Hurdles in materialization of GCC’s economic ventures in Pakistan

Pakistan must boost economic productivity to enhance trade ties with GCC countries and ensure sustainable growth.

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The organization of the Gulf Cooperation Council was formed in 1981 which consists of six states: Qatar, Oman, Kuwait, Bahrain, United Arab Emirates, and Saudi Arabia. The Gulf region is one of the most resource-rich areas namely crude oil and gas. In recent years the GCC countries have reduced their dependency on energy trade and promoted economic diversification. To pursue their economic diversification initiative, GCC countries have engaged in cooperation with other regions such as South Asia, which offers key resources and technical expertise. Pakistan being a member state of the South Asian region, stands at the crossroads to either connect itself with external regions such as the Middle East or risk economic isolation.

Huma Yusuf in an article titled “Wide Gulf” analyzed the GCC approach to the South Asian region, which seems to develop economic relations with India while maintaining military cooperation with Pakistan on specific security issues alongside occasional economic packages to aid Pakistan’s ailing economy. Pakistan’s GCC policy prioritizes political and security issues over developing economic relations. As noted by Shashank Joshi, Pakistan’s relations with Arab states seem to be military-centric. As a consequence, Pakistan's economy suffers from a lack of a conducive environment for economic productivity and regional integration.

Pakistan's economic cooperation with GCC states while still in its infancy does touch some important sectors which need to be explored. The most important sector between Pakistan and the GCC economic relations is the energy trade. In July 2023, Saudi Arabia announced that it would invest 10 billion dollars in Gwadar, Balochistan to construct an oil refinery, which would help with GCC energy exports in the South Asian region. In the same year, the UAE signed a memorandum (MoU) for the possibility of developing renewable energy in Pakistan. In 2016 Qatar became a major supplier of Liquefied Natural Gas (LNG) to Pakistan through its LNG terminal agreement which was worth 15 billion dollars for a 15-year supply.

Apart from helping the energy sector, the GCC has also helped develop the Infrastructure of Pakistan, particularly in Azad Jammu and Kashmir. On the 22nd of October 2022, Saudi Arabia agreed to fund infrastructure projects in Neelum Valley and Muzaffarabad worth 30 billion rupees as a part of its Saudi Fund for Development (SFD). The SFD is a Saudi government assistance program that helps provide financial assistance to developing countries. Apart from providing financial aid to governmental projects, the GCC is a major investor in the real estate business in Pakistan. In 2013 Malik Riaz of the Bahria Group and Sheikh Nahyan of the Abu Dhabi Group invested 45 billion dollars in Pakistan’s real estate industry, where they invested 10 billion dollars in Lahore and 35 billion in Karachi.

Apart from the real estate industry, the GCC countries have made a significant impact on various sectors of Pakistan’s economy. In 2009 the Saudi government leased 500,000 acres of agricultural land from Pakistan to grow wheat as a means to ensure Saudi food security. Apart from the agricultural industry, the GCC supports Pakistani manufacturing by importing construction materials like cement. In 2004 Pakistan received a demand for cement of about 2000 tons per week from the UAE, which was supplied by Lucky Cement, DG Khan, and Attock In the field of fertilizer production Saudi Companies like SABIC have invested in Pakistan’s fertilizer manufacturing through National Chemical Fertilizer Company (NFC).

The investments and economic aid provided by the GCC to Pakistan are channeled through joint cooperation organizations. One such organization is the UAE-Pakistan Assistance Program (UAE-PAP) which provided 200 million dollars of economic aid to Pakistan in May 2018. The objective of this funding was to provide humanitarian assistance to the vulnerable people in Pakistan. More recently, the Saudi-Pakistan Investment Conference announced a 20 billion investment, which covered diverse areas including energy, agriculture, and the environment.

Pakistan GCC trade relations are import intensive, where Gulf investors look to attract Pakistani investment in real estate, export their energy industry, and lease agricultural lands. In 2016 the trade deficit between Pakistan and GCC countries was 1.1 billion dollars, this increased to 1.3 billion dollars in 2020. The trade relationship between GCC and Pakistan is driven by rising imports and the depreciation of the Pakistani rupee which leads to the depletion of Pakistan’s foreign exchange reserves. This vicious cycle of rising import costs and increasing foreign debt can only be mitigated through boosting economic productivity which is essential to have a long-lasting sustainable trade relationship with the GCC.

Pakistan faces significant challenges in its governance system to boost its economic productivity. Pakistan historically has inconsistency in its policy-making owing to political instability and frequent change in governments. Pakistan lacks a shared framework of economic policies shared by all stakeholders, which often leads to disruption of the previous policies initiated by the previous government. To make matters worse Pakistan's administration system suffers from red-tapism, where bureaucratic delays and complicated forms make it difficult for potential investors to invest.

Pakistan faces an acute energy crisis, where the cost of energy makes the cost of doing business too high. This leads to industrial regression where many investors look to set up their production plants where the energy costs are low. The use of renewable energy resources such as hydroelectric power plants can help reduce the cost of energy production. Solar panel technology for localized energy production is ideal in remote areas lacking grid connectivity. Energy costs can be reduced by using localized source fuels, such as Thar coal which is a cheaper alternative than foreign imported coal.

Pakistan needs export diversification, where the government needs to encourage the growth of new industrial sectors such as IT and the pharmaceutical industry. These industries produce greater value-added products which have a greater value meaning a greater inflow of foreign currency. Pakistan can help the growth of these new industrial sectors by providing export incentives such as reducing taxes on export industries. The government can also provide technical training services to help improve labor productivity.

Through these measures, Pakistan can improve its economic productivity and increase its foreign exchange currency reserves, which is important to build a more sustainable and long-lasting trade partnership with GCC countries. Such trade relations will help Pakistan’s economy to grow and build stronger cooperation with the Gulf region.

The writer is an analyst on Middle East and South Asia