The tariff structure of the economy needs an overhaul to benefit fully from the opportunities provided by China Pakistan Economic Corridor (CPEC) as tariff liberalization has not only been slow in Pakistan when compared with regional countries, but has also been applied disproportionately and in a non-uniform manner.
According to the latest quarterly report on Pakistan's Economy issued by State Bank of Pakistan, finished products are granted more protection than semi-finished and basic commodities, while major industries such as textiles and automobiles enjoy high protection rates.
The report added that Pakistan would have to focus on developing a roadmap that is less intrusive (shielding) and more facilitative.
Export oriented sectors would also need to be liberalized so as to welcome foreign participation and encourage innovation and quality enhancement, especially with respect to the potential Special Economic Zones (SEZs) under CPEC, the report added.
CPEC provides the industrial sector of Pakistan with an opportunity to modernize and become more efficient and competitive. The various energy projects, coupled with improvements in infrastructure and road networks, would help address some of the key constraints to growth.
More importantly, the development of Special Economic Zones (SEZs) would enable industries to ensure smooth supply chains, enhance collaboration and innovation capabilities, and help reap significant economies of scale.
However, the report added that this process will take time to materialize, and the nature of its trajectory would depend, at least in the short to medium term, on two main factors including how the industrial transformation currently underway in China creates potential opportunities for Pakistan; and how prepared Pakistan’s economy is to take advantage of this opportunity.
Furthermore, the report said that the pesticides and synthetic fertilizers in China could be relocated to Pakistan due to stricter regulations on these sectors and CPEC envisions joint ventures in fertilizer and pesticide manufacturing between the domestic and Chinese enterprises.
The plastic industry can also see a boom in terms of investment and technology transfer under CPEC. With growing demand for automobiles, rising need for water management infrastructure and potential low end smart manufacturing entering Pakistan, technology aided investments in this sector would help in better construction and manufacturing of pipes, smart phone exteriors, automobile interiors, and packaging materials.
In addition, improved and updated variants of crucial machinery like injection molding, extrusion, blow molding and rotational molding units, etc may be imported either by the local firms or by incoming Chinese counterparts.
With China moving up the global supply chain in food processing, lower-end machineries could be transferred to Pakistan, which would aid in catering to the growing demand of hospitality industries under CPEC and for improving food quality and ensuring hygienic processing in general.
Pakistan not only has an edge over possible competitors when it comes to attracting such technology transfers due to geographical proximity and a policy of strategic alliance, but with CPEC an actualizing step towards the One Belt One Road initiative, it also shows closer compatibility with China’s new growth model.
Furthermore, the ongoing construction of numerous coal-based power plants throughout Pakistan to ensure consistent electricity provision and the establishment of special task forces to protect CPEC-related ventures are reducing the major binding constraints to growth and FDI inflows.