CPEC helps in turning around Pak economy: report

ISLAMABAD: With investments in roads, railways and ports, the $60 billion China Pakistan Economic Corridor (CPEC) offers enormous potential for Pakistan to boost its economy, reduce poverty, spread benefits widely and help those likely to be affected by the new trade route, a joint report of multi and bilateral creditor state.

The report, entitled “The Web of Transport Corridors in South Asia”, published by the Asian Development Bank, the United Kingdom’s Department for International Development, the Japan International Cooperation Agency, and the World Bank, discusses several economic corridors including CPEC.

The report states that in China, for instance, the construction of the National Express Network (NEN) increased real income across its prefectures by nearly 4 percent, on average—but still decreased real wages in many prefectures in either the urban or rural sector.

Only when transport corridors share prosperity widely, not only creating winners but also not leaving behind losers, can they spur equitable growth and help reduce poverty. Many corridor initiatives are under way or are being proposed, both in South Asia and around the world.

One ambitious proposal is to revive the Grand Trunk Road from Kabul, Afghanistan, to Chittagong, Bangladesh, connecting areas that are home to a significant share of the world’s poor.

Even more ambitious could be the plan for the New Silk Road Economic Belt. This very large transport corridor connects Beijing all the way to Brussels. It also branches out into South Asian countries, as is the case with the China-Pakistan Economic Corridor (CPEC) initiative.

The investments associated with these and other proposed initiatives could require trillions of dollars. Such an amount exceeds the financial resources available in the foreseeable future to support corridors. Moreover, it risks crowding out other public investment in critical areas such as education, water and sanitation, or energy. By a conservative estimate, from 2014 to 2020 South Asia needs to invest at least $1.7 trillion in infrastructure. This is just to catch up with developing country peers, whose infrastructure may also be below “optimal” levels.

The importance of complementary interventions is also revealed by simulations for the prospective China-Pakistan Economic Corridor (CPEC) in Pakistan and the Kolkata Dhaka corridor between Bangladesh and India. These simulations suggest that the proposed corridors could have widely diverse impacts on household expenditures, poverty, the inclusion of women in the labour market, and air pollution.

It also branches out into South Asian countries, as is the case with the China-Pakistan Economic Corridor initiative. The investments associated with these and other proposed initiatives could require trillions of dollars. Such an amount exceeds the financial resources available in the foreseeable future to support corridors.

“The simulated impacts on per capita household consumption across districts in Pakistan and Bangladesh call for complementary interventions”, the report states.

“The largest economic gains from investing in transport corridors may arise from urbanization and job creation around this new infrastructure, rather than from many more vehicles using it”, said one of the report’s authors, World Bank economist Martin Melecky, who added: “not all corridor investments are equally successful in creating large economic surpluses that spread fairly throughout society.”

The report notes that many transport corridors proposed across Asia would cost trillions of dollars to implement, far exceeding the financing resources available. Hence, countries need to prioritize the most promising corridors that will deliver the expected transformative impacts for their economies and people. Engineering designs and geopolitical considerations could be important, but sound economic analysis is the key to designing truly successful corridors, the report argues.

The ability of large-scale transport investments to generate wider economic benefits depends on the population density in the areas they cross. Their capacity to spur structural transformation along the way depends on complementary factors around the transport corridors, such as the skills of the local population or restrictions on local land use. The new transport infrastructure must come with the means for people to take advantage of the improved connectivity right from the start.

“The upcoming Khyber Pass Economic Corridor project is a positive example, where trade facilitation and the development of local economic activities are explicitly integrated in the design of the project”, said Illango Patchamuthu, World Bank Country Director for Pakistan.

The report reviews the international experience with economic corridors from the Pacific Ocean Belt in Japan in the 1960s to high-speed train networks in Europe more recently. It also analyses the impacts of the Golden Quadrilateral highway system in India and finds positive effects, including higher economic activity and better (non-farm) jobs for women. However, air pollution rose in parallel and gains in household consumption were not equally shared across connected districts. Appraisal simulations for CPEC and the Kolkata-Dhaka corridor suggest that complementary measures are needed to improve local conditions that in turn will create formal jobs and generate tax revenues that could pay for corridor investments.

In light of the international evidence and specific analyses for South Asia, the report advocates for a more comprehensive design of corridor programmes that actively manages tradeoffs and closes potential financing gaps in a sustainable manner.