There is a consensus that Pakistan’s economy needs FDI to bounce back. Clouded in geo-strategic storms and political instability, however, attracting FDI towards Pakistan is a tough row to hoe. Nevertheless, China’s massive economic explosion outwards is a tide of time, if surfed intelligently, it can galvanize the industrial transformation in Pakistan.
The challenge is to collaborate sustainably by liberating the conception of the whole process from desperate fallouts within and without. Furthermore, the operational mechanics of the partnership need expansion with a precise analysis of variables identifying stakeholders from both countries; their needs, potentials, and terms of engagement under a liberal investment regime.
The CPEC was initiated in 2013 between Pakistan and China. The Joint Cooperation Committee (JCC) is the apex decision-making body of CPEC which is led by the Ministry of Planning, Development & Special Initiatives, Pakistan and the National, Development & Reform Commission (NDRC), China.
In 2016, the Board of Investment (BOI) was designated as the lead agency of the Joint Working Group (JWG) on Industrial Cooperation under CPEC from the Pakistani side and the National Development & Reform Commission (NDRC) from the Chinese side. NRDC represents the main state organ of China responsible to formulate strategies, plans and policies for utilizing foreign capital, conducting overseas investment, and achieving aggregate balance and optimizing structure; playing a leading role in implementing the Belt and Road Initiative, and undertaking and coordinating China’s “go global” strategy.
In 2018, BOI initiated the process of drafting a Framework Agreement on Industrial Cooperation, which was hoped to be signed in the 8th JCC meeting held in the same year in Beijing. However, due to paucity of time, negotiations could not be concluded between the parties and only an MoU was signed which formed the basis for future engagements under the ambit of Industrial Cooperation.
In 2019, BOI established the Project Management Unit CPEC Industrial Cooperation Development Project (PMU-CPEC-ICDP) with PSDP funding. Due to the lack of sufficient regular BOI staff, it became imperative that a dedicated PMU may be established to spearhead BOI’s Industrial Cooperation initiatives.
As the second phase of CPEC primarily revolves around Special Economic Zones (SEZs) development, industrialization, FDI generation and stronger B2B ties between both sides, with special emphasis on industrial relocation from China, the need for a comprehensive Framework Agreement became imperative for an objective-oriented roadmap. Similar agreements have also been signed for Early Harvest CPEC Projects on Energy & Infrastructure.
Resuming the BOI’s efforts from 2018, the PMU-CPEC-ICDP, under the supervision of Project Director, Mr Asim Ayub who is a dedicated Civil Servant from Pakistan Administrative Service with the sapient guidance of the BOI leadership, took up the matter with NDRC to kickstart the negotiations on the Framework Agreement. The agenda was also proposed by the PMU to be included in the 4th JWG meeting on Industrial Cooperation held in October 2019. However, the Chinese side did not concur with the proposal and resultantly the matter went into abeyance once again.
With consistent efforts and by taking up the matter through the JCC forum and the diplomatic channels, the Chinese side agreed to elevate the MoU into a Framework Agreement in March 2020. PMU, while taking the initiative of drafting the Framework Agreement, started the preliminary work. In this regard, a draft was prepared after in-house deliberations and circulated amongst the Federal and Provincial stakeholders for their valuable input. Similarly, a series of consultative forums were also organized by PMU whereby all concerned quarters were invited from the Public and Private Sectors. The idea was to devise an all-inclusive framework that should be a focused document yet encompassing all the envisaged ideas to create industrial competitiveness in Pakistan.
As the 5th JWG meeting was around the corner, PMU with the approval of the Prime Minister (being Minister-in-Charge of BOI), shared the Draft Framework with NDRC in November 2020 to kickstart the negotiations and conclude the same before the 5th JWG which was held in December 2020. The feedback was not received from NDRC till the happening of the 5th JWG, however, a breakthrough was achieved whereby the Chinese side agreed to include the agenda of Draft Framework in the 5th JWG and it was made part of the signed minutes that the Chinese side has acknowledged the Draft Framework shared by BOI which shall be finalized expeditiously.
With continuous efforts and highlighting the matter at all forums, the Chinese side reached back to BOI in January 2022, prior to the PM’s visit to China with the proposition to finalize the Framework at the earliest, to ensure the signing of the same during PM’s visit. In this regard, active negotiations took place between the parties and consensus was reached on the text of the Framework. Approval of the Federal Cabinet to sign the framework was sought a day before PM’s departure to China on 3rd February 2022 and the Framework finally saw the light of the day, which was signed on 4th February 2022 under the witness of the PM.
The Framework Agreement is one of those documents under CPEC which has been authored by the Pakistani side and negotiated efficiently. PMU has been successful in reaching the consensus without any major amendments to the original proposed draft. Besides, during the recent visit of the PM to China, the signing of the Framework Agreement is considered to be the only tangible outcome that has also been given wide media coverage locally and internationally.
The agreement envisages the prioritized development and operations of the 9 CPEC Special Economic Zones, establishing the Industrial Cooperation Fund for win-win projects. It envisions a business-to-business matchmaking mechanism for Pakistani and Chinese enterprises to relocate manufacturing establishments and to achieve an effective operational capacity for these Special Economic Zones.
The agreed framework also anticipates an extended and multi-layered collaboration in Skill Development, FDI attraction for Pakistan, Industrial Diagnosis and Technical Assistance, Technology Transfer, joint global marketing of the multi-sectoral corporate prospects linked with SEZs, industry concentration in priority sectors: Iron & Steel, Mines & Minerals, Textile, Petrochemicals, and last but not the least, the promotion of cultural and institutional liaison between the two countries.
Undoubtedly, the document encapsulates a vast opportunity horizon both horizontally and vertically. However, the impactful execution of this framework demands four steps to be taken without any delay. Firstly, Pakistan constitutes a devolved federal structure. The execution arms for industry regulations and policies in different sectors like minerals, tourism, revenue, land acquisition, environment, and general administration rest with provinces. The efficient coordination mechanism between BOI offices and provincial departments needs a Legislative Framework to decrease the operational frictions at functional levels.
Secondly, systematic outreach to small and large enterprises is needful to develop a sound opportunity base before fabricating the prescribed multi-sectoral investment models. For that purpose, a Strategic Incubation Cell under the PMU is required with a representation of execution departments, business experts and consultants – tasked to assist, guide, regulate and monitor local enterprises in developing business plans, feasibility studies, technical reports, surveys, market analysis, recovery, risk and profit assessment tools. The Strategic Incubation Cell will bridge the operational chasm by bringing the business capability of host enterprises at par with their foreign counterparts. The proposed cell would surely enhance the credibility and sustainability of business partnerships under the B2B model.
CPEC remained concentrated with the power and infrastructure projects during the last decade. Now as the cooperation has entered into its second phase with the signing of this framework agreement, it is imperative to devise an objective strategy to implement it with a sustainable bandwidth. The third step is to design Out-of-Box marketing initiatives pitching cooperation in the readily available areas with a larger trickle-down impact on human development by reducing unemployment and poverty. Tapping indigenous potential in agriculture, mining and tourism; skill and technology transfer in selected areas; identification and provision of cheap raw materials to attract speedy manufacturing relocations; targeted academic and cultural linkages are important steps to ensure an inclusive and progressive implementation of this framework.
Fourthly, a strategy to ensure that internal political instability and law-in-order should least interject the trajectory of cooperation. China’s business model is highly pragmatic with no tolerance for uncertain profits and recoveries. The rampant political polarization and rising extremism are frictions that need to be overcome by considering all available tools. The protection of logistics and lives of foreign citizens involved in these projects conditions the success of this industrial cooperation at the very outset.
The writer is an academic, columnist and public policy researcher.