PAKISTAN is passing through difficult times due to meltdown of macro-economy and constant political instability. However, the Kingdom of Saudi Arabia always stood first to help Pakistan and its people alike. Thus good spirits of unconditional economic ties and financial assistance remained positive, productive and participatory successfully rescued Pakistan from an imminent default.
In this connection, Pakistan received $2 billion from Saudi Arabia which further boosted the confidence of international community as well as domestic investors. In March, the IMF asked Pakistan to secure financing assurances from friendly states and multilateral donors as a pre-condition for releasing a $1.1 billion tranche from an Extended Fund Facility program that Pakistan entered in 2019. Subsequently, China rolled over a $2 billion loan and Saudi Arabia and the UAE pledged $2 billion and $1 billion respectively.
Moreover, Saudi’s diversification of its economy under the Vision 2030 offers numerous opportunities for information technology-based companies of Pakistan which should be further explored and expedited in the days to come. Furthermore, four Pakistani state-owned petroleum companies signed a memorandum of understanding (MoU) to facilitate $10 billion Saudi investment in a new oil refinery at Gwadar, with a production capacity of 300,000 barrels per day the first in more than a decade and the largest in the country.
The government is reportedly in the advanced stages of negotiations with Saudi giant Aramco to execute the Greenfield refinery project at the strategic Gwadar Port and wanted to complete the initial paperwork before its tenure ends in almost a week. The state-owned Oil and Gas Development Company Ltd (OGDCL), Pakistan State Oil (PSO), Pakistan Petroleum Ltd (PPL) and Government Holdings Private Ltd (GHPL) signed the MoU to join hands and provide comfort to the Saudi firm to enter Pakistan with a major investment. The four SOEs would join the project through equity participation.
The project envisions setting up an integrated refinery petro-chemical complex with a crude oil processing capacity of a minimum 300,000 bpd along with a petrochemical facility. The integrated complex shall comprise various components such as marine infrastructure, petro-chemical complex, storages for crude oil and refines utilities, pipeline connectivity etc. To facilitate the Saudi investment in refining, the government has recently passed a new policy under which a new deep conversion oil refinery of a minimum 300,000 bpd achieving financial close of the project within five years shall be eligible for a customs duty of 7.5pc for 25 years on petrol and diesel of all grades produced effective from the date of commissioning of the refinery.
Due to investor’s friendly policy of Pakistan the said refinery shall also enjoy a 20-year tax holiday and would also be entitled to exemption from levy of customs duties, surcharges, withholding tax, general sales tax, any other ad valorem tax or any other levies and duties on import of any equipment to be installed, or material to be used in the refinery projects without any precondition for obtaining certification by the Engineering Development Board.
These fiscal incentives and other facilitation would be recorded and protected under the project agreements between the project company, the key sponsors, investors and the concerned government and would be protected through a grant to Special Economic Zones Act. The Saudi oil firm showed a willingness to inject the entire equity into the multibillion-dollar refinery project, leading the Pakistani government to decide on a joint venture with key SOEs.
Interestingly, Saudi Arabia has also held talks with Canada’s Barrick Gold about investing in its Reko Diq copper project in Pakistan. Saudi Arabia is looking for a stake in the global mining game with access to strategic minerals as the Kingdom looks to diversify its economy away from oil. It is suggested that policy makers of Pakistan should directly talk to Saudi Arabia and invite it to make investment in the minerals sector which would provide win-win propositions for both the countries.
In summary, Saudi Arabia is one of Pakistan’s most important trading partners in the world. The Kingdom is home to more than two million Pakistani expatriates, making it the largest contributor to remittance inflows to it. Changing socio-economic, geopolitical and geostrategic trends in the region reinforces closer economic ties with Saudi Arabia. The recently inked Saudi-Iran peace agreement has become launching pad for further strengthening of bilateral relations. The policy makers of Pakistan should follow holistic and comprehensive geo-economics diplomacy to take advantage of the emerging balancing act in the region.
According to official data, Pakistan’s exports to Saudi Arabia increased by 31 percent to a record of $563.47 million in the outgoing fiscal year (FY23) that ended on June 30. According to the official data the exports to the Kingdom were boosted by the sale of rice which stood at $106.68 million, followed by meat and edible meat that increased from $46.8 million to $82.73 million. Pakistan’s exports to Saudi Arabia were recorded at $429.52 million in the previous year.
The registration of Pakistani companies for the export of halal meat with the Saudi Food and Drug Authority (SFDA) was a major step taken by the trade mission during 2020-2023. The lifting of a ban on fisheries-exporting companies from Pakistan and the registration of fisheries establishments with the SFDA for exports have also increased export volumes from Pakistan. The efforts to promote Pakistani mangoes in the Kingdom through online home delivery by Pakistani startup yielded positive results. The export of information and communication technology (ICT) goods and services increased from $19 million to $28 million since 2020.
Moreover, participation of Pakistani companies in more exhibitions like Saudi Build, Foodex, Saudi Halal Expo, LEAP and Global Health as well as the participation of more Pakistani companies in ICT/digital tech after LEAP event also played key role in the export growth. The removal of a ban on hatchery eggs from Pakistan by the Saudi Ministry of Environment, Water and Agriculture (MEWA) was also one of the key achievements which led to the export growth. The Saudi market for Pakistani goods is worth more than $1 billion. During the outgoing fiscal year, Pakistan imported goods worth $4.2 billion, including $2.9 billion worth of petroleum oils from the Kingdom of Saudi Arabia, as compared to $5.1 billion worth of goods imported in the previous year. Therefore, chances of further strengthening of bilateral relations are bright.
—The writer is Executive Director, Centre for South Asia & International Studies, Islamabad, regional expert China, BRI & CPEC & senior analyst, world affairs, Pakistan Observer.
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