Multilateral Trade Between the UAE and Pakistan: 2023 / 24 Status and Prospects

Pending CEPA and FTA could provide a significant bilateral trade boost

By Farzad Ramezani Bonesh

Relations between Pakistan and the UAE date back to 1971. Pakistan is one of the first countries to recognize the UAE and played a role in the development of the UAE’s key institutions. Frequent high-level visits and regular consultations and meetings of political officials between the two countries have increased over the past five decades with many changes in their relations. The geographical proximity and deep cultural, religious, and historical factors have given more strategic importance to the relations between the two sides.

After fluctuations and challenges in relations, with the official visit of Mohammad bin Zayed to Pakistan in January 2019, relations have significantly improved. The two countries have many common interests and concerns in regional and international geo-economic issues. In recent years in Pakistan’s strategic doctrine, the importance of the economy has become more prominent.

From Abu Dhabi’s point of view, Pakistan possesses important weight in geopolitics and geoeconomics, and considers Pakistan as a primary strategic partner for the Gulf Cooperation Council (GCC) which also includes Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia together with the UAE.

Economic Cooperation

Over the years, the UAE and Pakistan have signed more than 28 judicial, political, commercial, and cultural agreements and memoranda of understanding.  Several agreements such as the agreement on the avoidance of double taxation on income in February 1993,  the support and promotion of investment between the two countries in February 1993, the trade agreement between the two countries in November 1995, investment promotion, cooperation in the fight against crime and terrorism, the economic cooperation agreement between the GCC and Pakistan in August 2004, and the Memorandum of Understanding (MoU) on the securities sector in November 2013  have boosted trade and economic relations between the two countries.

Energy

Pakistan needs to import energy and the UAE is an energy producer. Abu Dhabi’s Mubadala investment fund has a stake in a refinery in Pakistan. In 2019, the UAE initiated plans to invest US$5 billion in Pakistan’s Balochistan province to build an oil refinery.

In line with Abu Dhabi’s plan to increase production capacity by 25% to five million barrels per day by 2030, a group of Pakistani companies will invest about US$305 million for oil and gas exploration in the territorial waters of the UAE. Also, the implementation of construction projects in the oil and gas sector and energy and renewable energy cooperation between the two countries is expanding.

Investment and infrastructure

Pakistani businessmen were among the first investors in the UAE. More than 7,000 registered Pakistani companies are concentrated in the UAE’s retail stores, textile mills, food trade, financial services, tourism, hotels, real estate, and construction.

More than 26 Emirati companies are currently operating in Pakistan. Some of the UAE’s investments are concentrated in Pakistan’s agriculture, food, aviation, communications, banking, construction, and real estate sectors. However, more recently, Pakistan’s severe budget deficit, a sharp drop in the value of the Pakistani Rupee, a lack of foreign exchange reserves, and related issues have put Islamabad in a tight spot.

However, Abu Dhabi’s US$3 billion deposit to the State Bank of Pakistan in December 2019, and a further US$1 billion into the State Bank of Pakistan (SBP) in July 2023 supported the financial and monetary system of Pakistan and helped Islamabad maintain liquidity and foreign exchange reserves.

UAE public and private sectors such as multinational companies including Emirates National Oil Company, “Enoch”, “IPIC”, Etisalat, Dana Gas, Al Gharir, Emaar, DP World, Abraaj Capital, and Thani, have invested about US$3.74 billion dollars in Pakistan, with some estimates putting this inbound investment into Pakistan from the UAE’s corporate sector at about US$20 billion. The UAE is Pakistan’s largest investment partner in the region and the fifth largest globally.

The UAE has additionally invested more than US$$2.9 billion in the Pakistani market in a range of economic and commercial sectors such as energy, information communication and technology, financial services, insurance, building and construction, and oil and gas.

Attracting foreign investment in all sectors of Pakistan’s economy is the top priority of Islamabad. Its Islamabad’s investment policy is to create a business environment, and new and attractive investment opportunities with the Special Investment Facilitation Council (SIFC) in priority sectors. The limitations of Pakistan’s economic growth and the obstacles to Investment have been reduced by the SIFC.

Therefore, Islamabad is willing to welcome Emirati investors in energy, tourism, the information technology sector, and infrastructure development with approaches such as setting up the Pakistan Investment Road Exhibition in Dubai.

Recently, Pakistan and the UAE signed a memorandum of understanding in various fields of investment during the visit of Prime Minister, Anwaar-ul-Haq Kakar to the UAE. The MoU in the sectors of energy, port operations, sewage treatment, food security, logistics, minerals, and banking and financial services will unlock US$25 billion in investment from the UAE to Pakistan and help fulfil Islamabad’s SIFC initiatives.

Also, Pakistan is in the process of signing a 25-year agreement with AD Ports Group of Emirates, for investment worth US$102 million in four wharves in Karachi port.

Abu Dhabi signed the second major seaport terminal contract with the Pakistani side, and about 85% of Pakistan’s eastern docks  will be controlled by the Emirati company.

Abu Dhabi Ports Group will invest mainly in port infrastructure and superstructure, most of which is planned for 2026.

By investing in key sea trade routes and deepening the eastern quays of Pakistan’s Karachi port, ships with a large capacity will be added to Pakistan’s maritime and logistics capabilities. This cooperation paves the way for increasing long-range cooperation and expansion and digitization of port projects in Pakistan. Also, with the investment of Abu Dhabi, an export center will be established in Karachi and logistics support provided to remote areas of Pakistan.

Technology and Mining

While exports of Pakistan’s IT industry increased to US$2.6 billion in the fiscal year 2021-22, employing more than 600,000 people, Pakistan seeks to invest up to US500 million in seven special technology zones in the country.

The UAE is going to allocate a part of its US$22 billion IT investment fund into IT sectors in Pakistan. Information technology, artificial intelligence, and financial technology Fintech, IT, and Startups are all new fields of bilateral cooperation as Pakistan looks to modernise.

The two countries are also exploring cooperation in agriculture, mining, , and technology.

The UAE-based Nation Trust Holdings will invest US$30 million in the minerals sector and provide all technical and logistical support to establish a mineral processing plant to produce and export bauxite.

Agriculture and UAE Aid

While Pakistan’s economy is fragile and dependent on agriculture and has relied more on foreign aid and loans, Islamabad is trying to achieve better exports, diversity, and food security with the help of countries like the UAE.

In addition, while Pakistan exports meat worth about US$144 million to the UAE every year, the country is ready to invest in the halal meat industry and export more to the UAE. Also, in addition to bilateral cooperation in the climate case, and food security, there are plans such as connecting the rivers of Pakistan to the UAE through a 500 km submarine pipeline.

Abu Dhabi is one of the biggest Arab donors to Pakistan. The UAE-Pakistan Assistance Program (UAE-PAP) on the four main areas of health, education, water, and infrastructure was launched in January 2011 with 165 projects with a total cost of US$450 million to rebuild infrastructure damaged by devastating floods and natural disasters.

Also, the UAE’s aid is different from the conditional and limited aid of other actors in the direction of Pakistan’s development.

Military and defense

Pakistan’s contribution to the development, training, and military equipment of the UAE institutions has been important. The development of cooperation in arms purchases, defense investment, implementation of joint military production projects, and expansion of defense relations are all under discussion.

Tourism and the Pakistani Diaspora

Air transport plays a very important role in tourism and boosting bilateral trade with over 90 weekly flights departing from the UAE to various cities in Pakistan.

Increased bilateral trade and tourism have been made more accessible by the opening of a special visa center in Karachi, a joint consular committee, and reduced visa restrictions.

Pakistanis have a strong presence in the UAE including skilled and unskilled workers, professionals, and entrepreneurs. The number of Pakistanis living in the UAE has increased to about 1.8 million Pakistani expatriates. The diaspora is the second largest source of remittances for Pakistan after Saudi Arabia with US$4-6 billion annually and contributes significantly to Pakistan’s overall economy.

The remittances of Pakistani workers in the first four months of the fiscal year 2023-24 are recorded at US$1.5 billion. The government of Pakistan offers various incentives to increase the volume of remittances.

Pakistanis are among the top five sources of expatriate professionals, and top ten investors in the property market and dominate the UAE’s transport sector.

CEPA, Free Trade, and Multilateral Cooperation

Recently, to expand economic cooperation with the Gulf Cooperation Council (GCC) members, Pakistan signed a preliminary free trade agreement with the GCC during the 3-day trade talks with the presence of the GCC Secretary General.

Pakistan has also started negotiations to sign a Comprehensive Economic Partnership Agreement (CEPA) with the UAE to establish deeper trade and investment ties. That may be concluded in 2024 and is set to further promote investment with Pakistan with a focus on agriculture, textiles, marble & tiles, gemstone, mining, and petroleum. Ali called for enhancing government-to-government and business-to-business relations between both countries.

The goal is to reach US$40 billion  in bilateral trade over the next 10 years with proactive policy measures to remove trade barriers, rationalize tariffs, and facilitate investors and traders.

Also, considering the UAE’s future participation in BRICS, Abu Dhabi can help Pakistan to become a member of BRICS. Also, Islamabad can help the UAE to have a better presence in the Shanghai Cooperation Organization (SCO).

In addition, the UAE plans to double its re-exports by 2030. Therefore, Gwadar Port, part of China’s Belt and Road Project, can play an important role in the transfer of goods from China to GCC.

This port can be a way for the UAE to have better access to Eurasia, Central Asia, Afghanistan, and China. The potential importance of a trans-Afghan railway and easy trade links between the GCC and Central Asia is also discussed.

UAE-Pakistan Bilateral Trade

The UAE is Pakistan’s third largest trading partner after China and the United States. In 2021, the UAE exported US$7.13 billion of goods to Pakistan, while Pakistan exported US$1.28 billion to the UAE.  Pakistani exports to the UAE reached US$1.52 billion in 2022.

The main Pakistani exports to the UAE were cereals, meat and edible meat offal, apparel, mineral fuels, oils, distillation products, textiles, fruits, nuts, citrus fruit, melons, vegetables, roots and tubers, fibers, cotton, plastics, and various machinery.

Pakistani imports from the UAE reached US$7.84 billion during 2022. The top Pakistan imports were mineral fuels, oils, distillation products, plastics, iron and steel, marine craft, machinery, aluminium, organic chemicals, chemical products, electrical and electronic equipment, animal, vegetable fats and oils, cleavage products, furniture, lighting signs, prefabricated buildings, lead, essential oils, perfumes, and copper.

Challenges and Prospects

Despite efforts to develop commercial and economic relations, there are differences of opinion in the political and geopolitical fields between the two countries.

In the past decade, the war in Yemen, Pakistan’s stance in GCC internal politics, its cooperation with Turkiye, the issues with India and so on have had negative effects on bilateral trade and investment.

Concerns about security involve several Balochistan groups demanding independence in Pakistan, and could hinder investment or lead to attacks on the UAE’s interests. Pakistan still faces the risk of persistent trade deficits and external debt. However, foreign policy differences and trade developments such as the UAE’s recent ban on meat imports from Pakistan have not disrupted bilateral communication channels between Pakistan and the UAE.

It should be said that the range of opportunities for cooperation in the economic field of the two countries is very wide, and practically, challenges and disagreements should not overly harm the growing trend of business relations.

While Islamabad is still facing economic challenges, it will take a strategic look at foreign investments in the UAE. With the signing of the US$25 billion memorandum, bilateral economic and strategic relations have entered a new era.

The Pakistani Prime Minister, Anwar Ul Haq Kakar expressed his appreciation for the strong support of the UAE to Pakistan in the economic and financial field and asked the investors of the UAE to explore the Pakistani market in new ways.  However, according to the recent commercial approaches and policies of the two countries, the current bilateral trade figures do not reflect the real potential.

Therefore, there are many investment opportunities and potential for cooperation or joint ventures in new or less noticed sectors. The negotiations on the Comprehensive Economic Partnership Agreement (CEPA) with Pakistan are set to make significant progress and the free trade agreement between the two sides will be finalized. When actioned, the rapid approval and implementation of the free trade agreement will create a new chapter in economic relations and provide an opportunity to multiply their bilateral trade.

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