As the Conservative Party’s new leader, Theresa May replaces PM David Cameron after the ‘leave’ campaign, leaders Nigel Farage and Boris Johnson, realising the enormity of the challenge, backtracked.
The Pakistani leadership has adopted a cautious stance of ‘wait and see’ expressing soft-worded concern on the possible fallout on the country’s exports, remittances and FDI flows.
The government has so far not engaged the private sector on the issue. For a variety of reasons (language, historical linkages, easy access to financial services, and a large community of Pakistani immigrants) London is the most popular destination in the west for Pakistani businessmen. Many companies (estimated 50) have their overseas offices located in Britain.
“British departure from the EU will have profound implications because of Pakistan’s close economic linkages with the UK. We cannot afford to sleepwalk into a crisis”
Post-Brexit, the nervous corporate sector questions the level of the government’s preparedness to initiate required readjustments in commercial diplomacy. They believe demands of managing ties with embittered neighbours, (India, Afghanistan, Iran) and the US, are too pressing for the foreign office to spare time and thoughts for consulting trade and economic ministries and developing a strategy to deal with the Brexit fallout.
Businesses do not find the position of the SBP or the commerce ministry on the situation inspiring. The government has been advising companies not to worry as change in Europe will take years to materialise post-Brexit. However, their reassurances, lack of information on possible future moves by policymakers to contain the fallout on trade, remittance and capital inflows; failed to calm angst in the Eurocentric business community.
According to businessmen their anxiety is rooted in the global market reaction to the outcome of the UK referendum and the signals of a stiff EU reaction to a level where some Dutch and Swede firms have signaled moving out of the UK.
Malahat Awan, CEO, British Business Centre, was approached for her take. She forwarded Dawn queries to the diplomatic mission of the UK. In her mail Ms Belinda Lewis, deputy high commissioner in Karachi said: “The future of UK-Pakistan trade is bright….We will always remain an open, trade-focused country. I know that the growing trade with Pakistan is one of the mission’s top priorities. And I see huge opportunities in sectors including energy, financial and professional services, and infrastructure”.
On the question regarding options for Pakistani companies that have offices in Britain she wrote, “I advise them to stay! The UK is one of the most attractive countries in the world to set up and grow a business. The World Economic Forum Competitiveness Report assesses the UK to be in the top ten for competitiveness. Our key selling points, including ease of doing business, access to world leading service and a robust legal system will remain untouched”.
Some leading business leaders told Dawn that their concerns were heightened by the governments’ pretentious attitude. Instead of offering practical advice to the relevant sectors the government seems to be advising them to ignore volatility and carry on with business assuming normalcy.
“Today they are advising us to look the other way. Tomorrow they will fix the blame on us when exports start falling. It does not take a financial wizard to guess the impact of a weaker pound on our exports. More importantly market uncertainty has driven our trade partners across Europe to the edge. My email account is flooded with queries for reconfirmation and renegotiation of future deals,” Shabir Ahmed, a leader of textile sector commented.
Commerce Minister Khurram Dastagir e-mailed in his response: “Pakistan is aiming for a seamless transition in the UK from EU GSP Plus to a Pakistan UK free trade agreement. In this regard we intend to approach the UK trade department immediately after PM May announces her cabinet.”
“Exporters can expect UK trade concessions to Pakistan under GSP Plus to continue at least for two years after the UK issues the notification of intention to withdraw”, he assured.
“Our immediate concerns are the consequences of the decline in the value of the UK currency which is likely to suppress the demand for imports in the UK. The weak pound will also reduce the value of remittances originating from Britain in dollar terms. We are keeping a close eye on numbers”, he said.
“My ministry has initiated readjustment of trade diplomacy priorities in the EU. We will devote more resources and time in cultivating EU member states that support Pakistan trade concessions. We are already consulting relevant stake holders to formulate our policy response to developments in Europe”, he informed.
Some high ranking sources in Islamabad confided that the commerce minister has been in touch with PM Nawaz Sharif who was in London and watched developments from close quarters. A source in the ministry of finance told Dawn that Dastgir has asked Finance Minister Ishaq Dar for a special inter-ministerial meeting to assess risks for Pakistan.
“Economic diplomacy of Pakistan is weak. No, I am not out to tarnish the image of the government on anyone’s behest. I found statements of the relevant ministers and the SBP disappointing. They lack the sense of urgency while the whole world is in turmoil”, another businessman said.
“The British departure from the EU will have profound implications because of Pakistan’s close economic linkages with the UK. Pakistan cannot afford to sleep walk into a crisis. A protective approach is required. The government should formulate a sound and dynamic solution mechanism to counter ensuing challenges. The way forward would be to develop a comprehensive framework based on the diversity of opinion of stakeholders including the private sector” Mehnaz Kaludi, CEO, Terry Tex said.
However, at a time when the world’s markets are reeling with uncertainty, some analysts in the business of selling optimism say the negative impact emanating from Brexit will be comparatively mild for Pakistan’s economy as it is relatively insulated from global markets.
Others dismiss the perception as whimsical. “UK is one of Pakistan’s key trading partners, exporters are concerned that political uncertainty in Europe, a weaker euro and pound, will make Pakistan’s exports relatively expensive, causing demand to drop and depreciate earnings in dollar terms; while a slowdown in foreign economies is also likely to depress demand. “So what we face is a double whammy”, said a businessman.
Out of Pakistan’s total textile exports of $11.6bn during the first 11 months of the last fiscal year, UK’s share was $1.2bn (10pc).
The Fact Sheet, a newsletter of the Institute of Policy Reform (IPR) endorses this view. It states that Pakistan’s exports will suffer a two-fold blow. Consumer demand in Britain will dampen from lower growth. A cheaper pound will increase the value of imported goods in the UK. Pakistan’s main concern is whether exports to the UK will lose the duty concessions under EU’s GSP plus, and if so, when. The UK was a strong advocate for Pakistan’s GSP plus case in Brussels. IPR advocates that the government needs to lobby with the UK for its continuation.
It also observes that workers’ remittance could also decline, especially if unemployment grows in the UK. Remittance from the UK is about 13pc of total. FDI from the UK is also likely to decline. It has fallen since 2007, in line with the overall trend of FDIs. Pakistan is among the largest recipients of the UK’s overseas development assistance. Britain’s post-Brexit situation could lead it to reconsider its assistance level.
Published in Dawn, Business & Finance weekly, July 18th, 2016