New CPEC playbook

Amidst global economic uncertainty, developing nations are striving to minimise long-term economic setbacks and foster recovery. To break free from the low-income trap and achieve sustained prosperity, these countries are prioritising productivity, technological advancement, and innovation as fundamental pillars of their economic strategies.

Emerging economies in Asia, as highlighted by the McKinsey Global Institute, have positioned themselves as leaders in technological platforms, resource management, energy solutions, and capital development. Examining the economic impact of demographics across regions reveals that Asia’s urban population is expected to grow from 1.6 billion to 3.0 billion by 2030.

A prime example of how geography, a sizeable population, and connectivity can drive economic success is China’s extraordinary rise. With trends like glocalisation, nearshoring, and friend-shoring reshaping the global investment landscape, Asia is poised to become the centre of the global economy by 2050. While these global trends offer opportunities, they also bring domestic political and economic challenges, including low productivity, into sharper focus.

This is a critical time for Pakistan to reconsider its growth trajectory and align with international trends. Breaking the cycle of low income and setting the stage for a future centred on productivity and innovation will require gradual yet consistent advancements in the country’s industrial and economic structure, renewable energy initiatives, and technological adoption. Over the past decade, China has been Pakistan’s leading investor. Through the China-Pakistan Economic Corridor (CPEC), it has not only helped address Pakistan’s energy shortages but also constructed critical infrastructure, including the Gwadar Port, a cornerstone of Pakistan’s Blue Economy.

Gwadar’s strategic connectivity to the hinterland via the coastal highway and its linkage to global markets through the recently operationalized Gwadar International Airport, funded by a $230 million Chinese grant, underscores its importance. Moving forward, it is imperative to focus on establishing processing and manufacturing industries within the Special Economic Zones (SEZs) and the Gwadar Free Zone. This should be followed by a phase of maturity where endogenous mechanisms for sustainable growth are firmly in place. The development of Gwadar city infrastructure, as outlined in its master plan, will be crucial to realising the full dividend of the port city and addressing the genuine concerns of the local population.

The next phase of CPEC may not involve mega-projects but should feature initiatives aligned with evolving global trends, regional needs, and Pakistan’s economic priorities. However, the emerging geopolitical landscape poses significant challenges to CPEC’s progress, notably in the form of security concerns and narrative-related issues such as recent terrorist attacks and debates surrounding anti-CPEC/BRI sentiments within the broader context of US-China rivalry.

While discussing this new phase, it is essential to support and address the concerns of existing Chinese investors, who will play a pivotal role in attracting new private or state-owned enterprises to Pakistan. Regular engagement with these stakeholders is imperative. Strengthening security infrastructure through technology-driven solutions, particularly in critical areas like SEZs and mega energy projects, is equally important. Additionally, incremental investment and financing models must be adopted for large-scale projects like the ML1 railway project. Dividing such projects into manageable phases with clear milestones will help attract investment and ensure steady, measurable progress.

There is also untapped potential for collaboration between Chinese Small and Medium Enterprises (SMEs) and Pakistani businesses, particularly in sectors such as engineering, automotive, IT, chemicals, textiles, and agro-based industries. Encouraging Chinese SMEs and start-ups to visit Pakistan through tailored tourism and academia initiatives could serve as a precursor to investment. Simultaneously, the Pakistani business community must be motivated to seize these opportunities. Establishing a High-Tech Education City under CPEC, through partnerships with Chinese universities and research institutions, could be a transformative step forward.

Given Pakistan’s resource-constrained environment, Public-Private Partnerships (PPP) offer a viable model for financing large-scale projects. However, the government must enhance the capacity of officials engaged in PPP nodes, particularly at the provincial level. Offering realistic, non-financial incentives tailored to each region’s unique needs will further strengthen this model.

It is essential to reflect on why Pakistan has struggled to attract Foreign Direct Investment (FDI) at the same level as countries like Vietnam, Laos, Malaysia, and Thailand, despite offering competitive incentives, a favourable geographical location, and a relatively large population. Furthermore, Pakistan’s investment-to-GDP ratio remains significantly lower than the regional average.

Investors, whether domestic or foreign, private or state-owned, are drawn to Pakistan’s large market size and abundant human and mineral resources. What they need is a conducive environment characterised by pragmatic governance, financial security, and personal safety.

The incentives required to attract investment in Khyber Pakhtunkhwa, Balochistan, and Gilgit-Baltistan cannot be the same as those for Punjab and Sindh, which benefit from superior infrastructure. Pakistan needs a tailored approach that acknowledges the heterogeneity of investment opportunities across the country and implements region-specific strategies to attract both domestic and foreign investments.

A recurring challenge in Pakistan’s economic planning has been the gap between policy formulation and implementation. Incentive packages must not only be well-conceived but also reliably executed to build investor confidence.

An incremental approach to economic development could involve targeting one SEZ, one Integrated Tourism Zone, one Mineral Zone, and at least one CPEC Agri-Tech Zone for 2024-25. These are achievable goals, provided the plans are kept straightforward and free of unnecessary complexity.

The success of CPEC’s next phase will also depend on a meritocratic approach, where officials responsible for delays and inefficiencies in project development are held accountable. Talent development will play a critical role in ensuring Pakistan’s workforce is equipped to meet the demands of emerging industries, particularly in high-tech sectors such as electric vehicles (EVs), artificial intelligence (AI), and renewable energy. In this regard, the Special Investment Facilitation Council (SIFC) has a crucial role to play.

The road to recovery will undoubtedly be slow, but with confidence-building measures and a focus on sustainable development, Pakistan can still capitalise on emerging opportunities. Decisive action and a clear vision are essential for navigating the challenges ahead. The nation’s youthful population, strategic partnerships, and potential for innovation provide a unique opportunity to build a brighter and more prosperous future.

By prioritising these efforts, Pakistan can position itself as a regional leader and a catalyst for sustainable growth and development. The time to act is now.

The writer is a project management specialist and is a faculty member at various

institutes/universities, while also having served as a diplomat in China and Vietnam. He can be reached at: hdb4049@gmail.com