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Pak-Saudi economic cooperation

Published on 28th Apr, Edition 17, 2014

 

Historically Saudi Arabia has been extending extensive aid, grant assistance to Pakistan, but economic cooperation between the two countries has remained far from satisfactory. Some of the critics applaud this brotherly attitude, but say that Saudi stance has been contrary to an old saying ‘don’t give me fish, but teach me how to catch a fish’. However, others say that since the cooperation has been between the two states the benefits have not trickled down to the masses. Therefore, there is a need to revisit the existing scenario and come up with a new strategy that should yield benefits to both the countries.

Pakistan’s economy comprises of agriculture, manufacturing and services sector. Growth of all these sectors has remained skewed due to lack of planning and supporting policies, but above all inadequate availability of funds. To begin with agriculture in Pakistan could contribute around 20 percent to GDP because of lower production and productivity. On top of that limited availability of modern storage facilities and inefficient logistics about 15 percent of food grain and nearly 40 percent of fruits and vegetables goes stale before reaching the markets. Not only the growers are deprived of their legitimate return, the country is also deprived of earning millions of dollars by exporting these commodities. Therefore, the first step is to save the produce by constructing modern warehouses and efficient logistic facilities. Saudi investors should be asked specifically to invest in these two key areas offering attractive returns. In the past effort was made to invite the foreign investors to come to Pakistan and initiate corporate farming. The basic idea was to attract foreign investment for undertaking mechanized farming, developing water courses and ensuring balanced use of fertilizers and timely application of pesticides. However, the proposal was resisted by feudal lords who claimed that this will ruin the small farmers. In fact the ‘absentee land lords’ know very well that once corporate farming commence in the country they will not be able to exploit the landless farmers.

Pakistan has a huge population of 200 million people, but does not have modern oil refineries in the country. A huge quantity of POL products has to be imported. Though, Saudi Arabia is one of the largest producers of crude oil, it is also a big importer the finished products. Saudi rulers can also follow a model used by the rulers of Abu Dhabi jointly own with the Government of Pakistan the biggest refinery, Pak Arab Oil Refinery (PARCO) and two pipelines for the transmission of black and while oil products. The Saudis have two options: to establish another mid country refinery or construct one near Port Qasim for exporting the refined products and saving the freight cost. Both the Pakistan and Saudi governments must also look at the successful operation of refineries in Singapore, a country that does not produce even a drop of crude oil. The two governments should also consider constructing ‘naphtha cracker’ in Pakistan. A huge quantity of naphtha is produced in the country, but the entire output is exported because of absence of naphtha cracking facility.

Pakistan is among the top producers of sugarcane and also has the capacity to produce 9 million tons sugar. Every year huge quantity of molasses is exported. Saudi investors should be encouraged to go for production of E-10 (motor gasoline blended with ethanol). This is also to remind that local mills are operating at nearly 50 percent capacity due to the shortage of sugarcane. Enhanced sugarcane production will not only help in higher quantity of refined sugar but will also help in producing more ethanol and also producing electricity at the mills. Even today, these mills are capable of delivering 3,000MW electricity to the national grid. Since these mills are located in rural areas, the availability of extra electricity will help not only help in improving quality of life of the rural population, but also contain migration of people to urban areas in search of job opportunities.

The State Bank of Pakistan (SBP) is following ‘financial inclusion program’ because nearly 90 percent of the total population does not have a bank account. The recent initiative of ‘branchless banking’ is heavily dependent on technology and requires huge investment. Saudi investors may be invited to form joint ventures with the local entrepreneurs in banking and telecommunication, which is the backbone of branchless banking. This is for the information of entrepreneurs from Pakistan and Saudi Arabia that one of the major stakeholders of Meezan Bank is keen in selling its stake. Similarly, substantial investment is required in Bruj Bank to meet minimum capital requirement stipulated by the State Bank of Pakistan (SBP).

Billions of dollars are required for the revamping of existing infrastructure and construction of new facilities. It will be prudent that some Saudi investors establish entities that can float and manage Sukuk. The experience of Soverign Ijarah Sukuk floated by the Government of Pakistan has been very successful. If the companies of international repute come to Pakistan Sukuk for the construction of hydel and thermal power plants can be floated, both Rupee and Dollar denominated.

Pakistan also enjoys huge potential for producing ‘Halal’ food items, which the Middle eastern countries are buying from non-Muslim countries. If they acquire stake in such companies they will be able to ensure quality as will as confirmation to Shariah standards.

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