Pakistan hopes to capitalise on its proximity with Iran as Western hostility towards its neighbour eases and the world prepares hopefully for an end to the financial siege on that country and the sanctions are lifted following a final nuclear deal, expected in June.
Iranian Foreign Minister Javad Zarif’s visit to Pakistan last week focused more on the positioning of the two countries on the Yemen crisis. The subject was too complex and consuming to allow time for issues related to bilateral economic relations.
Blame it on fate or the crisis-infected the region, but claims of expanding economic ties between Pakistan and Iran have yet to be substantiated. The trend over the past five years belies the sweet talk and is, indeed, depressing.
Pakistan’s farm produce has a big market there and Iranian iron, steel, and more importantly, oil, gas and electricity can ease the energy crisis here
Despite the preferential trade agreement (PTA) signed a decade back, trade between the two neighbours has fallen by 75pc since 2009 while, in the same period, Iran’s trade with India, China and Turkey boomed.
Commerce Minister Khurram Dastagir, who will lead the Pakistani team to Tehran next week for the joint economic ministerial meeting, was upbeat about the prospects of warmer and deeper ties between the two states with economies that ‘naturally complement each other’. Pakistan’s farm produce has a big market there and Iranian iron, steel, and more importantly, oil, gas and electricity can ease the energy crisis here.
He attributed the falling bilateral trade volume to stringent Western monetary sanctions that made banks reluctant to deal in finances directed to Iran and resulted in unilateral changes in trade policies in Iran.
“We are already negotiating about removing hurdles and developing financial channels to support and encourage bilateral trade. And the two central banks are looking at options to ensure timely settlements of payment claims on both sides. We know for a fact that with the improvement in the environment, trade volumes will grow very quickly,” he told Dawn over phone from Islamabad, answering a question about the possibilities that the proposed nuclear deal might throw up.
“Regional integration is high on the PML-N’s economic agenda. After Prime Minister Nawaz Sharif’s visit to Tehran last year, the commerce ministry has been closely monitoring and identifying potential areas of cooperation that can yield high returns for the people of the two nations.”
Dastagir admitted that the Pakistan-Iran PTA did not deliver. “I have a tall agenda for the upcoming ministerial meeting. We have done our homework on the oil pipeline, LNG terminal at Gwadar, creating proper ports for the regularisation of trade, payments for Iranian electricity in Gwadar and on creating greater transparency and consistency in commercial policies for the benefit of closer cooperation and higher two-way trade.”
He also mentioned the Iranian business delegation that visited Pakistan last December, which was pleasantly surprised by the standards achieved and the quality acquired in food products here.
Meanwhile, the exporters who took the hit from the falling trade volumes were mostly not available or not inclined to formally comment. The fruit traders of Balochistan were said to be in trouble because of non-tariff barriers in Iran that tended to change the rules of the game unilaterally, like changing the time-window of the passage on borders or demanding new certifications without giving prior notice.
Syed Hasan Raza, general secretary of the All Pakistan Meat Producers and Exporters Association, told this scribe over phone from Lahore that the association’s members lost about a $50m market when Iran clamped a ban on meat imports from Pakistan last year, without assigning any reason. He said exports to Iran constituted about one-fifth of Pakistan’s total formal meat exports.
“Our members have invested in capacity and standards. If Iran lifts the ban and the banking channel becomes operative, we can easily export frozen meat [beef and mutton] worth $80m via sea and land within no time.
“We are already exporting to far-off markets by air. Iran is a huge market with fairly better living standards, and this sector stands to gain immensely from better terms of trade with our neighbour.”
A few years back Iran changed its rice supplier to India. The commerce minister credited this takeover to the waivers that New Delhi had secured earlier from the US for limited financial dealing with Iran, from where it opted to import oil and used Iranian shipping facilities.
A senior source in the ministry, however, termed Iran a difficult trading partner. “It has proven to be highly unpredictable. It has failed to walk its talk on several counts. It is not a member of the WTO, which further limits our option when it backs off from its commitments. It had publicly offered to finance the Pakistani side of the oil pipeline, but when the bids were opened, Iranian companies were 50pc more expensive than other competing companies.”
Former finance minister Shaukat Tareen acknowledged the wide scope, but was apprehensive of the government’s capacity to game the situation to Pakistan’s advantage.
Salim Raza, a former SBP governor, talked about the high trade potential that Pakistan has not been able to tap, and mentioned the significance of the trade corridor with Iran and India. “We need not offer a passive transit facility, but can offer to add value along the line.”
Published in Dawn, Economic & Business, April 13th, 2015