there is no congestion from Shanghai to Gwadar and the vehicles move at a minimum speed of 60 kilometer-per-hour. This would mean completing the distance in 41 hours, which is a reduction by 82 percent in the total time consumed. Prof Goh emphasized that by 2020 CPEC will reduce the trade cost to Central Asia by 11.5 percent and to Indonesia by 25.3 percent. A one-day loss in transportation decreases the value of exports by one percent. Similarly, trade-improving transparency can result in 7.5 percent increase in trade.