Saturday, December 23, 2017

Can CPEC Make Pakistani Manufacturing More Competitive?

In addition to a basic sense of security, the cost of production and availability of required skills are essential for making manufacturing competitive. Cost has several components: labor cost and abundant, cheap energy and infrastructure. Skill comes from education and training infrastructure. Will CPEC (China-Pakistan Economic Corridor) help Pakistan achieve competitiveness on these fronts?

Pak-China Industrial Corridor Source: Wall Street Journal

Abundant, Cheap Energy:

Costs rise dramatically if expensive plant and equipment are not fully utilized due to lack of gas and electricity. It is hard for a manufacturer to be competitive if its factories lie idle for many hours a day due to load-shedding as has been the case in Pakistan for many years. 

Transport Infrastructure:

Manufacturers rely heavily on efficient supply chains. They need required parts delivered on time to continue to operate. Others who depend on their output need to have their orders filled on a just-in-time (JIT) basis. All of this not possible without reliable transport infrastructure over roads, rails, air and sea.  

Skilled Labor:

Energy and infrastructure are necessary but not sufficient to be competitive. Availably of skilled labor is just as important. If the education and training infrastructure does not supply the required skills, then it's not possible for an economy to be competitive.  

China Pakistan Economic Corridor: 

Can China Pakistan Economic Corridor deliver energy, transport infrastructure and skilled labor to improve Pakistani economy's competitiveness? It appears that the first two will be in good shape after CPEC projects are completed. However, significant questions remain with regard to the education and vocational training infrastructure to build the required skilled labor pool. 


Abundant, cheap energy, transport infrastructure and availability of skilled labor are essential for improving Pakistan's manufacturing competitiveness.  It appears that the first two will be in good shape after CPEC projects are completed. However, significant questions remain with regard to the education and training infrastructure to build the required skilled labor pool

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nayyer ali said...

Press reports suggest that the power situation has already improved and loadshedding has become minimal across the country, though I'm not sure how accurate that is. Pakistan has 25 gigawatts installed capacity, CPEC is going to build about another 15 gigawatts and then there are power projects outside CPEC that should also be moving ahead. The Diamer Bhasha dam is a giant project, able to generate 4.5 GW by itself, but Pakistan now wants to build it alone as China wanted ownership of the dam if they built it, and the ADB and World Bank will not fund the 14 billion dollar cost because it is in Kashmir and India opposes it. Using domestic coal to generate power is smart, but the country also has great solar and wind resources that are not being adequately exploited up to now.
One of the factors holding back export growth is an overvalued exchange rate, the government has held the rupee rate at about 100 per dollar for several years, and not allowed it to devalue in line with inflation. This has given the country an overvalued currency which harms exports. The PMLN probably will hold off on meaningful devaluation until after the 2018 election, but I expect the rupee to slip to 125 to 130 to the dollar.
If all projects currently planned get built, do you know what the power capacity will be in 2030?

Riaz Haq said...

NA: "If all projects currently planned get built, do you know what the power capacity will be in 2030?"

Forecasters like PwC predict Pakistan's PPP GDP to nearly double to nearly $2 trillion in current PPP dollars by 2030.

Even if we assume greater efficiency, it will require at least 50% more energy than what Pakistan consumes today.

The projected installed capacity I have seen in the media is about 40-45,000 MW by 2030.

In addition, I expect solar to pick up strongly with declining solar panel costs and new feed-in tariffs being introduced.

Riaz Haq said...

Strategic Insights by #India's Sunil Sharan : #Pakistan, a rising power … via @TOIOpinion

Yet, one nation is a rising power, ready to take its rightful place in the comity of nations, while the other is deemed a global pariah, a jelly state if not a failed state. Huh? How did this happen?

The reality is different. The world pays lip service to India for its large middle class and its ability to buy arms on a large scale. India seems to consider this courting as its emergence on the world stage.

Scratch the surface, and you will find something else. The US is denying Indians H1-B visas. The US has delinked the Haqqanis, who they want, from Hafiz Saeed, who they couldn’t care less about, so that they can give dollops of aid to the Pakistanis.

Today the Yanks hector the Pakistanis, but that is empty bluster. The Pakistanis have trumped them; the Yanks’ wails appear like crocodile tears. The Yanks forgot when they invaded Afghanistan and enlisted the Pakistanis’ help by threatening to bomb them into the stone age that the Pakistanis had been there once before.

That time they trumped the Russians, with significant money and arms from the Americans and the Saudis. But the Americans never took to battle in Afghanistan the first time round. Sure they had read that Afghanistan was a graveyard for empires, from the British to the Soviet, but they believed, foolishly, that they themselves would win out.

They struck a Faustian bargain with the Pakistanis, without ever realizing that they were dealing with the devil. In the nineties, the Pakistanis used Afghanistan to hijack Indian planes and launch jihad in Kashmir. Afghanistan had become both strategic depth as well as a launching pad for them. How were they expected to give up this twin treat?

Once the Yanks entered Kabul, the Taliban vanished. Into thin air? Oh no, many of them disappeared into Pakistan. The Yanks forgot about Afghanistan, until first the Iraqis, and then the Taliban, started knocking their teeth out. One by one their Nato brethren fled Afghanistan, until the Yanks realized that they had to flee as well.

Go to Kabul today, and you will find disdain for Pakistan everywhere. But the Pakistanis don’t care. The real people who matter in Afghanistan are the Taliban, and you don’t find many of them in Kabul. The writ of the government of Afghanistan extends over only Kabul, much as the later-day Mughals were derided as the mayors of Delhi.

The Taliban control over sixty percent of the country. The Talibs don’t like the Pakistanis, referring to them often as blacklegs. But the Talibs need Pakistan to capture Kabul, much as the Pakistanis need the Taliban to capture Afghanistan.

The Pakistanis are disdainful of the threats emanating from the Yanks. The Yanks need Pakistani territory to transport supplies to their legionaries in Afghanistan. The Pakistanis blocked their land routes once, and all hell broke loose then. It’s almost impossible to transport goods from the west of Afghanistan.


Today Pakistan stands on the cusp of victory in Afghanistan. It spurns the Americans for the Chinese, and lo and behold, the Russians, the very people it had helped kick out of Afghanistan. Politics, or rather realpolitik, sure does make for strange bedfellows.

Pakistan is able to stymie India at every international forum, be it the UN or the nuclear suppliers group. There have even been strong rumours about the Obama administration offering the Pakistanis their own nuclear deal. Trump yells and curses at the Pakistanis, but is the first one to give it gobs of military aid.

Pakistan sure doesn’t seem like a loser. It appears to have come out of Afghanistan smelling of roses. It can blackmail America to its heart’s content, and what is more, happily get away with it. Does it seem like a failed state? A terrorist state? A terrorized state? At least not now. For now it seems that Pakistan’s star, that star in their beloved crescent, is rising. And rising.

Riaz Haq said...

China has stopped being a low labor country many years ago, he noted, adding that Apple entered China because of the advancement of people's skills.

Tim Cook, CEO of Apple at the 2017 Fortune Global Forum /CGTN Photo

Talking about Apple's operations in China, Cook said the company holds 15 percent of the country's smartphone market, but noted that the focus is to produce the best products.

He also noted that there are two million app developers in China who are contributing to the app store, and "these are inspiring entrepreneurs."

Cook also attempted to set the record straight about the misconception that Apple products are "designed in California, and manufactured in China."

"The truth is the process engineering and process developments that are associated with our products require innovation itself, not only on the products the way it is made."

Cook also elaborated on the concept of humanity within the realm of technology, which he touched upon a couple of days ago at the fourth World Internet Conference.

He said Apple stands at the intersection of technology and liberal arts, with users at the center. He maintained that a great user experience should be the focus, and noted that in a world where tech can do anything, developers should put humanity at the center of their creations.

Anonymous said...

Forecasters like PwC predict Pakistan's PPP GDP to nearly double to nearly $2 trillion in current PPP dollars by 2030.

Yes, but that is in NOMINAL PPP dollars and not in CONSTANT PPP dollars. To see what this means in real terms, we should normalize---

2017 (Today):
Pakistan 1.05 Trillion$
India 9.4 Trillion$

Pakistan 2.0 Trillion$
India: 29 Trillion$

So In 2030, India's economy would be 14-15 times larger instead of the 9-10 times larger it is today.

Riaz Haq said...

Anon: "2030: Pakistan 2.0 Trillion$ India: 29 Trillion$
So In 2030, India's economy would be 14-15 times larger instead of the 9-10 times larger it is today."


Here are the correct figures from PwC forecast for 2030 and 2050:

2014: India $7,277 billion Pakistan $884 billion (Ratio 8.23)

2030 (in constant 2014 dollars) : India $17,136 billion Pakistan $1,832 billion (Ratio 9.35)

2050 (in constant 2014 dollars): India $42,205 billion Pakistan $4,253 billion (Ratio 9.82)

If history is any guide, Pakistan economy will most likely grow faster than the PwC forecast assumes.

At 6% per year, it can double every 12 years (Rule of 72: 72/6=12 )

Riaz Haq said...

This is why you need to know about trade finance

We are talking about a financing mechanism that is essential to bridge the time lag between a product’s shipment from one market and its arrival and inspection in another. Reducing this delay helps build trust and minimizes many of the risks arising from such complex transactions, such as a lack of timely payment, exchange rates and the deterioration or loss of goods and services.

Trade finance likes to manifest itself in the form of letters of credit, guarantees or insurance and is usually provided by intermediaries, such as banks or financial institutions. One of its most current forms involves bank-to-bank transactions, where one bank provides an account and related services to another in a relationship is called correspondent banking.

According to an Asian Development Bank Institute paper, adequate and reliable trade finance creates exports opportunities: “[I]t enables firms which would otherwise be considered too risky, to link into expanding global value chains and thus contribute to employment and productivity growth”. Trade is no longer just for the big boys.


FinTech solutions could potentially solve some of the transparency and risk-related processes and transaction costs, as well as fees, associated with banks’ due diligence checks by providing trusted platforms to connect seekers and providers of funding, rather than piles of paperwork.

The good news is that some initiatives are emerging. For example, some FinTech firms in the US and Singapore are starting to offer web-based platforms allowing users to post assets for distribution, negotiate deals, and manage supporting documentation.

FinTech solutions could finally find their niche in the finance sector and kill two birds with one stone. On the one hand, they could allow for the development of innovative start-ups that have been in the shadows for too long while creating new opportunities to link up with markets; on the other hand, they could offer an easier and cheaper way to access finance through a user-friendly platform that’s accessible by phone. Our Burmese entrepreneur would certainly find it easier to buy a phone than to open a bank account.

Now take off your rose-tinted glasses for a minute and feel that bittersweet taste in your mouth. Every joy has a dark side. Given the nascent nature of FinTech, regulatory frameworks are still uncertain and concerns related to intellectual property and data protection are yet to emerge. This may prevent some companies from adopting these solutions and being able to see the benefits, which include security, risk and cost reductions, and speed, to name but a few.

Riaz Haq said...

CPEC With Virtues Blessed Pakistan With Bountiful Harvest In 2017 [ANALYSIS]

Discussing the energy sector under CPEC, there were 16 projects prioritized with the total capacity of 10,400MW as well as 8 actively promoted projects. Year 2017 has witnessed the operationalization of 2x660MW Sahiwal Coal-Fired Power Plant, 50MW Dawood Wind Farm and 50MW Sachal Wind Farm. Near to completion are the 900MW Quaid-e-Azam Solar Park in Bahawalpur (90% work has been done) and 100MW Jhimpir Wind Farm. 2x660MW Port Qasim Coal-fired Power Plant, 4x330MW Engro Thar Coal-fired Power Plant and Surfice Mine in Block II of Thar Coal Field, 720MW Karot Hydro-Power Project, and 873MW Suki Kinari Hydropower Project are under construction.
Year 2017 has witnessed the seventy percent completion of the two infrastructure projects; KKH PhaseII(Havelian- Thakot Section),120 km, Karachi-Lahore Motorway (Sukkur-Multan Section),392 km. Rest of the infrastructure projects are working on their pace while the spine of the CPEC Railway Line ML-1’s complete feasibility report has been compiled up for the further progress. An efficient and fast transportation network is vital importance for the economic development.

In the area of industrial cooperation under CPEC, there are six projects under construction and year 2018 will be witnessing their destiny. China has advantages in experience, technology, financing and industrial capacity, while Pakistan enjoys favorable conditions in resources, labor forces and market. By carrying out industrial cooperation, both sides will achieve mutual complementarity and win-win results.

Year 2017 marked a landmark achievement for Pakistan as Federal Minister Ahsan Iqbal said that CPEC Long Term Plan would be public on 18th of December, 2017 which would further add the prospects for more inclusive research of this mega project. Simultaneously, there are bright prospects to jack up the developments in various sectors which include agriculture, information technology. This demonstrates the success of this meeting and the willingness of China to diversify its cooperation under the CPEC project. In this backdrop, the harmony between the provincial and federal governments is required and they should work enthusiastically for the inclusion of more projects under CPEC and to complete the ongoing projects. It can be hoped that the end result would be productive and the project will be able to proceed. The continuity of the meetings of Joint Cooperation Committee since 2013 to Nov 2017 shows the evaluation and progress of work on the ongoing projects under CPEC. 7th JCC has further deepened mutual cooperation between the two countries under the framework of CPEC and would pave a clear way for Pakistan to enter the phase of Industrial Cooperation.

CPEC has helped Pakistan to mitigate the chronic energy crises which have negative impacts on the economic growth of Pakistan. This energy shortage has hampered the industrial production and the businesses were closed down because of the interrupted supply of energy. CPEC project has played a significant role in this regard whereas WAPDA and KESC failed to resolve this problem of energy shortage. CPEC energy projects based on the wind, solar, coal and hydro power would create the generation of 16,400 MW.

Riaz Haq said...

#China completes work on $1.7 billion project to transform #Pakistan’s dysfunctional national grid. The 878km, 660kV DC, #Matiari–#Lahore transmission line will provide the national grid with a new backbone. 1300 #Chinese & 650 #Pakistanis worked on it.

A $1.7bn electricity transmission line on the China–Pakistan Economic Corridor (CPEC), which was begun in December 2018, was inaugurated in a ceremony held in Islamabad and Beijing at the end of last month.
The 660kV Matiari–Lahore high-voltage direct current line will provide Pakistan’s national grid with a new backbone and improve chronic problems with the country’s energy transmission and distribution grids.

The 878km line was financed and built by the State Grid Corporation of China, which will operate it for the next 25 years.

More than 1,300 Chinese and 6,500 Pakistani workers were employed on the scheme.

Hammad Azhar, Pakistan’s energy minister, said the project would bring stability to the country’s power system. Speaking at the online ceremony, he said the project would “enhance transmission capability and bring relief to consumers”.

Electricity generation in Pakistan has increased dramatically in recent years, thanks to the large-scale construction of mainly coal-fired plants funded by China.

As a result the country has an installed capacity of around 37GW and peak demand of only 25GW, although this is growing at a rate of about 5% a year. However the grid is able to handle only 22GW of power, resulting in chronic blackouts and load shedding, particularly in the summer when demand is highest.

However, problems occur in winter as well. In January of this year, the entire country suffered a blackout after a fault at a power station in southeast Sindh province caused the grid to lose its 50Hz frequency, which caused power stations throughout the country to close down.

This makes the reinforcement of the grid, arguably, the single most important infrastructure scheme for the country’s socio-economic development.

Zhang Jianhua, head of China’s National Energy Administration, told those present at the ceremony that the Matiari-Lahore line was the first large-scale transmission project of the CPEC, and would provide “solid assurance” for power transmission in the south and power supply in the north.

Speaking about the economic corridor in general, Azhar added: “The CPEC is of utmost importance for Pakistan. It will enable the country to enhance industrial production, upgrade energy and communication infrastructure and improve connectivity within the region.”

Of Pakistan’s 207 million people, roughly 58 million lacked access to grid electricity in 2018, including 46% of the rural population.