Pakistan and Saudi Arabia have enjoyed a robust and multifaceted relationship since the establishment of diplomatic ties in 1947. This relationship is rooted in shared religious, cultural, and economic interests, with both countries often supporting each other on international platforms. Saudi Arabia was one of the first countries to recognize Pakistan, establishing diplomatic relations in September 1947. The relationship was further solidified by a Treaty of Friendship signed in 1951, which formalized cooperation across various sectors including defense and economic support. This unique relationship has unsurpassed potential which, if fully tapped, can accrue benefits for both countries. KSA is also home to millions of Pakistani workers, who are a major source of foreign remittances. Firmly set on the path to further strengthening relations, both countries seek to forge an ever strong and all-inclusive partnership. Frequent high level official exchanges also take place, a testament to the deep rooted relations. Pakistan, with a burgeoning young population, offers Saudi Arabia several opportunities, like skilled workforce trained for specific sectors such as IT experts, doctors, engineers and academics. Pakistan itself is in need of Saudi investment from its private and public sectors in order to accelerate growth and development.
In 2022, Pakistan exported goods worth $507 million to Saudi Arabia, while Saudi Arabia’s exports to Pakistan amounted to $4.5 billion. The trade balance heavily favors Saudi Arabia, primarily due to its exports of crude petroleum and petrochemical products.
Key Exports and Imports
- Pakistan’s Exports to Saudi Arabia: The main products exported from Pakistan to Saudi Arabia include rice ($107 million), bovine meat ($44.5 million), and spices ($29.5 million). Other notable exports are textiles, fruits, vegetables, and seafood.
- Saudi Arabia’s Exports to Pakistan: Saudi Arabia’s primary exports to Pakistan are crude petroleum ($2.77 billion), ethylene polymers ($358 million), and propylene polymers ($312 million). These products are crucial for Pakistan’s energy and manufacturing sectors.
In the fiscal year 2022-23, Pakistan’s exports to Saudi Arabia reached approximately $27.7 billion, while imports from the Kingdom were around $55.198 billion, resulting in a substantial trade deficit for Pakistan. However, recent data indicates a positive shift in trade dynamics. For instance, during the first seven months of fiscal year 2023-24 (July-January), Pakistan’s exports to Saudi Arabia surged by 27%, totaling $394 million, compared to $311 million in the same period the previous year. Conversely, imports from Saudi Arabia increased by 10%, amounting to $2.730 billion.
Exports from Pakistan
Pakistan’s principal exports to Saudi Arabia include:
- Textiles: This sector remains the backbone of Pakistan’s economy, accounting for a significant portion of its exports.
- Food Products: Rice, meat, and spices are among the top food exports.
- Construction Materials: With ongoing infrastructure projects in Saudi Arabia, there is a growing demand for construction materials from Pakistan.
The increase in exports can be attributed to improved market access and the growing demand for Pakistani goods in Saudi Arabia, particularly as the Kingdom diversifies its economy under Vision 2030.
Imports from Saudi Arabia
- Crude Oil: The largest component of imports, fulfilling about 30% of Pakistan’s oil needs.
- Petrochemicals: Including ethylene and propylene polymers.
- Machinery: Essential for various sectors within Pakistan.
In recent years, high-level visits between the two countries have aimed to enhance economic cooperation. In 2024, a Saudi delegation visited Pakistan to explore investment opportunities worth approximately $32 billion, focusing on infrastructure, energy, and privatization initiatives. This visit underscored the potential for increased economic collaboration, addressing the trade imbalance and fostering mutual growth.
In 2023-24, crude oil imports remained crucial for Pakistan’s energy security amidst rising global oil prices.
Pakistan’s export of goods and services to Saudi Arabia witnessed an increase of 27% per cent during the first seven months of the current fiscal year (2023-24) as compared to the exports of the corresponding period of last year, official data revealed.
The overall exports to Saudi Arabia were recorded at $394 million during July-January (2023-24) against exports of $311 million during July-January (2022-23). On the other hand, the imports from Saudi Arabia into the country during the months under review were recorded at $2.730 billion against $2.525 billion last year, showing an increase of 10 per cent in July-January (2023-24).
Pakistan’s trade deficit with the Middle East narrowed 41.31 per cent to $5.674 billion in the first seven months of the current fiscal year, he added.
In absolute terms, the value of Pakistan’s exports to the Middle East rose 36.18 per cent to $1.769 billion between July and January 2023-24 while imports dipped 31.69 per cent to $7.443 billion, showing a contraction in trade deficit to $5.674 billion from $9.668 billion in the same period last year.
Saudi Arabia has shown keen interest in investing in various sectors within Pakistan. Notably:
- Reko Diq Mining Project: A planned investment of nearly $1 billion is expected to enhance mineral exploration and extraction capabilities.
- Oil Refinery at Gwadar: The construction of one of the largest oil refineries in Pakistan is underway, aimed at boosting local energy production and reducing dependency on imported oil.
These investments align with Saudi Arabia’s Vision 2030 goals and offer significant economic benefits to both countries.
Remittances and Economic Impact
Remittances from Pakistani workers in Saudi Arabia are a vital component of the bilateral economic relationship. In 2023, these remittances reached approximately $27 billion, underscoring their importance as a source of foreign exchange for Pakistan. This influx not only supports families but also contributes significantly to the national economy.
Economic Cooperation and Investments
Saudi Arabia has been a significant investor in Pakistan, contributing to various sectors such as energy, infrastructure, and agriculture. Notably, Saudi Arabia pledged $3 billion in aid and loans to Pakistan, with $1.5 billion deposited in Pakistan’s central bank. This financial cooperation underscores the strategic economic partnership between the two nations.
Potential Areas for Growth
Several sectors hold potential for further trade growth between Pakistan and Saudi Arabia:
- Textiles: Pakistan’s textile industry can benefit from increased exports to Saudi Arabia, given the high demand for quality fabrics and garments.
- Pharmaceuticals: There is a growing market for pharmaceutical products in Saudi Arabia, presenting an opportunity for Pakistani manufacturers.
- Agriculture: Pakistan can expand its exports of rice, fruits, vegetables, and dairy products to Saudi Arabia.
- Information Technology: Collaboration in the IT sector can lead to mutual benefits, with Pakistan providing skilled IT professionals and services.
Challenges and Impediments
Despite the strong trade relations, there are challenges that need to be addressed:
- Trade Imbalances: The significant trade imbalance in favor of Saudi Arabia needs to be mitigated through diversified exports from Pakistan.
- Regulatory Barriers: Both countries need to work on reducing regulatory barriers that hinder trade, such as customs procedures and standards compliance.
- Logistics and Infrastructure: Improving logistics and infrastructure can facilitate smoother trade flows between the two nations.
Challenges to Trade Relations
Despite the strong historical ties, several challenges have emerged in the Pakistan-Saudi Arabia trade relationship:
- Trade Imbalance: The significant disparity in trade volumes has raised concerns in Pakistan, prompting discussions on how to boost exports.
- Geopolitical Dynamics: The evolving geopolitical landscape, including Saudi Arabia’s growing ties with India, has complicated the relationship. India and Saudi Arabia’s bilateral trade reached $27 billion, which poses a challenge for Pakistan in garnering attention and support from Riyadh.
- Domestic Economic Issues: Pakistan’s economic challenges, including inflation, currency devaluation, and reliance on foreign loans, have hindered its ability to engage in robust trade with Saudi Arabia.
Future Prospects
The future of Pakistan-Saudi Arabia trade relations appears promising, contingent upon several factors:
- Free Trade Agreement: Both countries are in discussions for a potential free trade agreement, which could significantly enhance trade volumes and facilitate smoother economic exchanges.
- Investment Opportunities: Saudi investments in Pakistan’s infrastructure and energy sectors could lead to job creation and economic stability, benefiting both nations.
- Regional Cooperation: Strengthening ties with other Gulf Cooperation Council (GCC) countries could provide Pakistan with additional avenues for trade and investment.
In summary, the trade relations between Pakistan and Saudi Arabia in 2023-24 reflect a dynamic partnership that is evolving amidst changing global economic conditions. With increasing exports from Pakistan, significant investments from Saudi Arabia, and strong remittance flows, both countries stand to benefit from a closer economic collaboration. Addressing existing challenges will be crucial for maximizing this partnership’s potential as they navigate an increasingly interconnected world economy.
Last Word
The trade relations between Pakistan and Saudi Arabia are deeply rooted in history, culture, and mutual interests. While challenges persist, the potential for growth and collaboration remains high. As both nations work towards addressing trade imbalances and enhancing economic cooperation, the future trajectory of their relationship will be shaped by their ability to navigate the complexities of regional geopolitics and domestic economic realities. The commitment to a mutually beneficial partnership will ultimately define the strength and sustainability of Pakistan-Saudi Arabia trade relations in the years to come.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at nazir_shaikh86@hotmail.com