Thursday January 27, 2022

Pakistan needs grants, not loans: Japanese envoy

August 15, 2021

ISLAMABAD: While extending all out support for the upcoming Auto policy, Japanese Ambassador Kuninori Matsuda said Gwadar Port should become fully operational in five years period, while it can be used as a transit station on a short-term basis.

He also said Japan was not providing soft loans to Pakistan and there was a reason behind it as Tokyo did not want to further escalate its debt.

“Pakistan needs mega projects but Japan has restricted itself to providing only grants keeping in view the reason behind it as we do not want an increase in its debt. Chinese could provide financing for mega projects,” Japan’s Ambassador to Pakistan Kuninori Matsuda said this while exclusively talking to a select group of reporters here at his residence in the Diplomatic Enclave this week.

On account of Pakistan’s worsening financial position and ongoing negotiation with the IMF, the ambassador said Pakistan does not like to receive loans and they understood Pakistan’s position very well. “If the financial position improves, we are more than happy to consider resumption of soft loans,” he maintained.

He said that they understood that Prime Minister Imran Khan himself did not like receiving loans instead he preferred to get investment and trade. We tried to meet the demand of the receiving country, he said, adding China is not a reason for not providing loans to Pakistan.

He said Japan was focusing on five areas for providing grant money, including water supply, education, health, disaster management, and export-oriented industries.

About the Gwadar Port’s viability, he said this port possessed great future but it depends on how it will be developed.

Pakistan needs Gwadar port in the short term that can play an effective role of being a transit or supportive port to Karachi, as Pakistan needs at least five years to make it an international standard port, having an industrial complex, he said.

He said Pakistan requires more ports and it is wise for Pakistan to construct second Port at Gwadar because Karachi had become congested. At the moment, he said, Gwadar does not have any industrial complex or commercial hinterland. He said that he knew there were second and third stage projects under the CPEC.

“We are closely following how fast and to what extent the second and third stage projects will be prepared so that Gwadar can become a trade hub in a true sense,” he maintained.

“If the Gwadar port area is designated as an international tax-free storage area then you bring goods to store in Gwadar and then send to neighboring Gulf countries. Gwadar can be used for support for the Karachi port”, he added.

He said if he was given the authority of the Gwadar port, the first thing to consider was how to build Gwadar as a second supporting port to Karachi which needed to build reliable road network and then it might be a totally different story.

“I am a positive thinking person and I will give it five years for making Gwadar an international standard port,” he maintained.

Dwelling upon the upcoming auto policy, he said they were supporting the new auto policy because it would aim at boosting up productivity, increase competition, allow new entrants, bring technical transformation and developing pyramid manufacturing where focus would be shifting from assembling to manufacturing the whole unit.

“Right now, Pakistan’s automobile industry is practically assembling units. Pakistan’s automobile market is mature enough to move from assembling stage to full-scale manufacturing base,” he added. He said Pakistan would have to focus on manufacturing raw materials like plastic, polymer and glasses.

The spare parts industry is also needed in Pakistan and it needs designing capabilities, he said.

The new policy also supports new technology of Hybrid to Electric Vehicles (EV), as Pakistan needs to move away from traditional combustion engines that use gasoline as fuel.

Japanese manufactures can set up plants if incentives are given in the shape of tax and tariff reduction on the import of necessary machinery, he added.

In light of local conditions, including the electricity generation capacity, it is a bit difficult to jump up from combustion to EV stage. Pakistan needs to adopt a step-by-step approach, he observed.

He said the Japanese car makers did a lot for localisation but he knew there were some complaints about it. Localisation can be achieved in two ways by helping building robust local supplies.

There are some areas where the quality of local supplies is not high. There are some components that still have to be imported from the Japanese suppliers.

“Localisation also means new investment by Japanese suppliers and setting up factories in Pakistan. Japanese automakers are struggling to set up factories in Pakistan, he added. The Pakistan government could help us give some incentives in taxation besides some other benefits,” he maintained.

About the Special Economic Zones (SEZs) under CPEC, he said that they knew that the SEZs were open for receiving investment from any country but Japan’s automobile companies were established in Karachi and Lahore and if they wanted to attract more investment, then the SEZs should be established in the vicinity of these two big cities.

He said the SEZ in Dhabaji, located in Sindh and Faisalabad’s industrial zone in Punjab, are not in the vicinity of these two cities, therefore, it will be difficult for the Japanese investors to set up factories in these cities. Faisalabad would be helpful only for textile-related investment, he added.

“The government can come up with special treatment for those Japanese companies that want to come and invest in the automobile sector,” he said

The SEZ is a magic word but it cannot come out of the blue and you have to build water, gas, electricity, and waste management facilities. Sometimes we hear too much about the SEZ but not necessarily enough facilities are provided in these zones, he maintained.

To build successful SEZ, the key to success is a selection of land, it is usually successful if it is related to export which means it should be located close to the trade port or the border area with trade partners.

In case of Pakistan, for short term, SEZ should be built closer to the Karachi area and later it could be built in other parts of the coastal areas and in the long-term, the border area could be considered.

He said Japan had provided $12.34 billion as official development assistance since 1954, while grant aid was provided to the tune of $3 billion since 1970. In 2020, Japan provided $84 million grant, while the aid amount was standing at $26 million in 2019. “Pakistan needs grants not loans at the moment,” he concluded.