An Em­ploy­ment Im­pact of CPEC Projects

Dr. Syed Tahir Hi­jazi

The Diplomatic Insight - - News -

In­tro­duc­tion

Pak­istan and China share a clas­sic history of re­la­tion­ship that has thrived with time re­gard­less of dif­fer­ences in diplo­matic re­la­tions were es­tab­lished be­tween the two coun­tries on May 21, 1951. How­ever, the re­la­tions be­tween the two coun­tries started with a rocky start. In 1949, In­dia’s de­val­u­a­tion of cur­rency halted the bi­lat­eral trade be­tween In­dia and Pak­istan. Pak­istan was se­verely af­fected by it as it was im­port­ing coal from In­dia to run its nascent in­dus­tries. At that time China stepped for­ward and signed a barter trade deal of coal for cot­ton with Pak­istan. The re­la­tions be­tween the two coun­tries there­fore im­proved and Pak­istan be­came state. Pak­istan sup­ported China’s in­clu­sion in United Na­tions Se­cu­rity Coun­cil and China sup­ported Pak­istan dur­ing the 1965 war. Be­sides this both coun­tries have im­proved their signed be­tween the two coun­tries. First free trade agree­ment was signed be­tween the two coun­tries in 2006 and an­other For­eign Trade Agree­ment (FTA) on trade in ser­vices was signed in 2009. Trade be­tween the two coun­tries ex­panded from US$ 1 bil­lion in 1998 to US$ 13 bil­lion in 2013 and fur­ther to US$ 20 bil­lion in 2015 (Fig­ure 1). Fig­ure 1- Source: Ir­shad, Xin & Ar­shad. Jour­nal of Eco­nomics and Sus­tain­able De­vel­op­ment China Pak­istan Eco­nomic Cor­ri­dor is an im­por­tant agree­ment of im­prov­ing re­gional con­nec­tiv­ity as “strate­gic part­ners”. The idea of an eco­nomic cor­ri­dor be­tween China and Pak­istan has been in place for many years but be­came a re­al­ity in 2013 through visit of Chi­nese Pre­mier Li Ke­qiang to Pak­istan. The his­tor­i­cal mem­o­ran­dum of un­der­stand­ing be­tween the two coun­tries on CPEC was signed on July 5, 2013. In the same year Prime Min­is­ter Nawaz Sharif vis­ited China and signed 8 agree­ments. In 2014, the pres­i­dent of Pak­istan Mam­noon Hus­sain vis­ited China and dis­cussed var­i­ous plans re­lated to CPEC. Prime Min­is­ter Nawaz Sharif vis­ited China again and 19 more agree­ments were signed. Chi­nese Pres­i­dent Xi Jin­ping vis­ited Pak­istan in 2015 dur­ing which 51 agree­ments worth US $46 bil­lion (37 projects) were signed be­tween the two coun­tries. The China Pak­istan Eco­nomic Cor­ri­dor is a com­pre­hen­sive and well planned multi­bil­lion dol­lar project that will link Gwadar to China’s north­west­ern re­gion of Xin­jiang through a net­work of rail­ways, roads, high­ways, con­nec­tiv­ity and as­sist in eco­nomic de­vel­op­ment of Pak­istan. CPEC is not merely a net­work of roads, in fact it is a com­plete pack­age of col­lec­tive ini­tia­tives and projects that en­com­passes in­fra­struc­ture, re­gional con­nec­tiv­ity, poverty al­le­vi­a­tion, en­ergy co-op­er­a­tion, agri­cul­tural im­prove­ment, in­dus­trial im­prove­ment, ed­u­ca­tion, health, liveli­hood im­prove­ment which would re­sult in the es­tab­lish­ment of nu­mer­ous new ven­tures, will pro­vide the much needed as­sis­tance to the econ­omy of the coun­try and would lead to cre­ation of mil­lions of jobs in Pak­istan. The ma­jor in­fras­truc­tural work un­der the project in­cludes the 2,700 km high­way link­ing Kash­gar to Gwadar, rail­way links, the re­con­struc­tion and im­prove­ment of Karako­rum high­way. Var­i­ous eco­nomic zones and in­dus­trial zones are also un­der con­struc­tion un­der CPEC. The CPEC project would be car­ried out in phases. The early har­vest projects would be com­pleted by 2018. The short and medium term projects would be com­pleted by 2020 and 2025. While the long term projects would be com­pleted by 2030. The ma­jor chunk, US$ 486 M of CPEC in­vest­ment is in the en­ergy sec­tor that would add 10,400 MW of elec­tric­ity in the na­tional grid. A to­tal of US$ bil­lion 9.790 have been planned for roads and rail­ways while US$ mil­lion 793 will be spent on Gwadar port re­lated projects which forms the heart of CPEC. land­locked coun­tries ex­ist in Asia and in some coun­tries the sea ac­cess from their own land is very ex­pen­sive. China is an ex­am­ple of such a coun­try. China’s western part is at a dis­tance of thou­sands of kilo­me­ters from its sea ports in the East­ern part. The dis­tance be­tween Kash­gar and port of Shangai is 4500 km while its dis­tance from Gwadar port is 2800 km. The Gwadar port would there­fore help deep wa­ter ac­cess to the un­der­de­vel­oped western re­gions of China. It would re­sult in pro­vid­ing China ac­cess to Cen­tral Asian Republics (CAR’s) and Afghanistan. China is one of the big­gest im­porters of oil and more than half of the world’s oil re­serves are lo­cated in Mid­dle East. More than 80% of China’s en­ergy needs pass through the “haz­ardous choke points of Strait of Malacca”. The es­tab­lish­ment of Gwadar will ease China’s pres­sure by pro­vid­ing an al­ter­na­tive source for its oil im­ports. The oil from Gulf com­ing through Malacca has to cover huge dis­tance in or­der to reach China. Gwadar port and the Karako­rum high­way can pro­vide a much shorter, cheap and se­cure route to China for its oil im­ports. It will pro­vide China with an al­ter­na­tive route to reach Mid­dle East,

Europe, USA and Africa. The new route through CPEC will shorten the dis­tance be­tween East Europe and West China planned in­dus­trial zones un­der CPEC. CPEC has fre­quently been re­garded as a “game changer” for Pak­istan. CPEC will pro­vide the much needed boost to Pak­istan’s econ­omy. Ac­cord­ing to a re­port, an in­cre­men­tal in­crease of 3.6 units in in­vest­ment leads to the growth of GDP by one unit. CPEC will lead to an in­crease in GDP growth in­crease be­cause of eco­nomic op­por­tu­ni­ties in the form of free trade zones and in­dus­trial pro­cess­ing zones, im­proved in­fra­struc­ture, avail­abil­ity of en­ergy, pos­i­tive eco­nomic out­look and sta­ble econ­omy. ex­ist­ing data on em­ploy­ment these projects would gen­er­ate. To con­duct this anal­y­sis se­condary Data was col­lected from sources like Min­istry of Plan­ning and De­vel­op­ment, Nepra, news ar­ti­cles and re­ports. Hence for cal­cu­lat­ing the im­pact of this in­vest­ment on em­ploy­ment the fol­low­ing ap­proach has which have been es­tab­lished/ im­ple­mented re­cently. The

3.1 En­ergy (Coal)

Pak­istan is coun­try that is blessed with nat­u­ral re­sources. Pak­istan con­tains the 7th largest coal re­serves in the world at Thar Sind. This coal has the po­ten­tial to gen­er­ate 10,000 MW of elec­tric­ity for the next 200 years. Un­der CPEC var­i­ous projects have been planned that would make use of im­ported as well as in­dige­nous coal re­sources to elim­i­nate the prob­lem of en­ergy short­age from the coun­try. Port Qasim Elec­tric project is among the high pri­or­ity projects that fall in the “Early Har­vest” cat­e­gory. The project will start gen­er­at­ing elec­tric­ity by the end of 2017 and will be­come fully op­er­a­tional by June, 2018. The project is ex­pected to gen­er­ate out­put of 9,000 GWh an­nu­ally, which of 3-4 mil­lion fam­i­lies. Port Qasim is a highly busy port The project is lo­cated south­east of Karachi in Port Qasim In­dus­trial Park. The project deals with the es­tab­lish­ment gen­er­ate (2*660MW) 1,320 MW of elec­tric­ity. Be­cause of a Coal Jetty is to be built for this project. The coal for the project is sug­gested to be im­ported from In­done­sia, South

Africa and Aus­tralia. Si­no­hy­dro Re­source Ltd and Al Mirqab are the spon­sors and ex­e­cut­ing com­pa­nies of the project. The eq­uity ra­tio is 25% while the rest will be raised through debt ba­sis. Port Qasim En­ergy Hold­ing Com­pany which is jointly the plant op­er­a­tions. To ex­tract the elec­tric­ity of the plant, it will be con­nected to the planned Ma­tiari trans­mis­sion line. desul­fu­r­iza­tion sat­isfy the World Banks, en­vi­ron­men­tal stan­dards. Liv­ing quar­ters for Pak­istani and Chi­nese work­ers are also be­ing de­vel­oped on an area of about 80,000 square meters. 700 peo­ple can be ac­com­mo­dated in work­ers liv­ing quar­ters, 2,000 in Chi­nese liv­ing quar­ters and 9,000 in Pak­istani liv­ing quar­ters. Work on the project is go­ing at a rapid pace and is ex­pected to be com­pleted in the given time­frame. Ac­cord­ing to var­i­ous sources the plant is ex­pected to gen­er­ate 3,500 jobs dur­ing the con­struc­tion phase and 250 jobs dur­ing the op­er­a­tion phase. English lan­guage and tech­ni­cal train­ing will be pro­vided to de­velop the skills and ca­pac­ity of the op­er­a­tional staff. China-Pak­istan Eco­nomic Cor­ri­dor scheme with the abil­ity to in­ject 1320 MW of elec­tric­ity into the na­tional grid with an an­tic­i­pated cost of US$ 1,600 mil­lion dol­lars. Project is ex­pected to sup­ply power to two cities; Okara and Sahi­wal in or­der to en­hance their eco­nomic ac­tiv­i­ties. China Hua­neng Con­struc­tion on the project started in March 2015. China is the world’s most High-Tech coun­try in terms of ther­mal power. China plans to em­ploy the same mag­ni­tude of tech­nol­ogy in Sahi­wal Coal Fired power plant. The tech­nol­ogy used for the con­struc­tion of this plant is con­sid­ered to be en­vi­ron­men­tally friendly. The gen­er­a­tors abil­ity to re­move sul­phur and other heavy me­tals in or­der to desul­fu­r­ize the equip­ment and re­move ash par­ti­cles. Ini­tially plant is re­ly­ing on im­ported coal for a short span of time since the boil­ers are not de­signed to run on lo­cal lig­nite. The eco­nomic ac­tiv­i­ties; there­fore re­ly­ing on a lo­cal re­source makes bet­ter sense for a de­vel­op­ing coun­try like Pak­istan. in terms of pol­lu­tion con­trol which in­creases the KW/h of at the project stated that “The con­struc­tion of the foun­da­tion of the unit has been com­pleted along with the con­struc­tion of the pro­cess­ing build­ing. More­over, the con­struc­tion of the main en­trance bridge has also been com­pleted”. power plant will cre­ate won­ders for the in­hab­i­tants of that par­tic­u­lar re­gion. The project is ex­pected to gen­er­ate 3,500 di­rect and in­di­rect jobs for the lo­cals of that re­gion dur­ing the con­struc­tion phase and 250 at the time of op­er­a­tional phase. Peo­ple re­sid­ing in Okara and Sahi­wal now have a chance to work­ing on this project are now able to ed­u­cate their chil­dren, af­ford a bet­ter liv­ing. It is an op­por­tu­nity for Pak­istan to even­tu­ally raise the stan­dard of liv­ing by cre­at­ing as many jobs as pos­si­ble. All the con­struc­tion raw ma­te­rial for this project were also bought from the lo­cal mar­kets near Sahi­wal thus cre­at­ing lo­cal growth op­por­tu­nity for that re­gion. 3.4 Wind Farms 4. Em­ploy­ment im­pact of China Pak­istan Eco­nomic Cor­ri­dor on Pak­istan’s econ­omy China Pak­istan Eco­nomic Cor­ri­dor is a project that would gen­er­ate a new era of eco­nomic de­vel­op­ment and pros­per­ity for both coun­tries. It is said to be a great op­por­tu­nity for Pak­istani and Chi­nese in­vestors to make in­vest­ments and

col­lab­o­rate for joint ven­tures in fu­ture. Cor­ri­dor will not just open in­cen­tives for China and Pak­istan but also for the Mid­dle East and African re­gions. Project will open great prospect for com­merce and trade be­tween the two coun­tries. Eco­nomic de­vel­op­ment at this large ex­tent can be ex­pressed as glob­al­iza­tion. Ta­ble 4.1 - In­di­ca­tors of the labour mar­ket Pak­istan (%) Source: Pak­istan Bureau of Statis­tics. Statis­tics Divi­sion Gov­ern­ment of Pak­istan Em­ploy­ment and glob­al­iza­tion are pos­i­tively linked to one mak­ers in de­vel­op­ing coun­tries like Pak­istan. Glob­al­iza­tion has mul­ti­ple af­fects and these af­fects be­have dif­fer­ently num­ber of jobs avail­able and there­fore di­rectly af­fects the macroe­co­nomic vari­able of un­em­ploy­ment rate. Prom­i­nent glob­al­iza­tion in­di­ca­tors are prod­uct price con­ver­gence be­tween the im­ports and ex­ports of the two coun­tries, se­condly re­duced costs of com­mu­ni­ca­tion and trans­porta­tion, and thirdly fa­vor­able pol­icy in terms of FDI (for­eign di­rect in­vest­ment), free trade, pri­va­ti­za­tion etc. When Pak­istan is glob­al­ized it will make in­ter­na­tional mar­ket easy to ac­cess, it will be easy to raise cap­i­tal, lower trans­porta­tion costs, greater ac­cess to high tech­nol­ogy which would im­prove the in­dus­trial sec­tor com­po­si­tion of the coun­try (Fig­ure glob­al­ized are far more fa­vor­able for the econ­omy. Due to trade lib­er­al­iza­tion more and more labour in­ten­sive in­dus­tries would be en­cour­aged to pro­duce goods, there­fore boost­ing em­ploy­ment ac­tiv­i­ties. With lib­er­al­iza­tion ser­vices, skills, tech­nol­ogy and in­for­ma­tion. CPEC is from in­ter­na­tional in­fra­struc­ture and ser­vice providers in gen­er­at­ing em­ploy­ment through rais­ing our pro­duc­tiv­ity and strength­en­ing our econ­omy. There will be health­ier in­dus­trial ser­vices, min­ing and telecom­mu­ni­ca­tion be­tween the two coun­tries due to CPEC. Cor­ri­dor will help both coun­tries to ex­plore their nu­clear and re­new­able re­sources like wind, so­lar and wa­ter which is one of the many as­pects that would gen­er­ate em­ploy­ment in both coun­tries. Youth un­em­ploy­ment rate in Pak­istan is sky ris­ing ev­ery year. Na­tional em­ploy­ment pol­icy of Pak­istan has a pol­icy called “De­cent work for all” which op­er­ates un­der ILO (In­ter­na­tional Labour Or­ga­ni­za­tion) frame­work. Its pur­pose is to cre­ate de­mand for labour and then al­lo­cate that de­mand projects. Due to ter­ror­ism and acute en­ergy cri­sis Pak­istani econ­omy has de­te­ri­o­rated pre­vent­ing or­ga­ni­za­tions like ILO to work ef­fec­tively. To pre­vent our econ­omy from fur­ther de­te­ri­o­ra­tion CPEC was ini­ti­ated with an in­vest­ment bud­get of US $ 46 bil­lion. Large amount of in­vest­ment like this will po­ten­tially cre­ate a new labour mar­ket. Re­mote ar­eas like Gwadar, Thata and Badeen will be ur­ban­ized cre­at­ing job prospect.

4.1 The new em­ploy­ment trends to be es­tab­lished by China Pak­istan Eco­nomic Cor­ri­dor

Ac­cord­ing to the study to­tal em­ploy­ment at the con­struc­tion and op­er­a­tional phase is ex­pected to be 389,405 with ap­prox­i­mately 5% in­di­rect em­ploy­ment in­di­ca­tor. This se­condary re­search method­ol­ogy. Projects with sim­i­lar for fur­ther study. The val­ues ob­tained from those projects

of vari­a­tion in data. Due to vast na­ture of the project and nu­mer­ous un­known vari­ables at­tached to it no sta­tis­ti­cal model could be run to de­ter­mine the ex­act em­ploy­ment guid­ance ac­cord­ingly. It has been pro­jected that CPEC will cre­ate more than 800,000 jobs in fu­ture. Keep­ing in mind the mi­croe­co­nomic and macroe­co­nomic conditions of Pak­istan’s econ­omy, CPEC projects em­ploy­ment im­pact can be di­vided on­go­ing labour mar­ket and sec­ond phase can be re­ferred to as fu­ture pros­per­ity. First phase will be ac­com­plished by 2018 which is the Early Har­vest stage of China Pak­istan Eco­nomic Cor­ri­dor. The large amount of in­fra­struc­ture de­vel­op­ment has be­come a gate way for Pak­istan’s con­struc­tion and real es­tate sec­tor by ur­ban­iz­ing re­mote ar­eas like Badeen, Gwadar and Thata. Con­struc­tion of roads, rail­ways, pipe­lines, high­ways etc. will in­volve the lo­cal labour force hence cre­at­ing em­ploy­ment op­por­tu­ni­ties for the lo­cals. Pak­istan’s labour mar­ket has started re­ceiv­ing the div­i­dends from Chi­nese con­struc­tion trends in Pak­istan. In the com­ing years there will be in­creased de­mand for in­ter­preters and lin­guists for trans­lat­ing Chi­nese into English/ Urdu and vice versa. The com­ple­tion of CPEC projects ba­si­cally de­pends on the labour mar­ket, its will­ing­ness to adapt to new skill set, tech­nol­ogy and will­ing­ness to ex­plore their max­i­mum po­ten­tial. Af­ter the com­ple­tion these projects Pak­istan will be ac­ces­si­ble to vi­brant job op­por­tu­ni­ties in sec­tors like pub­lic and busi­ness ad­min­is­tra­tion, ge­o­log­i­cal en­gi­neers, en­vi­ron­men­tal­ists, geo­sci­en­tists, and ge­ol­o­gists etc. Be­sides these new job cre­ations, CPEC is in­vest­ing a large amount in ed­u­ca­tion and train­ing sec­tor which will also en­gage tremen­dous amount of hu­man cap­i­tal. Col­lab­o­ra­tion of ed­u­ca­tional and train­ing in­sti­tutes will re­quire an ef­fort in un­der­stand­ing mul­ti­cul­tural dif­fer­ences. This as­pect alone will cre­ate a scope of re­searchers, so­cial sci­en­tists and phi­lan­thropists to ex­plore the cul­ture of both coun­tries. In or­der to achieve these in­sti­tutes will be de­vel­oped to pro­vide right set of train­ing and ed­u­ca­tion con­se­quently cre­at­ing em­ploy­ment at tremen­dous rate. The sec­ond phase is about the fu­ture pros­per­ity of Pak­istan’s em­ploy­ment sec­tor. Com­ple­tion of Early Har­vest projects will lift the is­sues of en­ergy cri­sis and there will be bet­ter in­fra­struc­ture avail­abil­ity with an early stage of trad­ing ac­tiv­i­ties be­tween the two coun­tries. It is ex­pected that com­pa­nies hav­ing stakes in CPEC will bring FDI to Pak­istan once they see the uplift­ing of en­ergy cri­sis. Pak­istan is an agro based econ­omy. 24% of Pak­istan’s GDP is a con­tri­bu­tion from the agri­cul­ture sec­tor. CPEC will bring com­pe­ti­tion to Pak­istan’s lo­cal farm­ers; they will have a bet­ter ac­cess to high in­no­va­tive tech­nol­ogy. This will help lo­cal farm­ers out­grow from the typ­i­cal old school tech­niques there­fore wel­com­ing the farm­ing in­dus­try cul­ture, im­prov­ing the live­stock, crops, De­vel­op­ment at the coastal ar­eas, port yards like at Gwadar has been fore­casted that ap­prox­i­mately 150,000 em­ploy­ment op­por­tu­ni­ties will be cre­ated in Gwadar city alone. Pak­istan is one of the ma­jor ex­porters of live­stock and meat prod­ucts, these in­dus­tries will boom with the pas­sage of time as the new mar­ket­places will open. Col­lab­o­rat­ing with China, Pak­istan will give ac­cess to the in­ter­na­tional mar­ket which in re­turn will aid the small and op­por­tu­nity to com­pete with other in­no­va­tive and di­verse en­ter­prises at an in­ter­na­tional plat­form. With the in­tro­duc­tion of CPEC a fully new mar­ket for ser­vices will emerge. Pak­istan has a large por­tion of pop­u­la­tion em­ployed in ser­vice sec­tor. A whole new mar­ket of lo­gis­tics will emerge to as­sist trade ac­tiv­i­ties be­tween the is a pos­si­bil­ity of labour out­sourc­ing. Due to in­fra­struc­ture de­vel­op­ments ur­ban­iza­tion will take place in Pak­istan which will en­cour­age real es­tate and tourism sec­tor. There­fore to con­clude al­most two-third of the world pop­u­la­tion lives in South Asian re­gion which is con­sid­ered to be the least in­te­grated re­gion of the world. Un­em­ploy­ment rates are high due to low mar­ket and in­vest­ment in­cen­tives. China Pak­istan Eco­nomic Cor­ri­dor will pave the way be­tween these re­mote mar­kets and in­vest­ment in­cen­tives. It would lead to ur­ban­iz­ing of un­der­de­vel­oped ar­eas of China and Pak­istan and would lead to in­dus­tri­al­iza­tion. This would even­tu­ally cre­ate nu­mer­ous op­por­tu­ni­ties for both coun­tries labour mar­kets.

4.2 De­vi­a­tion Rea­sons

Em­ploy­ment trends of CPEC re­lated projects were de­ter­mined through ap­pro­pri­ate method­ol­ogy. In­ter­na­tional projects across the globe with sim­i­lar mag­ni­tude were taken into ac­count as a base­line to com­pare with these 38 CPEC projects. To min­i­mize the un­known vari­ables these con­sul­tants and pub­lic and pri­vate in­dus­try ex­perts and con­sul­tants.

labour and op­er­a­tional staff of only 38 projects fall­ing un­der China Pak­istan Eco­nomic Cor­ri­dor um­brella. It is pro­jected that ad­di­tional em­ploy­ment will be cre­ated at a very large scale due to this US $ 46 bil­lion project. The fo­cus of this re­port was to de­ter­mine the con­struc­tion labour and op­er­a­tional staff of 37 CPEC projects. The re­port does not ac­count for any ad­di­tional em­ploy­ment to be cre­ated through in­dus­trial zones, FDI (for­eign di­rect in­vest­ment), free trade and pri­va­ti­za­tion etc.

4.3 Way For­ward

Cor­ri­dor will not just open in­cen­tives for China and Pak­istan but also for the Mid­dle East and African re­gions. An in-depth

5. CPEC Projects and Em­ploy­ment Im­pact

sec­toral anal­y­sis should be car­ried out to prop­erly al­lo­cate the de­mand for labour and then al­lo­cate that de­mand ac­cord­ing Cater the de­mand for in­ter­preters and lin­guists for trans­lat­ing Chi­nese into English/Urdu and vice versa for this col­lab­o­ra­tion to be a suc­cess. Pro­vide train­ing in­sti­tutes to ac­com­mo­date the in­creased scope of re­searchers, so­cial sci­en­tists and phi­lan­thropists to ex­plore the cul­ture of both coun­tries. Lastly, fur­ther re­search is re­quired for de­ter­min­ing the Tech­ni­cal Vo­ca­tional Ed­u­ca­tion Train­ing (TVET) skill set for each sec­tor.

Fig­ure 3 – Com­po­si­tion of In­dus­trial Sec­tor (Source: Pak­istan Eco­nomic Sur­vey 2014-15)

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