China-Pakistan Economic Corridor presents opportunities, challenges for investment

The Karakoram Highway over the Indus River (Indus River Karakoram Highway)

Now may be the right time to rethink investment in Pakistan. That's if you believe in the long-term success of the China–Pakistan Economic Corridor (CPEC), a nearly 2,000-mile trade route that links China's Xinjiang province with Gwadar in Pakistan's Balochistan province, and is expected to boost trade through a network of highways, railways and improved infrastructure.

The expected economic shot in the arm from CPEC is poised to boost both business-focused and leisure travel in some less-visited parts of Pakistan, leading to an increased need for hotels.

The corridor is already attracting interest from international investors, Pakistani Prime Minister Nawaz Sharif said recently. "Road connectivity projects will open up under-developed areas of Pakistan to investment," the Prime Minister said following a "high-level meeting" in which he was briefed on the project's progress. 

If the Prime Minister's goal is successful and less populous regions of Pakistan are poised to get major new investment, this offers plenty of opportunity for developers to jump in and sign deals before the roads are built. For example, Balochistan, a largely arid province that has not historically seen strong tourism numbers, is set to get at least 12 major new projects that will both bring in business travelers and facilitate leisure travel and transportation across the country.

Global hotel brands are already taking note of the opportunities. In mid-November, Hyatt Hotels Corp. signed an agreement with Bahria Town, Asia’s largest private real estate developer, to develop four Hyatt-branded properties across Pakistan at an investment of more than $600 million. Hyatt’s entry into Pakistan will see the Grand Hyatt Islamabad, Hyatt Regency Karachi, Hyatt Regency Lahore and Hyatt Regency Rawalpindi all open.

Other nations are also poised to take advantage of the improved infrastructure. Pakistan's Federal Minister for Commerce, Engr. Khurram Dastgir Khan, called for the formation of a Joint Trade Committee and business-to-business conferences to boost trade with United Kingdom. The Minister also said that Pakistan will provide full support to the British Companies who are interested in investment in different CPEC projects and that all their concerns regarding the openness, transparency and their access to the bidding process will be addressed.

Pakistan's economy is also likely to get a boost this coming June when the country is included in the MSCI Emerging Market Index, which will lead to an estimated inflow of around $500 million from passive emerging market funds.

But increased development in some regions may pose a challenge as well: The port city of Gwadar, which will be the terminus of the trade route, is facing a water shortage that could affect how many people the city can sustain. According to sources, the Ankara Kaur dam has dried up and the city's desalination plant has also failed. 

"As tap water is accessible to only 5 percent of the population, urban planning in general and water planning in particular [are] extremely important to mitigate risks rising from a plethora of such...projects," a report in the Tribune claimed.