Pakistan’s missed opportunities in trade with Afghanistan, CARs

Our economy stands to gain billions, and lose even more.

Despite all the tall claims made by the government, the trade with Afghanistant and the Central Asian Republic is fast receding due to various reasons with security concerns the major stumbling block obstructing growth.

Militancy in the tribal belt and the fluid situation in the Afghan capital itself is also affecting foreign trade and investment in Afghanistan. In recent years, Pakistan’s role in the war on terror has made its citizens and their property more vulnerable to physical damage and loss. In Afghanistan, only a few areas are under the control of the central government which means that the risks of doing business in Afghanistan are high.

This absence of control over vast areas of Afgnaistan affects more than just the direct trade with Afghanistan. It also creates problems for the trade between Pakistan and the Central Asian Republics (CARs).

The trade relations between Pakistan and Central Asian Republics are already not as strong as they can be, based on a number of reasons have lukewarm and less than desired political and economic relations. These include Pakistan’s support of ethnic Pashtuns in the Afghan civil war, as opposed to Tajiks and Uzbeks and also Pakistan’s alleged involvement in the establishment of the Taliban regime in Kabul. The third reason for this is the connection of Pakistani tribal areas with al Qaeda and the Taliban.

Pakistan has now become a part of the war against terror but trade has still not picked up and reached desirable levels.

There are a number of Free Economic Zones (FEZ), established or proposed, in CARs which give incentives to local as well as foreign investors subject to certain terms and conditions. Such incentives include full or partial exemption in taxes, relaxation in custom procedures, economical electricity rates etc. Pakistani investors, although welcome to invest in these FEZs, are practically discouraged. Interestingly, there is no free economic zone in Afghanistan to support foreign investors in establishing their business. Moreover, there is no double taxation treaty between Pakistan and Afghanistan. Governments and investors from both countries have to face double taxation on their revenues while operating from other country. Pakistan has no Bilateral Investment Treaties with Afghanistan as well which results in absence of any incentive to Pakistani investors.

Pakistan has signed an agreement with Turkmenistan and Afghanistan to construct a pipeline for the supply of natural gas to Pakistan from Turkmenistan. On 24 April 2008, Pakistan, India and Afghanistan signed a framework agreement to buy natural gas from Turkmenistan. The initial agreement on the project was signed in year 2002 and now further extended in 2008, but still there is no construction activity for implementation of the project. According to the new terms of agreement, the construction of pipeline will begin in 2012. The main reason is again security. And Pak-India relations.

The assessment of Daulatabad field’s reserves of Turkmenistan, from where gas will be supplied, and its ability to support the project was conducted by Asian Development Bank. But this assessment has so far not been provided to Pakistan, so that the viability of the project can be assessed.

The Quadrilateral Agreement on Transit Transport (Qatt) which was signed among the Governments of China, Kyrgyzstan, Kazakhstan and Pakistan in March, 1995 to facilitate transit trade between the four countries is also so far just an agreement on paper.. It has been over a decade since this agreement was signed but the signatory countries have yet to develop formal policies and procedures to actually implement this agreement. Since Tajikistan is not a signatory to Qatt, they cannot benefit from facilities extended under QATT. According to Tajikistan Chamber of Commerce, Tajikistan has requested to join this Qatt and is waiting response of existing signatories of Qatt.

Moreover, Afghanistan lacks key business support services such as commercial insurance, freight forwarding, etc. Modern international trade logistics, for non-bulk cargo, is now largely based on containers and inter-modal transport. Afghanistan is presently excluded from these systems as the international shipping lines do not allow their containers into the country. Because of which containers are mostly un-stuffed at either the port or at/near the border. Most of the cargo is vulnerable to handling loss and damage because of this. And a huge deterrence to Pak Afghan trade is unofficial trade. The movement of goods across the Afghan-Pak border takes place at a large number of points along relatively difficult terrain. As the Pak-Afghan border is very long, monitoring of the total border is not possible. Another horrific impact of unofficial trade is that almost 50% of goods imported to Afghanistan are smuggled back to Pakistan affecting the local businessmen.

For a multitude of reasons, Pakistan is missing out on some great trade opportunities in its own region.

Published in The Express Tribune, April 18^th,  2011.