After Pakistan and the GCC recently signed a free trade agreement (FTA), Gulf investment promises to become a mainstay—and indeed a lifeline—for Pakistan’s economy.
Last week, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE finalized an FTA with Islamabad. GCC Secretary General Jassim al-Budaiwi signed the agreement with Pakistan’s caretaker Minister of Industries and Production, Gohar Ejaz. The agreement marks a turning point in regional cooperation.
During the meeting, Ejaz observed that Pakistan has "excellent relations with all the countries of the GCC and this FTA will ensure that our economic ties are commensurate with these excellent relations."
FTA talks with Pakistan began last year, and this next step will enable the GCC to help Islamabad increase exports to oil-rich Arab states. This will occur through proactively lowering trade tariffs and significantly boosting Pakistan’s earnings and revenues.
The Pakistani Caretaker Minister of Foreign Affairs, Jalil Abbas Jilani, told the press that "there are a lot of MoUs and agreements which are in the works and we are expecting delegations from respective GCC countries very soon."
Islamabad has long sought to expand trade relations with the GCC and has been pursuing an FTA since at least 2005. In January of last year, the two sides finalized a Joint Action Plan for Strategic Dialogue.
Once the internal administrative and approval processes are complete, this FTA will be the first such deal that the GCC has signed with any country since 2009. Before that, the GCC had signed an FTA with Singapore and the European Free Trade Association, and currently is negotiating further agreements with the UK, among others.
Earlier this year, Pakistan established a Special Investment Facilitation Council (SIFC) to expedite direct foreign investment and alleviate the country’s ongoing economic crisis.
Pakistan is encouraging joint ventures and has highlighed five priority sectors: defense production, agriculture, energy, information technology, and mining. In order to facilitate business visits, the SIFC has recently unveiled a special visa policy for GCC states.
Due to the close ties between the civil and military apparatuses in Pakistan, there is less red tape and fewer delays. This has allowed the current government to make real progress regarding security, foreign policy, and economic and political development.
Like the China-Pakistan Economic Corridor (CPEC), this mechanism aims to encourage investments from the Gulf and nations friendly to Pakistan. However, it has not received much attention from the West as of yet.
Meanwhile, the minutes of the CPEC-related 11th Joint Cooperation Committee meeting were only recently signed this year, even though the meeting was held last year. Apparently, Beijing had not agreed to expand cooperation in key areas such as water, energy, and climate change.
According to a Nikkei Asia report, Beijing might be rolling back investments in new Belt and Road projects. According to unnamed sources, Beijing turned down Islamabad’s proposal to build a 500-kilovolt transmission line to connect the southern port of Gwadar, the flagship port CPEC, with the national electricity grid from Karachi.
Beijing seemed to show more interest in establishing a 300-megawatt coal-fired power plant in the same port city of Gwadar. However, Islamabad wanted to move the power plant to another location where domestic coal could be used instead of imported coal.
Pakistan’s Ministry of Planning and Development believes that these projects are still under discussion and responded to the above reports accordingly: "China and Pakistan are committed to expanding the scope of [CPEC] to include new areas of cooperation, such as water resources management, climate change, and tourism."
However, security threats to Chinese projects in Balochistan have been an impediment to further Chinese investment. Over the years, CPEC has faced various challenges and conflicting stances from the two countries, leading to long delays.
Beijing’s economy has also been going through a slow period. Although China recently marked the tenth anniversary of the Belt and Road Initiative (BRI), CPEC remains the only corridor (out a total of six) that is nearing completion and has reached the second phase.
Pakistan’s ties with the GCC look more promising, which explains why the Gulf states are the main focus of Islamabad’s current investment needs. For decades, Islamabad and Riyadh have maintained excellent strategic ties and, geographically, Pakistan is a link between South Asia, Central Asia, and the Middle East.
As Saudi Arabia seeks to become a point of connection between Asia, Africa, and Europe, Pakistan hopes to become a "geo-economic bridge" to facilitate the economic activities of major corporations like Saudi Aramco. In addition, there is a large Pakistani diaspora living and working in Saudi Arabia.
In a recent interview, Faisal Niaz Tirmizi, the Pakistani ambassador to Abu Dhabi, highlighted how Pakistan-UAE ties have significantly improved since last year due to reciprocal visits between the two countries’ leaders. Bilateral trade has grown by ten percent, while the number of Pakistanis residing in the UAE increased by 200,000 in the last year.