Promising Trade Potential

Written by Mohiuddin Aazim • May 2011

The killing of Osama Bin Laden in a Pakistani city and a dip in the Pak-U.S. relationship afterwards with its spill-over consequences has brought to the fore the need for Pakistan to deepen its trade ties within the region. China is already on course to becoming Pakistan’s biggest trade partner and efforts are also being made to explore full trade potential with India.

Increasing bilateral trade with other countries of the SAARC region and exploring the potential of Central Asian markets can be pursued quite easily. Spread over more than four million square kilometers, all five Central Asian Republics (CARs) — Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan — are natural resource-rich countries that have acquired renewed importance in the emerging world economic order. Taking advantage of its geographical location Pakistan can deepen its trade and investment relations with CARs and become an important stakeholder of the regional economic power play.

Policymakers in Islamabad seem to have realized this and are taking some practical steps to implement this vision. Both President Zardari and Prime Minister Gilani have visited these states and have received top dignitaries from there in Islamabad with open hearts and minds.

Some trade and investment treaties have been signed and implementation on old agreements has been accelerated. But it looks as if Pakistan has been doing all this in piece meal. The private sector has not been consulted in formulating the strategy to look towards Central Asia. And no roadmap is in place to promote people-to-people contacts between major cities of Pakistan and those of the Central Asian states.

Although these states are predominantly Muslim, as is Pakistan, people in Central Asia generally have a not-so-positive image of the South Asia country. Most of them see Pakistan as a country where an extremist version of Islam has been in practice and moderates do not have much of a say in the collective life. This is only part of the truth, from Pakistan’s perspective.

But for a large number of Central Asian people, this is the whole truth.
Unless we change this perception, trade and investment relations cannot prosper. The killing of Bin Laden inside Pakistan has further necessitated such an exercise. The first step in building lasting economic relationships with CARs should be to promote people-to-people contacts in a way that removes all negative images of Pakistan from the collective mindset of the people of Central Asia. The country’s moderate Ulema can also play a significant role in this exercise.

Pakistan already enjoys a minimum level of trading relations with CARs. This is the time to tap their true potential which is many times more than what we have exploited so far. Politico-economic fallouts of the killing of Bin Laden in Pakistan, political turmoil in the Middle East and North Africa, sluggish economic growth in the U.S. and Europe, downturn in the Japanese economy after the recent Tsunami and the loss of some of the buoyancy in commodity markets would soon start threatening Pakistan’s current growth in exports.
During recent high level contacts between top political leaderships of Pakistan and Tajikistan, Kyrgyzstan and Uzbekistan, several agreements were signed to promote intra-regional and bilateral trade and investment relationships.

But businessmen say the strategy that can really work to boost trade with CARs has to be made in the context of the Economic Cooperation Organization. The ECO members include Afghanistan, Azerbaijan, Iran, Pakistan, Turkey and CARs.
CARs are home to about 62 million people with a combined GDP of $207 billion as of 2010. “This is really a big market. But we need a clear strategy, a roadmap and immediate concrete steps to build and expand trade ties with CARs,” says Amjad Rafi, a former president of the Karachi Chamber of Commerce & Industry.
Pakistan can enter Central Asian markets from three sides. Businessmen say they can use Afghanistan, Iran and China to reach out to these markets and emphasize that the focus should be on all three options at the same time to get results.

“Member states of ECO are drawing roadmaps to reach new heights of economic relationships. We can boost trade with CARs if our plans fit into them,” Rafi told SouthAsia.

Traditionally Pakistan has been using Afghanistan to route its exports to CARs but occasionally it has also channelized its trade with them through airlines.

Beyond Kabul, trade consignments either do not move or when they do, traders have to pay a so-called safe passage kind of tax to the Taliban or influential warlords operating in those areas. Normally the rates range between five and fifteen per cent of the value of the cargo.

Pakistan’s bilateral trade with CARs plus Azerbaijan was next to nothing until the mid-2000s. From then onwards it began to increase and touched $100 million in FY08 before the advent of the global recession. “This was perhaps the peak performance in the last decade,” remarked an official of the Trade Development Authority of Pakistan (TDAP).

Businessmen say volumes of Pakistan’s bilateral trade with CARs would rise immediately if Chinese starts using the Gwadar Port for trading with Central Asian states and Pakistan uses its road links with China to reach out to these countries. They say that Pakistan can also use the Iranian free trade zone of Chabahar to penetrate further into Central Asia while facilitating Iran-Central Asian business through Gwadar.

Some businessmen think once the ECO freight train, currently operating once a month, from Islamabad to Tehran to Istanbul, becomes a regular service, it would also help Pakistan penetrate deeper into Central Asia using both Iran and Turkey.

Ever since CARs emerged as independent states after breaking away from the then USSR in the early 1990s, Pakistan has done little to promote trade with them except for signing a few agreements. “We can export a large number of items to Central Asian countries,” says Amjad Rashid, a leading exporter who has been catering to the Afghan markets for a long time.

“From cement to light engineering goods to jewellery, stationary, food items, cosmetics and handicrafts, we can export anything and everything to Central Asian states once we resolve logistic issues,” he informed SouthAsia.
“And we can import from them wheat, cotton, fuel oil and oil products, natural gas and electricity, chemicals, iron ore, iron and steel, rare earth materials and food processing plants, etc.”

Pakistan has already been exporting food items, medicines, leather products, carpets, textile fabrics, knitted garments, ceramics/kitchen wear and furniture, etc. to the Central Asian states. It has been importing cotton and agricultural machinery from there. In 2010, CARs’ combined imports from across the world stood at above $50 billion. If Pakistan manages to get even one per cent of this business, its export earnings would increase by half a billion dollars.

Pakistan has already been late in tapping the trade potential of Central Asia. China is fast becoming the largest trading partner of these states and India and Iran are also increasing their market shares.

As China’s influence in Asian economies grows, Pakistan can deepen its trade relations with CARs as well by playing a proactive role in regional forums like the Shanghai Cooperation Organization, and the Central Asia Regional Economic Cooperation.