Time to reimagine Pakistan-Saudi economic ties

Time to reimagine Pakistan-Saudi economic ties


Saudi Crown Prince Mohammed bin Salman has brought to Pakistan what is being called a “record investment package” to provide welcome relief for its cash-strapped ally. He also hopes to address regional geopolitical challenges. 

Last year, Saudi Arabia pledged a $6 billion aid package for Pakistan to help stave off a balance of payments crisis. The Saudi government has also agreed in principle to establish a $10 billion oil refinery in the port city of Gwadar. 

Independent economists have been asking for more information regarding these agreements, particularly what Saudi Arabia will be demanding from Pakistan in return. To these and other related queries, Finance Minister Asad Umar has said that the support from Saudi Arabia is in the form of a loan at an interest rate of 3 percent. According to Umar, there aren't any other economic or political conditions set for the financial assistance extended by Saudi Arabia.

These are important moments in the timeline of the relationship between Pakistan and Saudi Arabia. But, to take their relations to new heights, it is pertinent for Prime Minister Imran Khan to reimagine the economic ties between the two countries during the crown prince’s visit. Indeed, one of the short-term goals could be to work toward boosting bilateral trade and investments.

Currently, the total trade (exports plus imports) between the two nations stands at $3.4 billion. This is a decline from 2010, when the figure was $4 billion. In fact, Pakistan’s exports to Saudi Arabia saw a decline between 2010 and 2018. Both administrations can carefully look into the tariff and non-tariff barriers which are acting as a hindrance in the trade of goods and services. A joint working group may be set up to study this and provide recommendations for the removal of these hurdles.

Secondly, given Pakistan’s weak position in terms of its foreign exchange reserves, the inflow of remittances is proving to be an important lifeline for the economy. During the past several years, remittances sent by overseas Pakistani workers stationed in Saudi Arabia have augmented the reserves of the country's central bank. However, due to economic reforms introduced in Saudi Arabia recently, the proceeds from remittances have remained volatile.

In fact, between 2015 and 2018, remittances from Saudi Arabia declined from $5.6 billion to $4.8 billion. One way to reverse this situation is for the Pakistan government to negotiate the entry of skilled and highly skilled workers from Pakistan to Saudi Arabia. Skilled workers are often better paid and are less likely to be laid off during times of economic downturn.

There is a huge potential of foreign direct investment (FDI) from Saudi Arabia in the agricultural sector and for large-scale manufacturing, which continues to remain untapped.

Dr. Vaqar Ahmed

The focus must also shift from sending only construction sector workers or those with an ability to work in the oil and gas sector, to those who can offer high-end services including professionals from the education and financial sectors, and information technology experts.

At the same time, Pakistan's government should introduce measures by way of which trade-in-services can be promoted in a more holistic manner. One way to go about this is to remove barriers faced by those in the engineering, health care and IT sectors in the Saudi market.

There is a huge potential of foreign direct investment (FDI) from Saudi Arabia in the agricultural sector and for large-scale manufacturing, which continues to remain untapped. Net FDI from Saudi Arabia was recorded at $17.4 million in the outgoing fiscal year, which is very low compared to what it could be if it reached full potential.

The Board of Investment needs to conduct an immediate survey to determine the reasons for the low FDI inflow. The survey could ask potential Saudi investors about measures which could facilitate their plans in the country. Similarly, such an exercise should also ascertain why, in the past, the tendency for joint ventures between Pakistani and Saudi enterprises has remained weak.

Once all these reasons are investigated and acted upon, Khan should invite a high-level business delegation from Saudi Arabia to detail the prospects and incentives of investing in the country.

In trying to reimagine economic ties between the two countries, it is important for Pakistan’s foreign ministry to seek proposals and suggestions from Pakistani nationals living in Saudi Arabia. They will be in a better position to highlight potential areas of trade and investment, as well as ways to improve people-to-people contact and business-to-business ties. Such an inclusive dialogue with Pakistanis abroad would also go a long way toward persuading them to consider investing their savings in Pakistan and thereby promote “Brand Pakistan” in Saudi Arabia.

• Dr. Vaqar Ahmed is associated with the Sustainable Development Policy Institute (SDPI). Twitter: @vaqarahmed

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