Supply-chain due diligence act: German official says opportunity exists for Pakistan to stand out

KARACHI: Florian Walther, the Pakistan representative at the German Emirati Joint Council for Industry and Commerce (AHK), said the supply-chain due diligence act passed in Germany is an opportunity for Pakistan’s exporters to stand out against competing markets, remarks that came as the official highlighted the potential of trade and investment between the two countries.

“It depends on how fast the other countries are moving, but there is a first-mover advantage,” Walther told Business Recorder during an exclusive interview in Karachi.

“If you are the one who is compliant, you will get the business, especially in the future.”

Memo inked to connect startup, tech communities of Germany and Pakistan

Walther said a similar set of regulation and compliance standard will also be implemented across the European Union.

“Discussions are on about the act in Germany.

“The act is focused on the health and safety of workers, supply-chain transparency and the environmental status – and to see if business is done ethically.

“The act is not just relevant for companies in Germany but also in Pakistan,” Walther said, stressing that companies will have to ensure compliance throughout their supply-chain process.

The official added that Pakistan could have the first-mover advantage over regional economies especially seeing that German companies are already looking for suppliers in Pakistan’s textile sector, and have the tech sector on their radar.

“When we talk about trade (in general), textile sector is important to highlight,” said Walther, who also attended the 5th edition of TEXPO held in Karachi as part of a foreign delegation from Germany.

“There is a broad range to it (the textile sector). But there are others as well. The tech sector stands out. I was at GITEX and met some interesting people. Then you have the potential for German machinery to Pakistan and Pakistan’s medical instruments being exported to Germany.”

The AHK - (Deutsche) Auslandshandelskammer – translated as German Chambers Abroad – is the worldwide network of German chambers abroad. The German Emirati Joint Council for Industry and Commerce is one of them, and responsible for six countries.

Its mission is to foster economic ties between Germany and the countries it is operating in with Walther’s responsibility being Pakistan. The focus is also on small- and medium-enterprises.

His organisation is meant to serve as the eyes and ears for those businesses in Germany that want to trade, invest or expand in the country and vice versa.

Walther wasn’t a part of a delegation that visited Pakistan a couple of years ago, but his predecessor Muhammad Usman was. Walther says that visit – which he deemed important to mention during the interview – changed the perception on Pakistan.

“It started with the first delegation’s visit (a couple of years ago) that we organised of German companies to Pakistan. We have an Emirati board and they asked why not have a delegation of Germans and Emiratis go to Pakistan.

“This is the first time a delegation came to Pakistan through us. We saw the potential. Once you bring people to Pakistan, their perception changes — once they see the level of quality, factories, niceties of the people, opportunities.”

Pakistan’s market is tough to navigate, and has a complex structure with provincial and federal governments not always in sync over regulations and disputes. Foreign investors also feel alienated in moving through the web of bureaucratic redtape and barriers to doing business still require work.

Pakistan’s Ease of Doing Business ranking is still low and its consistent run-ins with political instability make its economic problems all the more profound. However, the situation has begun to stabilise as Pakistan hopped from one International Monetary Fund (IMF) bailout to another. Inflation has receded from a record in May 2023, and the key policy rate is on its way down after hitting its highest level last year.

However, many believe the IMF programmes are only meant to act as a cushion, and real growth will come from exploring increasing exports and expanding business ties in potential markets. For this to happen, experts say, the role of bodies facilitating contact between Pakistan and other countries is crucial.

Walther, who spends most of his time hovering Pakistan, Germany, and Dubai – where his base is — said you have to bring Pakistan to “the people”.

“You can’t wait for people to come to Pakistan. That wait can be lengthy. When you bring people to Pakistan, they love it,” he added, recalling the delegation’s visit.

Pakistan’s export receipts to Germany stood at over $1.5 billion in FY24, while imports stood at $930 million, according to data available with the State Bank of Pakistan (SBP). Still, experts say there is massive room, especially in sectors other than textile and agriculture.

“These are areas where we can intensify collaboration to work in the implementation of compliance (like the supply-chain due diligence) and this needs to be done through joint efforts,” said Walther, discussing the chambers’ work on the ground as the entity that could pitch Pakistan to German companies.

“We see a lot of potential in Pakistan. So do the German companies.”

Copyright Business Recorder, 2024