Economic growth is essential for economic prosperity and independence. It is necessary for every nation to achieve the ultimate goal of socio-economic stability for the betterment of its people. Every nation gives importance to development projects, which enhance economic activity in the country, and also provide better earning opportunities to people. The role of finance is quite important in this regard. Most of the developing nations either seek financial assistance from financial institutions like World Bank and Asian Development Bank, or take help from other nations.
Pakistan being a developing nation, many mega projects in Pakistan are either financed by financial institutions or by other countries. The Mangla/Tarbela hydroelectric projects and Pakistan Steel Mill are two main examples. The China-Pakistan Economic Corridor (CPEC) is another development project that according to government officials will change the economic destiny of Pakistan. In other words the CPEC is a game changer.
Chinese President Xi Jinping visited Pakistan in 2015 to lay the foundation of the CPEC. The first phase of the economic corridor is focused on $45.6 billion worth of energy and infrastructure projects. China’s state-owned banks would finance Chinese companies to fund, build and operate $45.6 billion worth of energy and infrastructure projects in Pakistan over the next six years. The transport and communication infrastructure is the main aim of this project, which includes a road project of 2,700 kilometers from Gwadar on the Arabian Sea to the Khunjerab Pass at the China-Pakistan border. Two roots on eastern and western front will be developed in Pakistan. Some coal power projects will also be made in different areas to tackle the power shortage in Pakistan. The overall outlook of the CPEC suggests that in the coming years Pakistan’s major economic problems will be over and Pakistan will stand with other Asian Economic Tigers. Is the CPEC alone enough to resolve economic issues? This is one of the most-asked questions regarding the CPEC.
The CPEC basically is a physical infrastructure-based project. Roads and power plants are two vital parts of this project. Is economic growth or progress only dependent on physical infrastructure? This is an important question that needs to be addressed. The answer can be found looking at the modern world. Most of the developed or high-income nations give importance to development of human capital and institutional development. They spend a great deal on education; economic progress is impossible without innovation. Even the Chinese model of development also emphasises a lot on research and education.
Pakistan is still following the traditional model of economic growth, mainly Harrod-Domar model, which explains growth rate with savings and productivity level of the capital. This is the most traditional approach towards economic growth. The modern approach towards economic growth has been changed. The world is focusing more on human capital. Another new etymology is the role of institutions.
Pakistan’s situation is not very impressive in this regard, as it is spending only 2.5 percent of the GDP on education. On the other hand, even developing countries like Nepal and Colombia are spending 4.8 percent of their GDPs on education. This highlights Pakistan’s priorities in which not much attention is given to education and research, two major contributors to ignite the process of economic growth according to modern research. The modern world is following Endogenous growth theory, which gives importance to the spillover effects of a knowledge-based economy that leads to economic development. This theory states that long-term economic growth depends on policy making. For example, spending more on research and education will accelerate the process of economic growth.
Pakistan is doing the exact opposite of that, as the emphasis is more on mega projects like Orange Train or Motorway. Although the number of universities has been increased since 2002 the level of research and innovation is still abysmally low, and the reason for that is low spending in the field of science and technology. Pakistan is one of those nations in which almost 50 percent of population lies in the bracket of 15 to 28 years. It means the numbers of young people is increasing, and they also need jobs to fulfil needs of their daily lives. Pakistan’s current growth is three to four percent annually, and with this low growth rate it is impossible to deal with this youth population explosion. Interestingly, Chinese companies, which are investing in Pakistan, do not use our educated labour force, as they prefer engineers from their own country. Keeping in view all these factors, it seems like that the CPEC will not be able to change the economic scenario of Pakistan. We must not forget that every nation has its own interests as the top priority. The rational approach to the whole situation is not to get over-dependent on prospects of the CPEC. Physical infrastructure is important but those nations who give more important to that lags behind in the long run. The example of the Middle East is very relevant in this regard. The oil-rich nations of the Middle East paying a great deal of money to foreigners to ensure that their daily business can be run properly. Contrary to that, European nations spend a great deal of money on human capital, build institutions, and evolve parliamentary systems like bicameralism. The difference is very much clear; one group is ruling the world without any natural assets and the other one is struggling to control its natural assets.
It is true that due to the CPEC a large amount of investment will come to Pakistan, and the physical infrastructure will give new opportunities to the people. But due to weak institutional mechanism and low spending on human capital, it seems like Pakistan will not be able to get full advantage from this business opportunity. It is also pertinent to mention that China is spending more on the CPEC because it will give growing opportunity to its least developed people. The CPEC is part of Chinese Silk Route plan. It is their economic plan, and we are only a very tiny part of their economic plan. We cannot grow unless and until we start to give more importance to our human capital and institutions. We must not forget that the CPEC will not help us to improve our low tax-to-GDP ratio. Government officials think the CPEC will eradicate poverty and resolve issues like inflation and unemployment. That is merely a myth and nothing else.
A freelance columnist, can be reached at, [email protected]