CPEC and economic restructuring

Pakistan is likely to undergo transformation from an import-based economy to a lucrative trans-shipment economy

In the initial years while the China-Pakistan Economic Corridor (CPEC) project is being completed and perhaps even at least a decade from the completion Pakistan is likely to undergo a phased transformation from an overwhelmingly import-based economy to a lucrative trans-shipment economy necessitating speedy expansion in the capacities of Pakistan’s port and drastic reduction in turnaround time at the ports. Indian ports are said to require an average of 84 hours to turn around a shipment. Busier ports like Hong Kong and Singapore get the job done in seven. At present, it takes more than a week to turn around a shipment in Pakistan.

The country’s ware-housing capacity would also need to be expanded at least by 25 times over the period of completion of the CPEC project and with the increase in trans-shipment activity following the completion of the project this capacity would need to be kept expanding continuously dictated the volume of shipments crossing the country.

Since a lot of raw materials, intermediaries and even durables in knock-down conditions plus finished and semi-finished products would be passing through with Pakistan serving as the hub to and from markets located in the immediate and not-so-immediate vicinities, ample opportunities are expected to open up for local reprocessing along with simple as well as high-end value additions.

The phased transformation of the economy from one based essentially on imports to trans-shipment or ware-house economy is expected to unleash widespread restructuring process with many of the currently viable economic activities becoming unviable and in their place brand new business opportunities would crop up and new entrepreneurs technologically well-versed and sharp enough business-wise would stand to take full advantage of the new opportunities.

In order for the trans-shipment economy to grow without any let or hindrance, and at a faster pace the government of the day would need to realise that it would have to significantly lower the tariff and non-tariff barriers for a smooth and economic flow of goods in and out of the country.In the beginning, government’s income from trade-related duties would sharply decline in the process but the income from toll taxes as well from value additions in the domestic warehouses would more than make up the losses and in fact the income from these sources would be many times more than the government would have collected from normal trade-related tariffs and levies in an import-based economy.

In order to put the matter in its right context one would like to recall here Afghan President Ashraf Ghani’s speech at the Heart of Asia Conference held in Islamabad in December 2015:

“I want to express our gratitude to the government of Turkmenistan for having taken a cluster approach to the development of infrastructure and linkages. Turkmen railways, transmission lines, highways, gas pipelines, and oil pipelines are reaching Afghanistan. This is a very significant transformational event and hopefully also we will sign a 500 KV transmission line from Turkmenistan through Afghanistan to Pakistan, which will significantly change the energy picture in both of our countries. With Kyrgyzstan, Tajikistan on the one side and Uzbekistan and Turkmenistan on the other sides, two major other transmission lines, respectively called CASA 1000 and TUTAP are moving from ideas to implementation. We are also extremely pleased that the Port of Chabahar, jointly invested by Iran and India is moving from conception to implementation and the related railway structures. Also with China, the five-nation agreements on railways and related sets of connectivities is rapidly moving. In short, Afghanistan is rapidly moving towards regional integration towards Central Asia, East Asia, and West Asia.”

Meanwhile, India is planning to double its port capacity to 3,000 million metric tons of cargo annually by 2020. India has already invested almost $38 billion in the shipping and port sector. A new study shows that cargo traffic moving through India’s 13 major ports and several hundred minor ports will rise by almost 60 per cent between 2015 and 2017 to a whopping 1,758 million metric tons.

Published in The Express Tribune, July 9^th, 2016.

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