Pak-Saudi trade relations: potential and prospects

August 14, 2017

Dr. Amir Husain

PAKISTAN ever since its establishment in 1947 enjoys close relations with Saudi Arabia. The closeness of relations is manifested in various aspects. The two sides have long-established time-tested strategic ties. Saudi Arabia has extended economic cooperation to Pakistan many a times in the need of hour. Workers remittances from this brother Islamic country play a substantial role in strengthening balance of payment of Pakistan. The two sides are also close-knit in religious terms. When seen in the backdrop of this overall picture, one aspect of the relations i.e. bilateral trade seems relatively less pronounced and depicts a story of unrealized potentials pending exploitation.

Pakistan mainly imports oil and oil products from Saudi Arabia, which account for 90% of our total import bill for Saudi Arabia. In turn, Pakistan supplies food-group items mainly rice, meat, meat products, spice and fruits; home textile products; chemicals; footwear and leather goods. The total value of the merchandize being traded between the two brother countries is approximately $2.5 billion at present. Out of this, Pakistan’s exports to Saudi Arabia are worth about $0.5 billion whereas the rest comprises the value of items imported by Pakistan.

As can be appreciated from the graph, Pakistan’s exports to Saudi Arabia have seen consistent growth and have tripled in value terms over the years 2001-14. There has been slight downward trend since 2014, which may be partly attributed to somewhat slowing down of economic activities in Saudi Arabia due to falling oil prices. The resultant shrinkage in size of total import market of Saudi Arabia (from $168 billion in 2014 to $130 billion in 2016) has given rise to decreased export volumes on the part of most of the trade-partners of the Kingdom and Pakistan is no exception.

However, even if one disregards the phenomenon of temporary slow growth in Saudi Arabia, it is still palpable that magnitude of trade relations between the two countries is not in sync with their long-established close-knit ties. The fact of the matter is that Pakistan caters to merely 0.3% of the import market of Saudi Arabia. Considering the manufacturing base of Pakistan and our thriving services sector, Pakistan has much more to offer to Saudi Arabia and actually there is a huge potential of bilateral trade lying unrealized between the two countries. In this behalf, Pakistan has some natural advantages as well.

Apart from being a time-tested ally, Pakistan is geographically proximate to Saudi Arabia and bilateral trade is comparatively feasible both through air and sea routes. Moreover, Saudi Arabia hosts the largest expatriate community of Pakistan anywhere in the world. Most of these Pakistani citizens are long-settled in Saudi Arabia and are well familiar with the local culture in all walks of life including the business environment.

Due to their huge number (2.6 million), Pakistani citizens are employed in almost all the large business groups and companies where they are offering valuable services and are ultimately contributing to strengthening of the local economy. Presence of this large expatriate community can play a significant role in furthering the bilateral business, commercial and trade relations between Saudi Arabia and Pakistan.

There are a number of areas in which trade magnitude can be possibly enhanced. Pakistan specializes in textiles products, which account for more than half of our total global exports. But in case of Saudi Arabia, textiles comprise merely 20% of our export-mix. The share of textiles especially value-added garments can see a big jump if the circumstances are aligned. Similarly Pakistan manufactures state-of-the-art surgical instruments and the world-standard sports goods, which can easily find their place in Saudi Arabian market. There is also a great cushion of expansion in the market share of food sector products already being exported. Pakistan can also easily cater to the rapidly growing sector of organic foods in Saudi Arabia. Similar potentials exist in services sector be it financial services, insurance sector, facilities management, IT services, entertainment industry etc.

There are a number of interventions at bilateral level as well as at the level of institutions, business bodies and individual companies which may help realizing the trade and business potential to its fullest. A Free Trade Agreement between Pakistan and Gulf Cooperation Council is already on cards. So far two rounds of negotiations have been held in the past and the broader contours have also been agreed upon. Conclusion and signing of this agreement will result in quantum jump in trade volumes of Pakistan not only with Saudi Arabia but also with the whole Gulf region.

Similarly signing of a Bilateral Investment Treaty between Pakistan and Saudi Arabia is also a possibility in the near future. This agreement will liberalize, promote and reciprocally protect the investments made by companies of the two countries in each other and will help them capitalize on the opportunities arising on both sides i.e. Vision 2030 related investments opportunities in the Saudi Arabia and CPEC related projects in Pakistan.

Apart from this, bilateral business bodies are warranted to play an active role. Frequent exchange of business delegations and enhanced business-to-business interactions are guaranteed to accelerate the commercial relations. Liberalized business visa regime on both sides will greatly facilitate such interactions.

Pakistan and Saudi Arabia both understand the significance of enhanced economic and trade relations and the two sides are already making progress in various areas. Pak-Saudi Joint Ministerial Commission exists since 1970 which serves as the apex body to discuss all bilateral matters relating to economic, trade, business and commercial relations of the two countries. The Commission is slated to meet this year as well. Highest bodies representing industry on two sides i.e. Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and Council of Saudi Chambers (CSC) signed an MoU in 2000 and have formulated a Joint Business Council.

Considering the resolve and determination on the part of both governments and keeping in view of pace of progress in pursuing the bilateral initiatives, it is sincerely hoped that coming days shall see Pakistan emerging as a major trading partner of Saudi Arabia and business community on both sides shall be playing a more significant role in supporting and strengthening each other’s economy.

— The author is the commercial secretary in Pakistan Embassy

August 14, 2017
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