Economy, Business And Markets

Stuck in the Slow Lane

President Hassan Rouhani (L) shakes hands with Prime Minister Nawaz Sharif in Islamabad on March 25.President Hassan Rouhani (L) shakes hands with Prime Minister Nawaz Sharif in Islamabad on March 25.

The lifting of sanctions against Iran in January this year was supposed to open new trade avenues for countries across the world — especially Iran’s neighboring countries, including Pakistan. But, trade between Pakistan and Iran continued to dwindle, even more drastically in the post-sanction era, according to an article published by the Pakistani weekly magazine TNS.

A part of the article starts with the question “Why have Pakistan and Iran not been able to cash in on the potential trade opportunities after the lifting of sanctions?” The article goes on to say:  

The year 2012 was the peak of Iran-Pakistan trade, when commercial exchanges exceeded $3 billion. The figure however took a downtrend in the following years. According to the Islamic Republic of Iran Customs Administration, two-way trade plummeted to $861 million in the last Iranian year that ended in March, of which $635 million pertained to Iran’s exports to Pakistan –34% lower compared to the year before, and $226 million to imports from Pakistan – down 16%.

IRICA data on mutual commercial exchanges is for the first four months of the current Iranian year (March 20-July 21), during which period Iran exported 646,400 tons of goods worth $256.4 million to Pakistan, which indicates a 30% increase in value compared to last year’s corresponding period. Meanwhile, more than 166,700 tons of goods valued at $160.4 million were imported during the four months, indicating a 119% surge. Petrochemicals, bitumen, gas, lead, vegetable seeds, carpet, pistachios and tiles were among the main exports. The imports chiefly included rice, cows, fruit, sesame, chickpeas, beans and lentil.

 Ambitious Target

Pakistan and Iran aim to increase their annual bilateral trade to $5 billion by 2021, Pakistan’s Prime Minister Nawaz Sharif told a business forum on March 26 with President Hassan Rouhani in Islamabad.

 “In the five-year strategic action plan signed yesterday, we have aimed at boosting our bilateral trade to the level of $5 billion by 2021,” Sharif said.

Iran’s Interior Minister Abdolreza Rahmani Fazli told IRNA back in April that the two neighbors need to define a future roadmap for their bilateral ties.

“Iran is prepared to be Pakistan’s main supplier of oil and oil products, gas and electricity, and help the country out of its current energy crisis. The Iran-Pakistan gas pipeline has been laid as far as the two countries’ border and is ready to be connected to Pakistan’s gas network. We have also announced our preparedness to export 1,000 to 3,000 MWs of electricity to the neighboring country,” he said.

Iran currently exports around 100 megawatts (MW) of electricity to the areas in Pakistan that border Iran. Pakistan says it is in the final stages of negotiating a deal that will increase the power export.

Energy-starved Pakistan suffers about 12 hours of power cuts a day and is keen to import Iranian oil, gas, iron and steel. Iran is interested in Pakistan’s textiles, surgical goods, sports goods and agricultural products.

Meanwhile, Iran has completed work on its side of a much-delayed pipeline pumping natural gas to Pakistan and would be in a position to provide gas to its neighbor in a few months, Rouhani said during his Pakistan visit.

“Iran has constructed this gas pipeline up to the border of Pakistan and we are ready to deliver the gas to Pakistan at our borders. We have almost completed our share,” Rouhani said. “It is now up to Pakistan to initiate work on its side.”

Dubbed the “peace pipeline”, the $7 billion gas project has faced repeated delays since it was conceived in the 1990s to connect Iran’s giant South Pars gas field to India via Pakistan.

India quit the project in 2009, citing costs and security issues, a year after it signed a nuclear deal with Washington.

The United States had opposed Pakistani and Indian involvement, saying the project could violate sanctions imposed on Iran over its nuclear activities.

Most of the sanctions were lifted in January in return for Iran complying with a deal to limit its nuclear program.

 Absence of Formal Banking Ties

President of Federation of Pakistan Chamber of Commerce and Industry, Abdur Rauf Alam, blames the absence of formal banking relations between the two countries for their low, unpredictable and fluctuating mutual trade volume. Alam says only a few days ago he took a delegation to Tehran and met Iranian counterparts and officials to take stock of issues impeding bilateral trade.

“I literally implored them [Iranians] to establish a formal banking system with Pakistan as without it no trade ties could flourish,” he said.

Former president of Khyber Pakhtunkhwa Chamber of Commerce and Industry and director of Pakistan-Afghanistan Joint Chamber of Commerce and Industry, Zahid Shinwari, says it is so unfortunate that despite being Muslim and developing neighbors, Iran and Pakistan could not develop cordial trade ties.

He says neither Iran nor Pakistan are seemingly prepared for the post-sanctions scenario.

“It exposed the insight of our economic planners who could not plan to get advantage of the situation,” he says, adding that industry in Pakistan could get 50% of its basic raw material and inputs from Iran at cheaper rates.

“Iran’s trade with Afghanistan is bound to reach the staggering figure of $3 billion, while its mutual trade with the United Arab Emirates stands at $8 billion. But with Pakistan, it is less than $500 million despite the fact that both sides have the potential of over $20 billion in mutual trade.”

Shinwari added that 5,000 petrochemical units in Pakistan import raw materials from far-off oil producing countries that raises the cost of production to an uncompetitive level, while these units can get the same materials from Iran at considerably low rates. “Over two dozen Iranian banks operate across the world. Bank Saderat Iran has branches in the US and other regions, including Europe, but no Iranian bank is operating in Pakistan. Similarly, none of the Pakistani banks operate in Iran.”

According to him, for exports and imports, traders need a formal banking system to open LCs.