By the Blouin News Business staff

Security risks may hamstring Pakistani Special Economic Zone

by in Asia-Pacific.

Pakistani Prime Minister Nawaz Sharif meets Chinese President XI Jinping in Beijing, China. November 8, 2014. Pool/Getty Images

Pakistani Prime Minister Nawaz Sharif meets Chinese President XI Jinping in Beijing, China. Nov. 8, 2014. Pool/Getty Images

The Pakistani port Gwadar will soon be declared a Special Economic Zone (SEZ), with details provided on Sunday by the government’s ports and shipping division. The data cited the successful examples of SEZs in China and other South East Asian and Gulf countries, and Islamabad is now working on a formal proposal to emulate them.

The port was built in 2006 and is partially functional now, with a Chinese operator. Pakistan Today reported that Gwadar Port currently draws 9% of the country’s gross income from marine and port operations, and that the SEZ status is expected to bring in an additional 15%. In the hope of encouraging investments that will lead to greater industrial development and port traffic, the SEZ is likely to offer general tax-holidays, no VAT, and generous incentives regarding business ownership. Like other SEZs, Gwadar’s terms will have a long time-frame: 20-30 years.

The conversion of Gwadar to a SEZ may also serve a more specific purpose — strengthening ties with China. Gwadar is the sea terminal of the China-Pakistan Economic Corridor (CPEC), an ambitious project to link the two already-allied countries closer economically. The combination of highways, railways, and pipelines is planned to extend 2,000 km from Gwadar, through Pakistan, and finish in Kashgar, in China’s western province of Xinjiang. For China, the CPEC will provide a much shorter alternative means of importing oil and gas from the Middle East and will facilitate future Chinese trade in the region. Meaning Gwadar may become a strong base for Chinese naval influence in the nearby Persian Gulf.

For Pakistan, the huge infrastructure spending of the CPEC will help its internal economic development, as well as bolster Islamabad’s disputed territorial claims. It is no accident that the port chosen was Gwadar, which is situated in the restive province of Baluchistan — home to a long-running separatist insurgency — and that the CPEC will also run through Pakistan-occupied Kashmir (which has its own independence movement and a trigger-happy border with Indian-occupied Kashmir).

But while a heavier Pakistani presence in Gwadar might ensure that Baluchistan remains part of Pakistan, it very well may trigger attacks on security forces, contractors, and businessmen there by the aggrieved and marginalized Baluch population. Security is the number one obstacle threatening to hamstring Gwadar’s attractiveness as an SEZ, and the CPEC as a whole. Deadly attacks by a broad spectrum of terrorist groups frequently occur in Pakistan against even the highest of targets, like Karachi’s airport and naval base. Recognizant of the risks, Beijing has stressed the need for security for its workers. (In 2006, three Chinese engineers were killed by in an attack claimed by the Baluchistan Liberation Army, and there have been other kidnappings and attacks on Chinese citizens elsewhere in Pakistan.)

The specter of violence already prompted Pakistan and China to alter the original route of the CPEC to avoid most of Baluchistan and the tribal areas, instead transiting largely through Punjab (coincidentally Prime Minister Nawaz Sharif’s province). If Chinese investments and personnel do become prime targets in the Gwadar SEZ — and Pakistan is unable to stop attacks — then the project has no future.