- Good time for Pakistan and Saudi Arabia to improve investment and trade relations
The Kingdom of Saudi Arabia, the 18th largest country and ranked top exporter of petroleum in the world with major economic hub in the Middle East. It shares its borders with Jordan and Iraq to the north and northeast, while to the east, it is bordered by Kuwait, Qatar, Bahrain, and the United Arab Emirates. To the southeast, it neighbours Oman, and to the South, it shares a border with Yemen. Saudi Arabia boasts a population of 32.4 million people and possesses a nominal GDP of US$ 770 billion, with a per capita income of US$ 23,186.
It is the founding member of Organisation of Petroleum Exporting Countries (OPEC) and a member of the Gulf Cooperation Council (GCC), Arab League, the Organisation of Islamic Cooperation (OIC), the G20, the United Nations and World Trade Organisation (WTO). Holding largest oil reserves including producer and exporter of crude oil, its petroleum sector accounts for roughly 87 per cent of budget revenues, 42 per cent of GDP and 90 per cent of export earnings.
The Saudi government initiated structural reform measures in 1990s to encourage privatisation, liberalisation of foreign trade and introduces several reforms for investment regimes and because of international economic crisis and declining of oil costs worldwide, the government began broadening of its monetary activities towards power, media transmission, health and education services, petrochemical resources, natural gas exploration, tourism etc. and recently formulated Vision 2030.
The main features of the Vision 2030 include the diversification of economy, boosting private industry, promotion of investment, reduction in unemployment, increase in innovation and modernisation of country towards economic and social well-being. In the setting of the vision, the government has started to change their approaches and present day education, and permitted women to take part in monetary exercises and began amusement activities.
Trade Overview
Saudi Arabia is the 25th largest export economy and 21st largest imports economy of the world and their export stood at $267 billion and imports at $101.7 billion, according the available data. The exports of Saudi Arabia consist of crude oil, refined petroleum and petroleum products while imports include machinery, vehicles, pharmaceutical, gold, gems, metal, minerals, foodstuffs, chemicals, motor vehicles and textiles.
Being the member of Gulf Cooperation Council (GCC), the Saudi Arabia applies GCC rules and procedures in those areas where they have been developed like common external tariff, common customs law, customs procedures for first points of entry, common law on Anti-dumping, countervailing and safeguard measures etc.
Through GCC, Saudi Arabia is a member of the Pan Arab Free Trade Area (member countries are the GCC countries plus Egypt, Iraq, Jordan, Lebanon, Libya, Morocco, Palestine, Sudan, Syria, Tunisia and Yemen), GCC-Singapore Free Trade Agreement, GCC European Free Trade Association (EFTA).
At present, GCC is negotiating Free Trade Agreement with Australia, China, the EU, India, Japan, the Republic of Korea, Mercosur, Pakistan and Turkiye. Respectively, Saudi Arabia has consented to Free Trade Arrangement with USA as it were. China, Japan, USA, South Korea, UAE and India are major exports destination and China, USA, Germany, South Korea and UAE is the major import partner of Saudi Arabia.
Being the member of WTO since 2005, Saudi Arabia’s trade policy is straight forward and accorded MFN Status to almost all countries and applied average 5 percent tariff on 80 per cent of tariff lines, duty free on another 11 per cent and high rates observed for products containing tobacco and some products are prohibited due to religious and moral reasons.
Whereas the procedure of exports and imports is very complicated, which is highlighted by the World Bank in its Ease of Doing Business Report. Apart from GCC Standards, Saudi Arab also developed its own standards and technical regulations for exports and imports of various commodities particularly food items and live animals etc. and imports of food and animal products for human consumption requires import permits from the Saudi Food and Drugs Authority (SFDA), while the imports of meat and poultry meat, a Halal Certificate and an Islamic slaughter certificate are required in addition to other documentation.
Trade relationship with Pakistan
Saudi Arabia is an important trade destination for Pakistan. At present, the trade volume between Pakistan and Saudi Arabia stands at $3.5 billion with imports from Saudi Arabia at $3.2 billion and exports to Saudi Arabia at $316.3 million. The share of Pakistan in Saudi Arabia’s trade is just 1%; while in Pakistan’s trade is approximately 7 per cent.
During the most recent 26 years, the commodities of Pakistan to Saudi Arabia have expanded at an annualized pace of 4.62 per cent, from $146 million in 1995 to $472 million in 2021. In 2021 alone, Saudi Arabia traded $3.4 billion to Pakistan.
Pakistan’s major items of exports to Saudi Arabia are cereals, meat and edible meat offal, textile made-up articles, beverages, spirits and vinegar, coffee, tea, fish and fish products and edible fruits and vegetable while the imports include petroleum products, plastic goods, organic chemical and fertilisers etc. In the last five years, the Pakistan’s export to Saudi Arabia has declined particularly in rice, meat, edible fruits, beverages, leather and textile commodities.
There is no bilateral or multilateral preferential or concessional trade agreement between Pakistan and Saudi Arabia. At present, the trade between Pakistan and Saudi Arabia held on the basis of MFN tariff rate applied to all members of WTO.
Pakistan follows all standards and technical regulation formulated by Saudi Standards, Metrology and Quality Organisation (SASO). All imports of live animals and products of animal origin from outside the GCC bloc must be quarantined for 21-30 days depending on the country of origin. All imports of food and animal products for human consumption are subject to import permits issued by the Saudi Food and Drugs Authority (SFDA). For imports of meat and poultry meat, a Halal Certificate and an Islamic Slaughter Certificate are required for each consignment, in addition to other documentation generally required for customs clearance.
Trade Impediments between Pakistan and Saudi Arabia
- A wide range of products must comply with the published standards related to packaging, health, Halal and others as per the Saudi Arabian Standards Organisation (SASO) to get entry in Saudi Arabia. Saudi government strictly follows labelling and packaging of product. All products must be labelled with product name, country of manufacturers, contents, net weight and date of production and expiry.
- Saudi Arabia has imposed banned on the import of shrimps from Pakistan due to non-compliance of health standards. This ban is still applied on Pakistan’s exports of shrimps to Saudi Arabia.
- Visas are one of the main problems faced by the business community of Pakistan. The Saudi Consulate in Pakistan often takes six weeks in providing visas to businessmen; charges high fee for visa (approximately Rs75,000/-) and the process of approval involves multiple departments. This discourages the businessmen to participate in commercial activities in Saudi Arabia.
- There is complicated process of opening of Letter of Credit at Saudi Bank, which creates delay in procedures and discourages businessmen to trade with Saudi Arabia.
- Saudi Arabia allows exports of Pakistani fruits and vegetable after surpassing of season. As the fruits and vegetables are perishable commodities and Pakistan has lack of storage facilities so it should be allowed in season.
Ties of bilateral investment
It remains the fact that both have made significant investment in each other countries. The investment policy of Saudi Arabia is business-friendly. Saudi Arabia has established Saudi Arabian General Investment Authority (SAGIA) to assist foreign investors in the approval process of operations, obtain a licence and labour visas and to conduct other business affairs under one umbrella. SAGIA offers a number of incentives in order to attract investors like 100 per cent foreign ownership of property and companies in certain industries, lower minimum capital requirements, no restriction on repatriation of capital, the ability for foreign investors to sponsor foreign employees, tax incentives for the company registering in less-developed provinces of Saudi Arabia.
As like Pakistan, many Saudi Arabian companies have made investment in Pakistan and enjoying investment-friendly environment of Pakistan. In the recent past, Saudi Arabia has showed their interest to establish oil refinery in Gwadar. In the past, Saudi Arabia has shown their interest to invest in corporate farming, which is still pending.
The current economic and political environment has made Saudi Arabia an important partner for economic development and lucrative market for exports of Pakistan. Pakistan must maintain stronger and closer economic ties with Saudi Arabia.
There are huge potentials available for Pakistan to enhance its trade and investment ties with Saudi Arabia in textile, pharmaceutical, rice, leather, seafood, dairy farming and other sector which need to be explored for enhancement of Pakistan’s exports to Saudi Arabia.
Some recommendations which can help in enhancing the trade and economic relations between Pakistan and Saudi Arabia:
- The private sector of Pakistan and Saudi Arabia should interact regularly for exchange of information related to available opportunities and meetings with counterpart’s traders. The holding of commercial activities regularly like holding of trade fairs and exhibitions, arranging of meetings at commercial level and frequent exchange of trade delegation also help in understanding each other markets.
- There is dire need of activation of the Joint Business Council established between Pakistan and Saudi Arabia Business Council for utilising the trade potentials.
- The trade missions of Pakistan in Saudi Arabia should also play an active role in expanding the trade relations by sharing business opportunities information and disseminations of calendar of exhibitions to concerned forums in Pakistan. The establishment of display centre at Pakistan embassies may also help in marketing the Pakistan’s product in Saudi Arabia.
- Pakistan and Saudi Arabia should formulate a strategy for mutual recognition of standards for exports of surgical instrument, food items and pharmaceutical goods as there is huge Research and Policy Division FPCCI Page 23 demand of these products in Saudi Arabia. Moreover, Saudi Arabia should allow exports of edible fruit and vegetable in season.
- There is no formal regional trade and economic cooperation agreements which can provide trade concessions or preferential and free arrangement of trade between Pakistan and Saudi Arabia. Pakistan may negotiate to initiate formal trade pack and agreement in term of tariff concession which can assist in reducing the trade cost and cost of doing business.
- Saudi Arabia must simplify the procedure of visa for Pakistan in term of number of documents required, time and visa fee particularly for businessmen.
- Pakistan and Saudi Arabia should sign bilateral investment treaty in view of removal of complex investment procedures and avoid of taxation complications. This will also improve the investment relations in both nations.
- Pakistan and Saudi Arabia should formulate a mechanism to reduce non-tariff measures which face by Pakistan in exporting agriculture products to Saudi Arabia.
- Pakistan and Saudi Arabia should sign agreement for fulfilling the requirement of skilled labour force in Saudi Arabia. As the process of economic development in Saudi Arabia is rising this indicates the rising demand of skilled labour force. Around the globe, Pakistan’s labour force is performing very well due to their hard work, intelligence and productivity.
- It is also suggested that the agreements signed during the last visit of Prime Minister of Pakistan to Saudi Arabia and the visit of the Crown Prince and Prime Minister of Saudi Arabia, Mohammed bin Salman Al Saud to Pakistan should be implemented in true spirit and agreed investment projects should be started as soon as possible.