New policies necessary to boost bilateral trade connections
Pakistan has enjoyed a cordially relations with Saudi Arabia since its birth. The relations are rooted in the centuries old religious, cultural and commercial links. Pakistan and Saudi Arabia have an unprecedented relationship, ready to help each other at needed time and space. These relations are based on solid foundations of Islamic ideology and traditional Islamic values. The spiritual affection the people of Pakistan have for the Holy Places (the Kaaba Tullah and Masjid al-Nabawi) and with the people of the Holy land reinforce the bilateral relationship between both countries.
The ideological foundations of Pakistan further contributed to bringing both countries together and their people. Soon after its independence, Pakistan attained an exceptional and very high-ranking political status among the Muslim world. Starting from almost zero in 1947, Pakistan extended political and economic support to many countries in the 1960s. Besides, it developed its armed forces matching the global standards of military professionalism and a high degree of competence. On the other hand, King Abdul Aziz and his successors developed the Kingdom and Saudi nation from a scattered desert region to a modern, dynamic and progressive nation-state.
Basis for cooperation
A Treaty of Friendship was signed by the two countries as early as in 1951, laying the basis for cooperation. Bilateral relations were buttressed over the coming decades by a tradition of strong financial and strategic assistance extended to each other by the two brotherly countries whenever required. As a pioneer treaty, it defined the future direction of the relationship between both states and laid down the formal basis for bilateral cooperation. The treaty also readdressed historical connections, spiritual affiliations, strategic partnerships, and social relationships.
In the Middle East, the newly formed nation-states were in turmoil after WW II. Saudi Arabia played a major role in the regional stability, peace, and economic prosperity of the Arab world. From its establishment in the early 1930s to the present day, the Kingdom passed through numerous domestic and external challenges, which were handled with wisdom, national resolve, and deterrence from any external aggression. As a member of the OIC, Pakistan supported Saudi Arabia and the rest of the Arab world in their wars against the Israeli illegal occupation of the Arab land (Palestine). Within the scope of the Treaty of Friendship and other bilateral understandings, Pakistan helped Saudi Arabia to overcome some of the worst domestic upheavals and external security threats it confronted. Pakistan military played a contributory role in the development of Saudi armed forces and cooperation is continuously extended to date.
The political leadership of both countries frequently consult each other on regional and global issues in a well-defined cooperative mechanism. On the economic front, there has been mutuality between both states ever since the 1980s.
The elementary bases of a strategic relationship between Pakistan and Saudi Arabia are historical, pragmatic, and sentimental. This relationship emerged much before the Kingdom became oil-rich, which rejects the analogy that the economy is defining factor of the Pak-Saudi relationship.
On the economic front, Anwar Ali, a Pakistani economist, was Governor of the Saudi Arabian Monetary Agency (Saudi Central Bank) from 1958 to 1974. Saudi economy was boosted under the able leadership of Anwar Ali, who gave it a new vision and future orientation. Over the decades, Pakistan has had an exclusive status in Saudi strategic calculus, which speaks about their mutual trustfulness and consistent relationship. The strategic nature of the Pak-Saudi relationship is further fortified by common geopolitical interests, as Pakistan armed forces are always ready to support Saudi Arabia in case of any external aggression on its soil.
From the military archives, it is evident that Pakistan’s armed forces have been assisting Saudi Arabia since the 1960s with their physical presence in the Kingdom. They played a key role in the foundation and subsequent training of the Saudi armed forces. Both militaries have had close cooperation and collaboration since the 1970s. Pakistan military trainers are imparting training to Saudi armed forces as nucleus staff. Besides, officers from all three services of Saudi Arabia are attending military courses in Pakistan military institutions at a mid-career level to the higher level of national security.
Pakistan and Saudi armed forces collaborate at almost all levels, including military training through joint exercises and drills. Apart from strengthening the existing ties, the 2019-visit of Crown Prince and Prime Minister of Saudi Arabia Mohammad Bin Salman Al Saud has opened many new and long-term avenues for Pak-Saudi relations involving future generations. The foundation of this very relationship will help both countries to reorient their strategic relations keeping in view the rapidly changing geopolitical situation and new alliances in the making.
There is a dire need to strengthen the existing bondage of the Pak-Saudi relationship under rapidly changing regional and global geopolitical scenarios. Strategic relations need new approaches and mechanisms which can supplement the traditional bondage. The steadiness and perpetuity in the Pak-Saudi bilateralism must have wider institutional and people’s participation as reinforcing factors. The evolving nature of the Pak-Saudi relationship warrants a new dynamism and diversification through enhanced political engagement, institutional collaborations, and diplomatic overtures.
Pakistan and Saudi Arabia can continue extending unwavering support to each other’s stance on global and regional issues besides looking after the national interests of each other.
In economic cooperation, Saudi Arabia has been a great source to appendage Pakistan’s economy. Many Pakistani expatriates are employed in the Kingdom. They play two roles; first, they contribute to the development of the host country. Secondly, they take part in the economic development of Pakistan by sending remittances back home, which reasonably reduces pressure on the job market of Pakistan. Since the 1960s, Pakistan human resource has started pouring in Saudi Arabia.
The estimated numbers of Pakistani expatriates in the Kingdom are more than 2.7 million. They work in almost all fields of economy, such as construction, medical, engineering, academics, and the IT sector. Saudi authorities considered Pakistani doctors and paramedics as highly professional in their job with dedication. The people in Saudi Arabia feel very comfortable with doctors from Pakistan because of their cultural and historical background.
Pak-Saudi bilateral trade in the first half of the 21st century (2002 to 2012) has been over $30 billion and from 2012 to 2013, trade exchange between both countries remained $5 billion. According to the United Nations COMTRADE database on international trade, Pakistan’s exports to Saudi Arabia was $402.81 million during 2021.
Saudi Arabia has played an important role in supplying Pakistan’s oil imports for decades. In recent years, with subsidized rates, it has met almost a quarter of the needs and has played an important role in maintaining the economic stability of Pakistan. In fact, the long-term repayment facility for Saudi Arabia’s oil exports to Pakistan has somewhat reduced the pressure on Islamabad for other foreign payments. Riyadh provided oil for a full year with delayed payment in 2019 and has continued to allow Islamabad credit. The Saudi Fund for Development (SFD) provided US$5.4 billion worth of oil derivatives to Pakistan between 2019 -2023.
However, with the strengthening of political relations, the renewed attention of the two countries to finalise the US$14 billion contract for the construction of an oil refinery with the presence of Saudi Aramco and other partners in Gwadar port, it seems that the construction of a modern refinery in Pakistan and the refining of 350-450 thousand barrels of crude oil per day and construction of a petrochemical complex have been finalised. In fact, several Pakistani oil companies are cooperating with Aramco in the refinery construction project, while Aramco will initially have a 30 per cent stake in this project.
In addition, Saudi Arabia’s participation in providing a loan of US$240 million to Pakistan for the construction of the Mohmand Dam (a complex of 800 megawatts of electricity capacity in the northwest of Pakistan) can play a vital role in providing water for agriculture, resisting floods, and maintaining energy and food security in Pakistan.
In other joint development programmes, hydrocarbons, electricity, clean technologies, localisation of energy products and supply chains, renewable energy, solar energy, and wind energy have all been accelerated.
Pakistan’s economy is facing extensive financial and economic bottlenecks such as economic stagnation, unemployment rate, lack of water and energy, and foreign debt. The depreciation of the Pakistani rupee against other currencies, and from the Saudi perspective can help solve Pakistan’s problems. It seems that Pakistan intends to strengthen its position in dialogue with international institutions with the facilities of Riyadh.
Saudi Arabia has already provided generous financial support to Pakistan. From 2018 to 2022, Riyadh’s support to Pakistan has exceeded US$22 billion dollars. Riyadh’s approach has actually made Pakistan more attractive to potential investors.
Saudi Arabia has already invested in the chemical, financial institutions, banking services, agriculture, dairy and information technology, and human resources development sectors. The sovereign Saudi Development Fund (SFD) has financed 41 development projects and programmes in Pakistan. Additionally, air service contracts, economic, commercial, and technical cooperation contracts, and double taxation avoidance agreements have played a proportional role in expanding relations.
Several recent agreements between Pakistan and Saudi Arabia include mineral exploration, solar energy in Balochistan, and the presence of two Saudi IT companies in Pakistan are likely to be implemented. In addition to the activity of about 400 Pakistani companies engaged in construction, architecture, chemicals, steel, metals, and information technology sectors in Saudi Arabia, the population of skilled and unskilled Pakistani immigrants (nearly two million people) plays an important role in building the infrastructure of modern Saudi Arabia.
Their annual remittances of billions of dollars in remittances back to Pakistan plays the biggest role in the diaspora and involved the lives of 15 million Pakistanis back home. Now, Islamabad expects that the Saudi Vision 2030, and the Green Saudi Middle East Initiative plans can provide opportunities for Pakistan in a number of sectors such as the provision of skilled manpower and premium capabilities.
In addition to hosting regional events, artistic and sports investments, and contracts in the field of sports, the Saudi approach can also help further develop business. For example, investing in small sports industries in northern Pakistan, infrastructure and tourism has trade impacts between the two countries, and especially as cricket mad Pakistan is looking to develop the sport in Saudi Arabia and the Middle East. Saudi Arabia is a suitable market for Pakistan’s potential in textiles (half of Pakistan’s total global exports), leather, and sports goods. The FIFA World Cup football used during the Qatar World Cup Finals last year were all produced in Pakistan.
In addition to the late 2022 Saudi Arabia-Pakistan Bilateral Investment Treaty, it is important to appreciate the negotiations concerning a full Saudi Arabia Free Trade Agreement, which may also involve the GCC. Negotiations have been slow due to changes of Government in Pakistan and the impacts of Covid. However, should an FTA materialize, the overall Saudi-Pakistan trade picture will be significantly enhanced.
In 2021, Pakistan ranked 87 in the Economic Complexity Index (ECI -0.55), and 66 in total exports ($32.7B). That same year, Saudi Arabia ranked 31 in the Economic Complexity Index (ECI 0.9), and 26 in total exports ($256B).
In 2021, Pakistan exported US$472 million to Saudi Arabia. The main products that Pakistan exported are rice, bovine meat, and spices. In 2021, Saudi Arabia exported US$3.4 billion to Pakistan. The main products that Saudi Arabia exported were crude petroleum, ethylene polymers, and propylene polymers. During the last 26 years the exports of Pakistan to Saudi Arabia have increased at an annualised rate of 4.62%, from $146 million in 1995 to $472 million in 2021. In same year, Saudi Arabia exported $3.4 billion to Pakistan. The main products that Saudi Arabia exported to Pakistan were Crude Petroleum ($1.88 billion), Ethylene Polymers ($335 million), and Propylene Polymers ($302 million). During the last 26 years the exports of Saudi Arabia to Pakistan have increased at an annualised rate of 12.9%, from $146 million in 1995 to $3.4 billion in 2021.
Pakistan and Saudi Arabia’s trade volumes increased to $4.6 billion dollars in 2022, with an expanded portfolio that also included plastics, textiles, coffee, and tea.
Pakistan and Saudi Arabia’s bilateral trade relationship faces two main challenges which includes:
Pakistan and Saudi Arabia have enjoyed a long and prosperous economic relationship, but there are some internal challenges that could potentially disrupt the bilateral trade between the two countries. Firstly, Saudi Arabia’s economic interests in the region are much broader than just Pakistan, and this could lead to Saudi Arabia seeking to diversify its economic partners and reduce its reliance on Pakistan.
Secondly, Saudi Arabia’s large population and vast resources make it a highly attractive market for other countries in the region, which could lead to a decrease in demand for Pakistani goods. Additionally, Saudi Arabia’s strict visa requirements and currency exchange policies can make it difficult for Pakistani businesses to access the Saudi market.
Finally, political tensions between Pakistan and Saudi Arabia have been known to arise, which could lead to trade restrictions and further complicate bilateral trade relations. One of the significant internal challenges of Pakistan is its speedy population growth, ranked as the 5th populated country in the world. According to United Nations Population Fund’s data, Pakistan’s population is 230 million.
Recent data favors no Pakistan regarding trade with Saudi Arabia as Saudi exports more than it imports from Pakistan. Thus, a trade imbalance exists. The business of Pakistan with Saudi Arabia is worth$3,520 million. Pakistan imports commodities and products more than it exports to Saudi Arabia. The International trade centre reports indicate low Pakistan exports to Saudi Arabia worth $304 million. The trade deficit of Pakistan is estimated at $2,910 million. In the last 15 years, Pakistan’s trade volume with Saudi Arabia declined, especially in 2008, 2011 and 2013. It became at the lowest level of $3 billion during this period. But it started to become stable in 2020. However, exports to Saudi Arabia have increased from $336.9 million to $446.18m from 2017 to 2020. But imports from Saudi Arabia to Pakistan declined from $3.213bn to $1.735bn from 2018 to 2020. 99
External Challenges: Pakistan and Saudi share no common border, contributing to low trade between the two countries. Saudi Arabia lies in the Middle East, far from Pakistan. However, cross-border trade help improves the economy of a nation.
Most European countries connect through a common border which exempts them from trade barriers. Saudi Arabia requested Pakistan to send its troops to fight Iran-backed Houthi rebels in 2015. Making the sensible decision, Pakistan refused to participate in the war in Yemen. Islamabad said joining the coalition may have consequences for domestic politics and bilateral relations with Iran.
Conflict between Iran and Saudi Arabia has severe implications for regional politics in West Asia. Saudi Arabia finds Iran’s increasing presence in regional politics a security threat that disturbs regional security balance. Pakistan considers Saudi’s growing interest towards India a threat. Even India has been able to maintain friendly relationships with Middle East countries. However, Pakistan prefers to retain its neutrality, and the Saudis are not happy with the detachment of Pakistan from Iran-Saudi relations. Conversely, India has received increased attention from the Gulf Cooperation Council (GCC) countries in recent years.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger and motivational speaker. He writes articles on diversified topics. Mr. Shaikh can be contacted at email@example.com.