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economic diversification

Written by Maheera Munir 6:20 pm Opinion, Published Content

Forging Investment Ties: Pakistan’s Economic Diversification Strategy Towards the Middle East

The recent focus of Pakistan’s foreign policy towards Middle Eastern countries like Iran, Saudi Arabia, and Qatar has been on economic diversification and attracting foreign investment to improve its economic activity. Various visits and discussions with these countries have aimed at enhancing economic cooperation, particularly in energy, trade, and investment sectors. However, challenges related to transparency and procedural delays still persist.
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Maheera Munir is a Researcher at the Centre for Aerospace and Security Studies (CASS), Lahore.

Under the new government, Pakistan’s foreign policy towards its Middle Eastern partners such as Iran, Saudi Arabia, Qatar, etc. is largely geared towards economic diversification. 

What is Economic Diversification?

Economic diversification stands as a pivotal component of the omnidirectional hedging policy which allows middle and small powers like Pakistan to diversify their economic relations with like-minded countries to avoid entanglement in the great power rivalry. In addition, Pakistan has adopted economic and export diversification to attract foreign investment and speed up its economic activity to fight inflationary pressures and overcome current account deficits.

Iran

Recently, Pakistan has extended a welcoming hand to its Middle Eastern partners for greater economic collaboration, investments, and completion of long-due energy projects. Firstly, Iran. Given Pakistan’s already troubled borders with India and Afghanistan on the east and northwest, Pakistan views the Iranian front as strategically vital for trade and transportation. In line with its neighborhood policy, Iran also seeks to maintain closer ties with Pakistan in areas such as economics, trade, and energy.

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Recently deceased Iranian President, Ebrahim Raisi visited Pakistan from 22nd to 24th April 2024. The major objectives of the three-day visit were to improve bilateral economic cooperation and accelerate progress on the Iran-Pakistan gas pipeline.

The Peace Pipeline

Iran granted a 180-day extension to Pakistan in February 2024 to complete its part of the 80 km segment of the Iran-Pakistan gas pipeline so that both countries can prevent a legal dispute at international tribunals. The goal remains significant to Pakistan to avoid a potential $18 billion penalty for not completing the project timely as Iran has already completed its segment of 1,100 km since 2011. Moreover, both countries pledged to increase their $2 billion bilateral trade to a $10 billion goal in the coming years. 

Saudi Arabia

Economic relations are also progressing on the Saudi front as Saudi Arabia is an important geopolitical and economic partner of Pakistan.

Saudi Arabia and Pakistan continue to enjoy a healthy relationship. A recent manifestation of this relationship is the visit of the Saudi Foreign Minister Prince Faisal bin Farhan al-Saud, entailing greater economic and energy cooperation. The main objective was expediting the first phase of the $5 billion Saudi investment package, which is crucial for Pakistan to improve its current account deficit and meet the foreign financing requirements placed by the IMF in previous bailout programs.

To ensure the materialization of Saudi investment, another Saudi trade delegation led by Deputy Investment Minister Ibrahim al-Mubarik recently arrived in Pakistan on 5 May 2024 to hold important business-to-business (B2B) meetings. These B2B sessions were aimed at allowing companies from the agricultural, mining, human resources, energy, and maritime sectors to secure profitable Saudi investments. The most important potential investment is Saudi Arabia’s Manara Minerals seeking to acquire a $1 billion stake in Pakistan’s Reko Diq, one of the world’s largest yet undeveloped gold-copper mines.

While the increasing economic cooperation between Saudi Arabia and Pakistan allows Saudi Arabia to diversify its economy under its Vision 2030 Roadmap, it also provides Pakistan with significant opportunities to expand its economic diversification agenda and escape the financial meltdown.

Qatar

Most recently, the Qatari Minister of State for Foreign Affairs, Dr Mohammed bin Abdul Aziz al-Khulaifi along with a delegation from the Qatar Investment Authority (QIA) also visited Pakistan. Both sides welcomed greater trade and investment opportunities, with a special focus on the energy, mining, and aviation sectors. As Pakistan has a fully functional Special Investment Facilitation Council (SIFC) in place now, it will not be difficult to persuade Qatar to expand its investment portfolio in Pakistan.

Despite repeated talks of increasing investment in Pakistan from various countries, tangible agreements that have materialized and/or proven truly beneficial for Pakistan’s economy have been rare occurrences. This time around, the same concerns linger. While Pakistan has taken several initiatives to enhance its FDI competitiveness such as the establishment of SIFC, there are still some remaining challenges of transparency, procedural delays, and malfeasance.

Pakistan’s Strategy for Economic Diversification

To address these challenges, Pakistan needs to adopt a multi-faceted approach based on preventive and punitive measures.

Firstly, Pakistan needs to undertake public procurement reforms that would introduce competitive bidding, transparency measures, and independent oversight to ensure fairness, efficiency, and value for money in procurement contracts. 

Secondly, there must be greater stakeholder engagement. For every FDI project, a regulatory body should include both local and external experts to ensure that both sides remain committed to codes of conduct and ethical standards. Moreover, Pakistan should work towards introducing digital platforms for e-governance, streamlining administrative processes, and eliminating loopholes that provide a leeway for exploitation in FDI-related transactions.

Together, effective implementation of these measures will ensure the timely and profitable completion of the new FDI projects with Pakistan’s Middle Eastern partners. The strategic shift towards economic diversification also alludes to a more mature economic policy geared towards economic uplift and prosperity. If implemented wholeheartedly, these initiatives hold the promise of addressing pressing economic challenges and developing a sustainable FDI landscape.


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The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of Paradigm Shift.

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