30 May 2017

Pakistan cannot build its way to prosperity


Miles of elevated concrete viaducts are sprouting up around some of Lahore’s architectural jewels as construction teams race to finish the Pakistani city’s first ever metro system.

Heritage lovers are horrified that the $1.6bn train line will block views of the seventeenth-century Chauburji monument and loom over one of South Asia’s finest Mughal gardens. The UN’s heritage body has expressed its alarm and the courts have ordered work be suspended in places while they investigate the suspected flouting of planning laws.

But for politicians with elections to win the glaring visibility of the “Orange Line” is exactly the point. And few politicians are as keen on splashy “mega projects” as Nawaz Sharif, the country’s businessman Prime Minister.

He still boasts of building the country’s first motorway during his second stint in government in the 1990s. He is overseeing a fresh building binge as he gears up for re-election next year. In the pipeline are power plants, roads and Lahore’s shiny new train project. Many of the projects are part of a tranche of Chinese investments known as the China-Pakistan Economic Corridor (CPEC) worth a putative $46bn.

Mr Sharif’s ruling faction of the Pakistan Muslim League (PML-N) like to argue that fixing the country’s undoubted infrastructure shortcomings will boost persistently disappointing growth, reverse a worrying decline in export earnings and cut Pakistan’s high level of unemployment.

But, if the past is any guide to the future, these projects are unlikely to be as transformative as is claimed. Twenty years after its completion Mr Sharif’s beloved 233 mile motorway between Lahore and Islamabad is little used (motorists prefer the venerable Grand Trunk Road, which is shorter and toll free). The largely empty motorway to Peshawar also offers a wonderfully smooth ride to the few who use it. Lahore and Karachi’s modern airports attract a tiny fraction of the travellers that besiege Indian hubs like Delhi and Mumbai. The Karakorum Highway, a road to China crossing one of the world’s highest mountain ranges, is as underused as it is spectacular.

Other historic projects have been more successful. The US-financed Indus Basin Project of the 1960s gave Pakistan two enormous dams that brought irrigation waters under control and generated large amounts of electricity. The British-built canals in Punjab arguably had a lasting positive economic impact. That said, some of the colonial era railway lines are little used today.

None of these past projects succeeded in raising the country out of poverty. Today a third of the population remains below the poverty level. Stunting, malnutrition and infant mortality are all widespread. A slight improvement in economic growth in recent years has not raised living standards much given Pakistan’s galloping population growth.

Nonetheless the latest infrastructure splurge by China has beguiled the country’s rulers. Described by the country’s Planning Commission as a “miraculous happening”, CPEC is billed as the solution to all Pakistan’s problems.

Part of Beijing’s broader “belt and road” strategy, it is supposed to create a trade link from western China via an upgraded Karakorum Highway and numerous down country roads to Gwadar, a parched fishing village on the Arabian Sea with pretensions to become a busy deep water port. Pitfalls include a persistent separatist insurgency in Balochistan, the province where Gwadar is located.

The economic case for sending goods by truck to China is yet to be proven. The vast container ships plying the far longer sea route to China’s east coast ports are likely to remain far cheaper.

The new CPEC financed power stations may do more harm than good. Unlike Western development aid the Chinese projects are financed on commercial terms. Few details have been made public but Beijing is known to have driven a hard bargain, demanding high rates of return.

It is an open question whether Pakistan will be able to afford the repayments, particularly as the Chinese are expected to be paid in foreign currency – something Pakistan will run short of if its uncompetitive export industries (mostly textiles) continue to decline.

More power plants are not the answer to the chronic daily “load shedding” that plague businesses and homes alike. More important is fixing a broken electricity market better suited for generating “circular debt” than power. Liabilities grow remorselessly because of price caps intended to keep electricity cheap as well as rampant electricity theft both by impoverished slum dwellers and politically well-connected defaulters. Once the debt builds to a certain level power producers turn off their plants. The government is then forced to inject cash. But without fixing the underlying problem the cycle starts again. As the economics commentator Khurram Hussain recently lamented, “With the arrival of CPEC power projects, almost all talk of reforms fell by the wayside.”

The beguiling prospects of CPEC have distracted attention from other key reforms. Four years after coming to power Pakistan remains a country where the rich are not pursued if they don’t pay tax, leading the government to load taxes on the poor through indirect taxes.

The subsidy gorging Pakistan International Airlines remains in state hands despite Mr Sharif’s 2013 election pledge to privatise it. The airline regularly attracts terrible headlines, such a December crash that killed 47, or its admission in February that it allowed passengers to stand in the aisles of an overfilled flight to Saudi Arabia.

Key sectors, including sugar and textiles, remain stitched up to the benefit of handful of families. The auto sector, for example, is dominated by just three sleepy car assemblers who divide up the different sections of the market between them.

Pak Suzuki, which corners the bottom end, provides just one mass market model – the woeful Mehran, an underpowered machine that has barely changed since it was introduced nearly 30 years ago. A 2011 report found it was 32 per cent more expensive than the equivalent in India, a country with a dynamic auto market offering consumers a range of cheap car options.

Tackling the vested interests holding Pakistan back is hard. Far easier for governments to busy themselves raising new military forces to protect Chinese engineers from insurgents. Or building more flyovers and motorways. Sadly, voters are easily impressed by the shiny infrastructure projects.

“Poor people, who couldn’t afford a bicycle at the time of the elections, like to be promised an airport,” wrote author Mohammad Hanif after Mr Sharif’s 2013 landslide election victory. “You never know when you might need it.”

Jon Boone is a freelance journalist who was, until recently, based in Pakistan