A transformational economic partnership

Saudi Arabia and Pakistan’s economic partnership has taken a transformational turn with the recent Saudi decision to invest $20 billion in large-scale infrastructure and private industrial ventures. It is also a signal to the region, and the rest of the world, that Pakistan’s status has shifted from a high risk country to an emerging Asian economy. It would appear Prime Minister Imran Khan’s global message to invest in Pakistan has been hugely welcomed, and in many of Pakistan’s bilateral ties around the world, will mark a shift from transactional relationships to mutually beneficial economic partnerships. 

In his very first speech, Khan’s message to the region was clear: Invest here, and invest now. He has taken it upon himself to lead initiatives on ease of doing business to facilitate those investments. In this context, in September last year, Khan embarked on his first official foreign visit to Saudi Arabia. 

To ease Pakistan’s external account pressures, Saudi Arabia placed a deposit of $3 billion in Pakistan’s central bank and agreed on a deferred oil payment facility of a further $3 billion. Additionally, both countries agreed to work on long term capital investments to address the structural weaknesses in Pakistan’s economy and to help Saudi Arabia diversify its investments in the region. 

From a historical perspective, there have been a great many traditional areas of economic cooperation between Pakistan and Saudi Arabia. With a workforce of more than 2 million Pakistanis in Saudi Arabia, skilled and semi-skilled Pakistani labor has contributed significantly toward building Saudi Arabia’s infrastructure and providing valuable services in key sectors. 

On the sustainable economic front, foreign direct investment (FDI) will help in the transfer of technology, facilitate access to international markets and provide local labor with the training and knowledge required to enhance their skills. Positive impacts of FDI are recorded in the export industry of the host country as international firms can take immediate action to respond to the fluctuating demands and needs of the globalized business industry.

If Pakistan needs to grow by 7% to catch up with East Asian growth levels, it will require an ambitious investment-to-GDP ratio of 25 percent from the current level of 15 percent. Since 2007, there has been a drastic decline in FDI net inflows as a percentage of GDP in Pakistan due to lack of economic vision, political uncertainty, security related challenges and a weak foreign policy. The Pakistan of today however, offers a more promising infrastructure, connectivity to western China, a stronger power sector and real political will to attract international investment.

During Crown Prince Mohammed Bin Salman’s visit to Islamabad last week, major agreements including a multi-billion-dollar oil refinery and petrochemical complex, mining and renewable energy sectors were signed as one of the biggest ever Saudi investments in Pakistan. These will be instrumental in relieving the stress of external debt and a shortage of foreign currency reserves, besides boosting an economy that finally shows some signs of recovery.

The two countries have also agreed on an institutional structure to develop follow-up mechanisms to ensure effective implementation and quick progress on tangible areas of cooperation. In the coming months, the momentum will be focused on more structured dialogue with private sector leaders to form joint ventures.

Pakistan is aiming to secure Saudi investments in energy, tourism, construction, food processing and IT. Today’s Pakistan offers fantastic business opportunities through its large market of over 200 million, its young labor force and connectivity with the region. 

The government of Pakistan is committed to strengthening its long-term economic ties with Saudi Arabia. The business community from both sides will be making every possible effort to achieve tangible results in the best interests of their governments and the people of both Pakistan and Saudi Arabia, who have the most to gain from these initiatives. To facilitate Saudi and other local and foreign investors, the Board of Investment has established a dedicated unit for Ease of Doing Business and an exclusive cell for investors from Saudi Arabia. Their aim is to facilitate investors in materializing their projects in Pakistan in a transparent, timely and efficient manner, so that the two brotherly countries, both standing at the cusp of historic change, can meet the ambitious challenges of their futures.

• Haroon Sharif is Minister of State and Chairman Board of Investment, Pakistan. @SharifHaroon