Of Pakistan-Malaysia trade

Pakistan and Malaysia have historically enjoyed close ties based on common beliefs cultures and values. On the road map of ties, both countries are members of the Organisation of Islamic Conference (OIC) and the Commonwealth of Nations; and have regularly collaborated on policymaking and cooperation in general.
The economic culmination of these ties came in 1995 when the two countries jointly entered a Bilateral Investment Treaty. In January 2008, the Malaysia-Pakistan Closer Economic Partnership Agreement was signed to establish a Free Trade Agreement (FTA) between Malaysia and Pakistan. This FTA was Pakistan’s first comprehensive agreement encompassing trade in goods, services, investment and economic cooperation, with any other country.
Pakistan was never going to be an easy trade partner. Pakistan ranks 107 out of 185 countries on the International Finance Corporation’s (IFC) Ease of Doing Business List (a composite index of 10 factors that contribute to the conduciveness of the regulatory environment to starting and operating a business); and has an unimpressive and volatile external sector.
Between 2008-2011, the annual average growth rate in total trade between the two countries accelerated to 21 percent from 17 percent in the four-year period from 2004-2007, building up to the signing of the agreement. In fact, in 2011, total trade touched 2.8 billion dollars and was lauded as a hallmark of successful economic ties.
How much has Pakistan benefited from this deal? In absolute terms, the trade deficit of Pakistan against Malaysia has nearly doubled in the four years since the agreement was entered into; from approximately 0.91 billion dollars in 2007 to 1.8 billion dollars in 2011. A caveat may be inserted here – the deficit as a percentage of total trade fell from 86 percent in 2007 to 80 percent in 2011. However, the absolute numbers are worrying.
Pakistan is heavily dependent on Malaysia for palm oil, but also relies heavily on Malaysian firms for several aspects of housing development, infrastructure, highway construction, power generation, financial services and telecommunication sectors. Pakistan is the second largest importer of palm oil in the world, which explains the augmented deficit given access granted through the FTA to Malaysian businesses.
On the other hand, Malaysia’s shortage in rice and beef (as part of the entire Halal-foods industry) along with other agricultural products remains an avenue of opportunity for Pakistani exporters. Malaysia is aggressively campaigning to increase exports to Pakistan of electronic items, higher education, and tourism so-as-to expand the current range of benefits enjoyed from the FTA.
On the other hand, Pakistan has left much to desire in their branding effort for agricultural products to make them more marketable and palatable in the international market. Rice exports have grown at a tremendous rate of 244 percent over the last two years, but the room for growth is still largely unexplored.
The key concern here is that of future agreements of this nature. Pakistan’s approach to liberalisation-based growth must be calculated with more prudence. An advantageous trade position must exist, or must potentially exist in order to genuinely benefit from future agreements of this nature.