China has invested more than $46 billion in Pakistan, under the projects of China-Pakistan Economic Corridor (CPEC). This huge investment is a blessing in disguise for Pakistan because it will enable Pakistan to cope with domestic problems of; poor infrastructure, energy shortfall, and balancing trade deficit.
CPEC can reshape Pakistan’s economy through the projects of energy and infrastructure. Besides, cooperation in the industrial sector, the agricultural sector, and the financial sector, it will also promote tourism and create diverse investment opportunities. Most importantly, CPEC will reinvigorate Pakistan’s economy by attracting Foreign Direct Investment (FDI) to the country.
FDI will play a vital role in the economic prosperity of Pakistan. Due to this, development in Pakistan’s economy was watched in 1960. Furthermore, the importance of FDI can be gauged from the economic prosperity of the United States, UK, and China, because, according to the World Bank, these were the top three countries, which had received the highest FDI, in 2016 (US NEWS, 2019).
Pakistan had experienced a surge in FDI inflows since 2016. According to the United Nations Conference on Trade and Development’s (UNCTAD) report, FDI inflows to Pakistan increased from $1.7 billion in 2018 to $2.2 billion in 2019 (Nordeatrade, 2019).
In regards to countries, China is the biggest in Pakistan; however, recently, South Korea, Japan, and the United Kingdom have also stepped up their investments. This improvement can be attributed to the improved security condition in the region. Moreover, the recent PTI government has also taken concrete steps for attracting investment to the country.
The good or adverse policies of the government strongly influence the inflows of Foreign Direct Investment (FDI). Therefore, to attract FDI, the government should adopt investor-friendly policies. Likewise, Pakistan Tehreek-e-Insaf (PTI) adopted good economic policies, as a result, over $1bn FDI was attracted to the country in its first five months (Saeed, 2019). Moreover, the government should offer special incentives to foreign investors, such as tax concession and tariff reduction. In brief, all these steps play a key role for investors, at the time of deciding a destination for investment.
The CPEC framework consists of four dimensions; energy, infrastructure, Gwadar Port City, and industrial cooperation( special economic zones), combine it is termed as 1+4 portfolio. Therefore, CPEC is considered a veritable solution to Pakistan’s dilapidated energy condition. Because the bulk of CPEC investment, $33bn, will go to energy projects.
According to official estimates, 21 new projects, pertaining to energy, will add nearly 17,000MW to the national grid. In addition, infrastructure projects such as roads, railways, and optical fiber will; increase regional connectivity, reduce the cost of production through cheap and easy access to raw materials, and explore new sites of minerals.
It should be noted that infrastructure plays a key role in economic prosperity and the bilateral trade of a country; therefore, CPEC can reinvigorate Pakistan’s economy by connecting Pakistan with its neighbor countries such as Iran and China.
CPEC is not an overall win-win project, it faces multiple changes as well. The challenges are insurgency in Balochistan, disharmony among provinces, political instability, and external pressure on Pakistan.
First, India is financing insurgent activities in Pakistan, e.g arrest of Kulbhushan Jadhav, an Indian spy, who was arrested under charges of espionage in Balochistan. Second, the Baloch Liberation Army is continuously targeting CPEC projects and Chinese investors, for instance, attack on Chinese consulate. Therefore, the government must negotiate with them and solve the problem of missing persons. This will not only stop Baloch’s youth from joining militant organization but it will pave the way for peace in the region as well.
Lastly, the USA and India are trying their best to disrupt CPEC, by putting pressure over Pakistan through FATF and IMF. Thus the government should carefully solve these challenges as well.
In conclusion, FDI inflows and CPEC will solve many economic and social problems such as energy shortfall, trade deficit, and unemployment. On the contrary, myopic policies of the PTI government can exacerbate the crisis. Therefore, the government should give proper attention to policy formulation regarding CPEC.