Taking Business Forward

Written by Mohiuddin Aazim  •  Region  •  March 2011 PDF Print E-mail

The direction of Pakistan’s external trade is shifting. A more regional approach is in sight. We now import more from China than the U.S. In the last few years, Afghanistan has emerged as our third largest export market after the U.S. and the UAE. The pressure is also building up on the government to enhance trade ties with India. Pakistan and India have been able to break diplomatic ice and the two sides have agreed recently to restart the composite dialogue stalled after the Mumbai terror attacks.

The global financial crisis and recession of 2008-09 is officially over. But aftershocks are frightening - particularly for the U.S. economy. The role of the U.S. dollar as the international reserve currency is under serious threat. And jobless recovery in the American economy indicates that the strength of the U.S. economy is now concentrated primarily in such areas as higher education, technology and food grains production and processing. A new economic world order is emerging. China is now the main driver of global economic growth. The other three countries in the BRIC bloc i.e. Brazil, India and Russia are also in the forefront. All of this is happening at lightening speed. The foregoing should provide a perspective to readers on the miraculous three-fold increase in Pakistan’s exports to Afghanistan in last six years - and more importantly on the need for a new external trade paradigm Pakistan needs to readjust itself to the emerging realities of the new world economic order.

Pakistan’s exports to Afghanistan have tripled during last six years - from half a billion dollars in FY04 to $1.57 billion in FY10. Imports from Afghanistan remain below half a billion dollars. The list of items Pakistan exports to Afghanistan is long and varied. It includes cement and other cons, including wheat flour and rice, fruits and vegetables, confectionary, mineral water and ice-cream, medicines, soaps and detergents and an array of kitchenware and bathroom fittings. Pakistan’s imports from Kabul are confined mainly to fresh fruits, carpets and rugs, precious and semi-precious stones, etc.

Islamabad wants to enhance the volume of Pak-Afghan bilateral trade from less than two billion dollars now to five billion dollars in the next five years. The signing of the new Afghan transit trade agreement is just one step in this direction.

Pakistan’s exports to Afghanistan took a leap in FY05 when Pakistan up-scaled its cooperation against the war-on-terror.

After the October 2004 elections in Afghanistan the world paid greater attention to rebuilding of that country. That combined with the economic push created by stronger presence of NATO forces and Afghan initiatives for rebuilding the economy created opportunities for Pakistan to boost its exports to Kabul. The U.S.-backed Afghan government also facilitated greater economic ties between Kabul and Islamabad as a non-military initiative to combat militancy along Pak-Afghan borders. 

Geographical proximity, close people-to-people contact, Afghanistan’s inclusion in SAARC and changing global economic order underline the prospects of greater and deeper Pak-Afghan economic relationship.
But our businessmen are worried over the absence of a comprehensive strategy on how to sustain the recent surge in exports to Afghanistan after the withdrawal of the U.S. and NATO forces from there. They lament that the Ministry of Commerce has so far not initiated a dialogue with the private sector on this issue. Enhancing Pak-Afghan bilateral trade volumes to five billion dollars by 2015 is an attainable task provided that the private sectors of both countries are involved in planning and execution of trade policies and Afghan banks set up their branches in Pakistan. 

Three Pakistani banks i.e. Bank Alfalah, Habib Bank and National Bank of Pakistan are operating in Afghanistan and the State Bank of Pakistan has also been cooperating with the Afghan central bank in human resource development. Businessmen say in addition to financing trade Pakistani banks in Afghanistan should also explore ways for consortium financing to share the risk associated with lending to local businesses in Kabul.

A big market for our banking and legal brains is going to open up in Afghanistan. Afghan authorities would soon require a large number of experts in corporate, banking, taxation and investment laws as it increases its focus on rebuilding of its economy after overcoming political issues at hand.

It is not just external trade and within that export only that we should concentrate. We ought to work on enhancing imports from Kabul as well to cut costs of imports from faraway countries as well as to get raw materials and semi-finished goods for further value-addition in Pakistan.

Pakistani industrialists can explore avenues of investment and sharing of expertise with Afghanistan in such areas as auto manufacturing, IT, telecom, banking, Islamic finance, capital market development and higher education etc. after improvement in peace and order in Afghanistan and along Pak-Afghan borders.

Pakistan president of International Chambers of Commerce & Industry Mr. Tariq Rangoonwala says that Afghanistan of tomorrow offers greater prospects for bilateral trading and investment. But he points out that there has to be a set of bilateral treaties including the one on double taxation to promote industrial and investment relationships between the two countries.

Mr. Rangoonwala who is also ICCI coordinator for the Middle East and North Africa says that Afghanistan is currently not represented on ICCI adding that once it gets this representation it would help Kabul expand business relationship with the world. And Islamabad would also find it easier to tap business and investment opportunities in Afghanistan.

A couple of Pakistani business groups have made some investment through UN agencies and the USAID in Afghanistan’s infrastructure industry and one group was even involved in construction of Jalalabad airport. Recently some Pakistani business houses involved in information technology applications have also been exploring avenues of investment in Kabul.

 “If you take a futuristic approach you can do so many things” says Mr. Arif Habib, a former chairman of Karachi Stock Exchange and chairman of Arif Habib group of companies.

“Our banks are operating in Afghanistan. I guess currently they are focused on trade financing but once peace and order is restored there, they can undertake many more activities. Similarly, if Afghan authorities are keen on building a capital market, Pakistan is in a position to help them.”

“Currently Pakistan is not self sufficient in fertilizer but within a year or two production of urea would be more than enough to suffice our needs and if Pakistan allows its export we can naturally look towards Afghanistan,” said Mr. Habib whose group recently set up a new fertilizer unit in Pakistan.

Pakistan can set up small steel making industry in Kabul and manufacturers of construction-related materials in Pakistan can also branch out to Afghanistan. Supply of engineering goods and light-to-heavy machinery to Kabul is also a possibility.

Businessmen say the most immediate thing that Pakistan and Afghanistan can do to deepen their economic relations is setting up of joint ventures companies in the areas of mining and mineral exploration, carpet weaving and designing, leather processing, gems and precious stones polishing and food processing.

Mohiuddin Aazim is a Karachi-based political and economic analyst  who writes for national and regional publications.

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