The Planning Commissions silence over CPECs transparency issue is growing, even as critique by public economists and businesses mounts by the day, and mushrooming anecdotal evidence suggests that a strategic fog is filling up the space.
Of the few things known for sure is that CPEC is happening; it is the future unless Pakistan is bent on messing it up. It is also certain by now that the number of Chinese firms being incorporated in Pakistan is growing (See BR Research column: New firm data: reading the pulse of economy, January 23, 2017).
Although a host of CPEC spill over transactions have been witnessed (such the PSX deal, Shanghai Electrics stake in K-Electric or Shandong Yongtais JV with Roshan Packages) businesses and economists alike know well that it takes at least a decade for projects like CPEC in general, or Greenfield port at Gwadar in particular, to fully develop.
Yet despite being cognizant of all this, businesses are increasingly becoming frustrated by the absence of cut and dry information on the part of Planning Commission.
One senior representative of a leading business body recently told BR Research that nine months ago they had inquired the government about the breakup of CPEC flows: i.e. how much was grant, debt or equity. To date, they havent received an answer. This echoes what the FPCCI said: transparency is the most important issue that needs to be resolved.
This lack of transparency may also stem from the fact that the governments knowledge repository on CPEC isnt enviable in the first place. The commissions pet CPEC research project at PIDE, the CPEC Centre of Excellence, hasnt produced any tangible actionable research as yet; nor have they even built a solid research team as yet. While the commission bosses have talked up collaboration with the Institute of Business Administration, it is clear that they have not been able to come up with any tangible output so far, not at least in public.
On that note, there is little that we know about PIDEs CPEC Centre of Excellence itself; when it will function; how will it function, and should a CPEC research centre be even housed in PIDE or not. PIDE has historically focussed on public policy, macroeconomics, poverty, inequality, and related developmental affairs. These areas are indeed relevant for CPEC but do they really form the core of CPEC. The answer is no. The CPEC is a supply chain concept at its heart with infrastructure and security elements on the periphery. And PIDE has little, if any, expertise on these.
Meanwhile, it is increasingly becoming evident that Pakistani firms and labourers will not get a big piece of the CPEC pie. Much has been written about Pakistans deficit of skilled labour and firm efficiency in this column before. However, what is interesting to note that no less than the chairman of a leading listed business conglomerate recently went to China himself, with the purpose of getting some contracts under CPEC. That gentleman, however, was politely turned down by the Chinese with a reply that your firm cannot meet our needs.
It is also increasingly becoming evident that Pakistani banks are unlikely to get the pig piece of CPEC financing pie. This is on account of two reasons: (a) the small size of Pakistans banking industry does not allow it to domestically finance more than $1-1.5 billion projects combined, which is peanuts in the context of how the Chinese work; (b) both the financing and routing of CPEC projects mainly are managed by ICBC, whereas the likely opening of Bank of China in Pakistan will mean that local banks may get little business. The only business they might get is that on the liabilities side (account mandate), whereas UBL reportedly has the biggest portfolio, and small financing via credit line established from China.
On the whole, BR Researchs market pulse reading suggests that the interest of Chinese firms in Pakistan is growing across a wide range of sectors: from accounting to entertainment to security companies. The growth of SECP-registered Chinese firms from 33 in FY11 to 93 in FY16 is a testament to that. How should Pakistan firms and individuals prep up for Pakistans Chinese future? Watch this space tomorrow for some perspective on that.