Way back in 2010-11 it was calculated that the energy crises was costing Pakistan 2 percent of GDP. Pakistan was energy hungry, thus, the Industry started to relocate out of country. Employment opportunities started to shrink. Export sector suffered due to lack of competitiveness and a higher cost of production. The energy crisis mad the economic indicators worse. Pakistan was unable to attract investment in energy sector and our allies did not show much interest in solving our problem and Pakistan wondering how to attract the investment for sector.
On the other hand, war on terror had shaken the economic and social fabric. Pakistan was struggling to control the menace of terrorism. Infrastructure of Pakistan was deteriorating due to excessive use by ISAF and the US. Pakistan lost 50000 people and 70-80 billion US dollars in terms of money till 2015. In this backdrop China extended its hand to help in the form of CPEC.
Unfortunately, CPEC became a criticism point and some people started to oppose it without understanding CPEC, its dimensions and the needs of Pakistan. Objective discussion was lost somewhere between pro- CPEC and the against people. Irony is that CPEC, an economic and development initiative is being analyzed on the basis of security or geo-strategy. Geo-strategy or security are irrelevant notions for CPEC. Awkwardly enough, pro-CPEC people were also remain happy to engage in the geo-strategic and security discussion.
It is not a new phenomena; every investor wants to make profit and get a return. However, point to be noted here is that without CPEC, Pakistan would be losing 80-120 billion US$ due to energy crises, alone
A pure economic and development-oriented analysis is required to understand CPEC. Let’s start by discussing the energy side of CPEC. As it was mentioned energy crises alone was causing a loss of 2 percent to GDP. The total GDP of Pakistan is 305 Billion US Dollar and two percent means 6 billion US$ per year. Now multiply it with 20 years, it means 120 billion US$. Vision 2025, also calculated that Pakistan every year loses 4-5 billion US$. Calculations on the basis of 4 billion US$ gives us a figure of 80 billion US$ for the next 20 years. So a safe conclusion is that in the absence of investment in the energy sector, Pakistan would be suffering a loss of 80-120 billion US $. These estimates were made on the basis of 2013 data of energy crises.
In 2018, the power demand increased. In 2013, total demand of electricity was little higher than 20 thousand megawatts and in 2018 it is over 25 thousand megawatts. If there was no investment in energy sector, then the cost of crises must have increased. Maybe, it has touched 4 percent or more of the GDP. This is an overall loss to GDP but if we include the social cost then figures may be worse. On the social side, Pakistan has witnessed riots due to non-availability of electricity. People started to question the government and its role in provision of basic necessities.
Let’s take infrastructure in consideration. It is a well known fact that infrastructure was under tremendous pressure due to the war on terror in Afghanistan. Pakistan, being a front line ally was providing transit facility to ISAF. Owing to enormous heavy traffic, road structures started to deteriorate. Pakistan was in dire need of investment for transport infrastructure and CPEC provided that opportunity to Pakistan. In 2012, National Highway Authority (NHA), informed National Assembly that Pakistan needs 1.5 billion US$ for rehabilitation of road infrastructure. Furthermore, NHA highlighted that a huge investment is required due to the deterioration of the transport infrastructure because of the overloaded NATO containers. This estimation did not include the cost incurred by private vehicles due to bad infrastructure.
It is common sense, that the energy and transport infrastructure, are the backbone of an economy. Sustainable supply and affordable energy is fundamental for increasing competitiveness of industry and business. Un-sustainability of energy weakens the trust of trading partners by introducing the problem of timely availability of commodities. It leads to lower industrial and economic activities, which contributes to unemployment. Transport infrastructure is a critical factor for the supply of products. The lower quality or deteriorated infrastructure increases the transport cost and time of supply. It also introduces wear and tear losses to products and vehicles.
Importance of good infrastructure can be seen the role it has played in the development of developed countries. Germany enjoys one of the best transport infrastructures and it receives a dividend in the form of more economic activities. The US, after 1950s heavily invested in the development of transport infrastructure. It led to a boom in the economy and introduced many businesses. History also tells us that transport infrastructure led to the creation of new economic centers and even urban areas along the road. The most, prominent example of the importance of infrastructure is from China. It revolutionized its transport infrastructure in the last four decades. Moreover, the business community also wants to invest in countries which have better transport infrastructure. It plays an important role in making a decision for investment. As, we are witnessing now, in the trade war between the US and China, some companies wanted to relocate their industry, but they did not. One of the reasons was quality of the transport infrastructure in China in comparison to other countries.
CPEC is helping Pakistan to improve both sectors. Imagine a scenario, where the energy crises was worsening at the same pace, as it was in 2013, then what would be the state of our industry and society. What would be the state of export, which has decreased, already. Therefore, for any analysis on CPEC we also need to take in consideration the opportunity cost of no CPEC. There is no doubt that what has been invested by China in Pakistan, we will have to pay back with interest rates. It is not a new phenomena; every investor wants to make profit and get a return. However, point to be noted here is that without CPEC, Pakistan would be losing 80-120 billion US$ due to energy crises, alone. Infrastructure cost would be in addition to energy cost. and the social cost still needs to be calculated.
The writer is the Chief Operating Officer at Zalmi Foundation
Published in Daily Times, December 29th 2018.