Pakistan and Gulf Cooperation Council FTA

Gulf Cooperation Council (GCC) is one of the most important regions of the world with more than $2 trillion economy. Gulf Investment Report 2023 stated the size of the economy would be $13 trillion by 2050 (more than double the initial estimates of $6 trillion) if the region countries implemented the reform agenda in its true spirit.

The GCC is also home to prime energy sources and a leading export market of energy sources. 

Further, the consumer market size makes GCC a lucrative market for the business community and a key trade partner of the world. WTO data for 2022 reinforces the argument. It shows GCC region earned $1.336 trillion by exporting commodities and products and spent $733 billion on imports. On the services side, it exported services worth $239 billion and imported services worth $248 billion.

The diversification drive in GCC region is making it an emerging and favourite destination for investment. All the countries in GCC have formulated their visions – Saudi Arabia-Vision 2030, UAE-Vision 2031, Kuwait Vision-2035, Oman-Vision 2040, Qatar-Vision 2030, Bahrain-Vision 2030 – to implement the diversification agenda. Under their respective visions, they have introduced reforms. Reforms have positively impacted FDI showing positive signs. Gulf Investment Report 2023 showed FDI flow increased from $15.52 billion in 2017 to $37.12 billion in 2022.

However, in 2022, FDI showed a negative trend, as investment decreased from $45 billion in 2021 to $37.12 billion in 2022. The trend is expected to reverse soon, as all the member countries have intensified their efforts to reform and diversify their economies. It is anticipated the diversification drive will also bring new opportunities and avenues for cooperation for the world, including Pakistan.

Pakistan is well-placed to benefit from these opportunities because of the country's decades-long relationship with GCC and its geography. Though relationship is multifaceted, people-to-people relationship provides a strong base. During the course of history, GCC and Pakistan broadened their ties in the fields of economy, human resources, trade, security, etc.

Right now, GCC accommodates the biggest number of Pakistani expats. Data analysis shows 11.91 million out of 12.4 million registered Pakistani expats are working in GCC. It means almost 96 percent of Pakistani labour force works in GCC region. The Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) are two major destinations of Pakistani labour force. KSA hosts 2.7 million and UAE 1.7 million Pakistanis.

The region is biggest source of remittances to Pakistan. The remittance data for 2022 shows more than 54 percent ($16.95 billion) were received from the GCC region. Saudi Arabia and the UAE were major contributors. Pakistani community in Saudi Arabia sent $7.74 billion and $5.88 billion from UAE. Kuwait is an exciting case study on this front. It is home to only a few hundred thousand Pakistanis, but Pakistan received more than $1 billion from it as remittances. It shows Pakistani expats in Kuwait are working in high-level and well-paid jobs.

Pakistan needs to be mindful its labour force can face challenges in the future. We know the GCC region is diversifying, and all the countries are trying to venture into new areas like hoteling, financial services, IT, tourism, renewable energy, etc. They would be in need of skilled and quality human capital. Presently, most of the Pakistani workers in the GCC are low-skilled. They are also not well-educated and only have primary qualifications. It is feared the demand for Pakistani labour may go down. It will be a huge loss for the country, as the GCC region is the biggest source of remittances.

On the trade side, Pakistan and GCC enjoy a good relationship. The Observatory of Economic Complexity website data for 2021 shows Pakistan has a negative trade balance with all the GCC countries except Oman. Pakistan exports to Saudi Arabia were recorded at $472 million against the imports of $3.4 billion. For UAE, Pakistani exports were $1.28 billion against imports of $7.1 billion. Qatar also enjoys a trade surplus with Pakistan with $4.8 billion in exports and imports of $431 million.

Pakistan also runs a trade deficit with Kuwait with $220 million exports and $1.6 billion imports. Bahrain enjoys a trade surplus with $292 million in exports and $61.9 million in imports from Pakistan. Oman is the only country that has a negative trade surplus with Pakistan. The total value of Pakistani exports to Oman were $386 million, and imports $346 million.

Against this backdrop, the proposed Free Trade Agreement (FTA) between Pakistan and GCC is extremely important. The signing of the agreement will open new avenues of economic opportunities. Therefore, Pakistan is putting special focus on finalisation and signing of the agreement. The initial reports indicate there will also be special clauses on the investment, which is good news for the country.

On a bilateral level, Pakistan has already signed multiple MoUs and agreements with the GCC countries. Most recently, it signed $25 billion and $10 billion worth of MoUs with UAE and Kuwait, respectively. Pakistan and Saudi Arabia have also agreed to enhance bilateral trade and investment. Qatar is another country that has shown deep interest in investing in Pakistan.

The FTA can help Pakistan bridge the trade deficit by enhancing exports in multiple sectors. The agriculture and food sectors can play a leading role, as the GCC region is looking for reliable and sustainable food sources. Presently, the Gulf region is one of the most food-scarce regions in the world. Geography and water scarcity limit the region's agriculture and food production scope. They have to rely on imported food to meet the domestic demand.

The current statistics show Saudi Arabia has to import 80 percent, Kuwait 90pc, UAE 85pc and Qatar 90pc of food to satisfy the demand of the local population. Food demand is anticipated to increase in the coming years due to population growth and the drive for diversification.

Moreover, the development of the region's tourism industry will also push food demand. Thus, these countries are looking for partners that can provide Halal food (being Muslim, Halal food is mandatory for them). Pakistan, a neighbour to the region, can easily exploit the opportunities.

Pakistan will have to reform its institutional framework to benefit from the FTA with the GCC. It is an open secret that due to Pakistan's complicated and complex system, investors and the business community face challenges. Despite the repeated slogan, a single window is still a distant dream in Pakistan. It has become a tradition to use this slogan. The single window has been turned into a complicated zigzag, and the business community does not know how to cross that. The failure of successive governments to materialise the concept of a single window has weakened investors' confidence. They do not want to trust government claims in this regard.

The importance of reforms can be understood from the delay in finalising the FTA. It was reported Saudi Arabia insisted on the inclusion of an international dispute settlement clause. Pakistan was hesitant, but had to agree on it. It shows even our friends face problems while investing in Pakistan.

In this context, civil and military institutions have joined hands to create a new single window. They introduced the concept of Special Investment Facilitation Council (SIFC). The objectives of the council are to facilitate the investors, establish cooperation among all government departments, and fast-track project development. The military and civil government has promised the investors SIFC will be different from the past initiatives.

However, to make SIFC a different initiative, Pakistan will have to make three specific reforms in the structure of Council. First, SIFC must be given decision-making and implementation authority. Second, introduce the culture of right person for the right job, and it should not be stuffed with on-service or retired government servants. Third, minimise the external interferences. Without these reforms, SIFC will face difficulties in delivery on the promised fronts.