The ripples witnessed in the currency market last week do not manifest the actual level of anxiety in the business circles over the gap in Pakistan and the Arab world’s positioning on Yemen.

When contacted, business leaders mentioned oil and workers remittances. They stressed the value of supply lines from the Gulf region, but were reluctant to divulge the actual worth of the Middle East’s links to the country’s private businesses.

The parliament’s resolution on the Yemen crisis, the tough reaction of bruised GCC states, Interior Minister Chaudhry Nisar’s reaction to the hard talk of UAE’s minister of state for foreign affairs, exercises in shuttle diplomacy in the region and efforts by Pakistan to allay concerns of friends in the Middle East have all been watched closely and debated intensely by corporate Pakistan in clubs and chambers.

After the April 10 parliament session, the currency market came under pressure. The money changers were quick to dismiss its link to the Arab situation but many insisted on correlation. Privately, currency dealers accepted that the diplomatic tangle generated nervousness in the market and pushed up dollar demand in Pakistan.

Nonetheless, the rupee rose against the dollar only on the first three days of last week in both the interbank and open markets.

The government is said to be active in the currency market, leveraging its influence on exchange companies in the open market. However, the growing gap between rates quoted by the Foreign Exchange Association of Pakistan and the actual rate of trading in the open market is for everyone to see.

There was no instant quantifiable impact on the capital or the commodity markets. The banking circles expressed concern and wished for the situation to improve quickly as they fear withdrawals by big account-holders in the Middle East.

Some oil company executives reached over phone told Dawn that they have not picked up any negative signals from their suppliers so far. “We are keeping our fingers crossed,” said the managing director of a private company.

“Their frustration is understandable,” he added, referring to the diplomatic and material support the Arabs had extended to Pakistan, particularly when the West had clamped sanctions in the 1990s.

And Pakistan depends on the Middle East for its oil imports. Last year, it imported $14bn worth of crude and petroleum products from Kuwait, Saudi Arabia and the UAE. And a gas-import contract was recently signed with Qatar.

Around 65pc of total remittances to Pakistan comes from the Arab world, and these are critical for the country’s financial stability as export proceeds ($25bn in FY14) are close too about half of the ballooning import bill (over $45bn in FY14).

Latest State Bank data on remittance inflows confirms the trend. Remittances from Saudi Arabia, the UAE and other Gulf Cooperation Council (GCC) countries constituted 64.4pc ($8.589bn) of the total remittances received during the period.

Pakistan does not export much to the region besides agriculture commodities, packing materials and some food products. Our exports to the region have been at 9-10pc of total exports for the past many years, while imports from the region range between 24-26pc of overall imports.

Privatisation Commission Chairman Mohammad Zubair reiterated his party’s position. But he conceded that the stakes are high and any misstep would cost the country dearly.

“It is a tough call and we have to tread with care. It is yet another test of diplomatic skills. We are cognisant of the sensitivities and are ready to walk the extra mile to satisfy our Arab brothers by explaining our intent: the promotion of common interest for peace, stability and development of the Muslim world,” he asserted over phone from Islamabad.

The leaders of the business community tried to sound casual but indicated their discomfort in discussing the ramifications of a possible harsher Arab reaction.

“The ties run deeper. Dubai serves as an outpost for many local business houses. About one in four outward-looking businessmen own property in the region; one in five have an office or some regular arrangement in Dubai; and every tenth successful businessman who wishes to expand his business overseas places Saudi Arabia and the UAE at the top of his list of possible destinations,” a businessman stated.

Some projected the critical role played by Pakistani investors and workers in the economies of the UAE and Saudi Arabia.

“I don’t think it would help the Gulf economies if Pakistanis pull out of the region. Yes, remittances are crucial for Pakistan, but the funds are not doled out for free. Our people work hard and their contribution in the development of the Gulf economies needs to be acknowledged,” said another leading business leader.

“Besides, Pakistanis are the second biggest investors in the property market amongst foreigners in the UAE, and they helped in the market’s revival after the crisis,” he added.

“We might have our differences with the government, but we support the parliament and the government 101pc on the Gulf situation. I am sure the situation will settle soon,” Eizaz Sheikh, CEO of Kohat Cement, said over phone from Lahore.

Similar sentiments were expressed by SM Muneer in Karachi. “We have good brotherly relations with the Gulf states and I do not see any threat to our ties going forward,” said the chairman of the Trade Development Authority of Pakistan.

“I think Pakistan is well positioned to deal with the crisis,” Gohar Eijaz, former chairman of the All Pakistan Textile Mills Association, was optimistic about the situation.

“I don’t think the Arabs can go too hard on Pakistan. I see better days ahead”, Majyd Aziz, a business leader of Karachi, quipped.

Published in Dawn, Economic & Business, April 20th , 2015

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