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Saturday July 12, 2025

CPEC and its execution

By Shakeel Ahmad Ramay
August 22, 2022

The PTI government had created CPEC Authority to accelerate implementation of its 2nd phase. Although, the government did not empower the Authority with decision-making powers, it still helped eliminate hurdles and smoothen implementation of CPEC programmes.

Now, the PMLN government is abolishing the Authority. The government claims it could not deliver as special economic zones (SEZs) are not fully operational. The government has decided to go back to past approach which it adopted during the first phase.

It has the right to decide about the future of CPEC Authority. However, before taking any decision there is need to look for the reasons and impediments in the smooth execution of the second phase. For that purpose, Pakistan should search for answer to two questions. First, either 2nd phase is similar to the 1st phase or not? The answer is no. The 2nd phase is entirely different. The first phase was led by government-government or government-business cooperation.

As Government of Pakistan was taking lead to implement, there was not much hassle of getting licences or registration or execution of the projects. However, the second phase is all about Business-Business (B-B) or private sector-led cooperation. Business community will have to take care of everything from registration to execution of plans and dealing with all tax agencies. Unfortunately, business environment of Pakistan is not very conducive. The issues are complicated institutional framework, complex and lengthy procedures and corruption.

Though EODB ranking of Pakistan has improved, the problems are still haunting the country. For example, it takes 113 days to get electricity connection, 125 days for construction permit and 105 days for property registration, by book. In reality, it takes many more days.

The 18th Amendment has further complicated the institutional framework. Tax system is another problem which really bothered the investors and industrialists. First, industry has to bear major burden of tax revenue. Services and agriculture sectors are not paying taxes according to their contribution in national economy. Second, there are 35 departments or agencies which are involved in the taxation system.

On top of that provincial tax systems and legal requirements further aggravate the situation. Lack of harmonisation of tax policies of provinces is one of the biggest bottlenecks to attract foreign direct investment. Inconsistency is another problem in taxation policy which is impacting the trust of business community.

Second question is why SEZs are not fully operational and attracting investment from countries other than China? The analysis of situation suggests lack of right set of policies and ignorance of global best practices are the leading factors of lower performance.

The study of global SEZs suggests there are five key elements which play a leading role in deciding the future of SEZs. First, location of SEZs plays a vital role. Therefore, experts believe that economic rational should dictate the selection of location. Unfortunately, in Pakistan political preferences dictate the decisions. Second, innovative policies according to situation help make any SEZ successful. Third, policies should be designed to attract investment and industry, not to please certain audience.

Fourth, sound marketing policies and strategies, based on facts and data, are required to attract investors. But, Pakistan does not have such a marketing policy or strategy for SEZs. We are trying to attract investors by giving big statements, not rational choices. For example, till today, we do not conduct any comparative analysis of Pakistani SEZs with global SEZs to figure out comparative advantages of Pakistani SEZs.

We have hundreds of universities and many research institutions. Planning Commission dedicates research centre for CPEC and PIDE, but no study is available which can help convince investors. The only available study on the subject is commentary on the SEZs of different countries, not a comparative analysis of policies, rules, procedures or incentives.

In the absence of such analysis, how can we attract investors. For example, a few months back Pakistan organised a special meeting for ASEAN countries to invite them to join CPEC. One wonders how we can ask ASEAN countries to join CPEC in the presence of Regional Comprehensive Economic Partnership (RCEP).

Thus, to convince ASEAN we need a strong rational which can only be provided by a comprehensive comparative analysis. Fifth, effective and efficient management of SEZs plays a major role in determining the success or failure of any SEZ. The level of effectiveness and efficiency in designing, execution and facilitation plays a leading role in attracting foreign direct investment. Foreign investors look for minimum hassles and they do not like to run after multiple institutions or agencies. They prefer to invest in SEZs which help them against the political interference, complicated institutional framework, complex procedures and corrupt practices.

In the conclusion, the present institutional arrangement does not allow any ministry or institution to play a decisive role. Rather, it has given birth to tug-of-war among the ministries and institutions. Therefore, there is need of a strong central body which can help avoid tug-of-war and pave the way for smooth implementation of 2nd phase of CPEC.

The body must have decision-making and implementation powers and there should be no interference from any ministry or institution. The body should be only answerable to the Prime Minister. Lastly, if PMLN does not like CPEC Authority, it can come up with a better idea or name, but what required is smooth implementation.