The diplomatic relations between Malaysia and Pakistan were established in 1957 after the former's independence. At its inception, the High Commission of Malaysia was placed in Karachi, which was the capital city of Pakistan then. However, in 1968, the High Commission was moved to Islamabad after it was declared as the new capital city.
Malaysia holds a special place of significance as a friendly country for Pakistan and Pakistan looks up to the economic success achieved by Malaysia and building up of harmonious multi-ethnic society. Both countries enjoy friendly relations, the bond of friendship between the two Muslim nation states. There are several commonalities between the two countries in term of religion, history and ways of life and the bilateral relations remain warm and cordial. Since the establishment of diplomatic relations, several exchanges of visits at the highest level have taken place namely visit by the current Head of State, Tuanku Alhaj Abdul Halim Mu'adzam Shah ibni Al-Marhum Sultan Badlishah in 1974, former Prime Ministers Tun Hussien Onn in 1979, Tun Dr Mahathir Mohamad in 1984, 1995 and 2002, and Tun Abdullah Ahmad Badawi in 2005 and 2006. Pakistani side too, visited Malaysia notably during President Zia-ul-Haq in 1982, President Benazir Bhutto in 1995, President General Pervez Musharraf in 2000, 2003, 2006 and 2007, and President Shaukat Aziz in 2005, 2006 and 2008.
Generally speaking, in terms of political relations, it was amicable despite without frequent high-level visits between both leaders. Recently, Dato' Sri Mohd Najib Tun Abdul Razak and former Pakistani Prime Minister, Raja Pervaiz Ashraf met at the margin of 9th ASEM Summit in Vientiane, Laos in 2012. Nevertheless, Deputy Prime Minister, Tan Sri Dato' Muhyiddin Mohd Yassin and Foreign Minister, Dato' Seri Anifah Aman, visited Islamabad during D-8 Summit from 19-22 November 2012. With bilateral political relations in a good term, the focus of the relations would be more on economic in terms of trade and investment.
Trade
In order to stimulate the economy of Pakistan and Malaysia, the country entered into Free Trade Agreement (FTA), specifically known as Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA) in 2008, the first among the OIC countries. The MPCEPA has now entered its fifth year of implementation and has an encouraging effect towards the bilateral trade volume. It has improved market access for over 5,900 items imported from Malaysia and nearly 10,000 items for Pakistan. It has also helped stimulate competitiveness and innovation in both countries. Since the signing, the two-way trade surged to more than USD2 billion annually, ranking Malaysia in the list of Pakistan's top ten largest trading partners. Malaysia is also the top trading partner for Pakistani in ASEAN.
However, there still remain areas of untapped potential that both countries should explore whilst taking economic ties to a greater height. At the moment, opportunities under FTA are not fully utilized. One of the areas that both countries have identified is in Halal food which has vast prospect and agribusiness industry. The increasing demand for quality Halal products offers better returns. As a strong global red meat producer, Pakistan's processed meat can be expanded further in the Malaysian market. Pakistan can also look into ways to increase its Basmati and Iri-6 rice export to Malaysia. Malaysia is willing to consider more imports from Pakistan if the rice suppliers are able to provide a highly competitive price. In 2012, Pakistan's rice export amounted to USD72 million to Malaysia and currently is the third largest supplier in Malaysia with 16% market share. Malaysian buyers are also keen to import Pakistan's agro produce such as onion, potato, mango and raw rock salt. Meanwhile, Malaysia has set the benchmark for the Halal food industry and as a major supplier of Halal processed food in the region, Malaysian companies are keen to export their products here.
On the other hand, there are several sectors of Pakistan economy which would gain from importing of Malaysian products such as palm oil. As it is now, palm oil and palm oil products are heavily imported in Pakistan. Nearly 70% of Malaysian export to Pakistan is from this sector, which translated to over USD1.4 billion trade value in 2012. Pakistan consumes some 3 million tons of edible oil annually of which 90% is palm oil based. The growth in population and the expansion of domestic food industry has led to the growing intake of palm oil. Similarly, higher industrial demand for crude palm oil leads to a boost in import of Malaysian palm oil. With the favorable policies in place, we have every reason to be optimistic that bilateral trade is set to grow double digit every year. We have witnessed that more efforts to promote Malaysian goods entering Pakistani market are bearing fruit and in a bid to address Pakistan's trade deficit with Malaysia, we are working closely with the local business community and Pakistan's TDAP representative in Kuala Lumpur. We have been assisting them to gain more access of Pakistani products into Malaysia.
Investment
In terms of investment, we are looking into Pakistan's industries or sectors which could be attractive for Malaysian investors. As a matter of fact, we had a number of Malaysian firms active in areas such as infrastructure development, real estate and highway construction. Currently, several Malaysian companies are still operating power generation, financial services, palm oil refinery and telecommunication. Malaysia would like to see more opportunity for Malaysian investors to venture in textile and renewable energy. Pakistan's investment policy offers tremendous incentive packages coupled with liberal policy parameters. However, there is a need for constructive engagement in luring the interest of investors from Malaysia. Pakistan's economic wellbeing is at risk of slipping into a debt trap and the growing fiscal deficit may not help in luring foreign investors but rather capital flight. Pakistan also must address the concern over the deteriorating law and order situation in its commercial capitals, and find a workable remedy for the looming energy crisis. The less-secured economic environment currently with sovereign defaults by the Pakistani Government has witnessed divestment by several Malaysian companies such as Petronas in 2011 and Binapuri and IJM in 2012. With improved and favorable investment climate in place, Pakistan is in the position to woo foreign investors' return.
On the other hand, Pakistani investors also should tap the available potential in attractive Malaysian markets. The major areas that foreign investors may find rewarding are the services sector followed by primary and manufacturing sectors. Within the services sector, we are looking at the real estate, transportation and tourism infrastructure. Primary sectors include agriculture, mining, plantation and commodities. Meanwhile, E&E, petroleum products and transportation equipment form the bulk of investment in the manufacturing. For the period 1980 to October 2012, 30 industrial projects with total investments of USD327.55 million were approved with participation from Pakistan. These investments were in the wood and wood products, food manufacturing, furniture and fixtures, machinery equipment and textile products. From January - October 2012, there were three (3) approved projects from Pakistan with the total amount of investment of USD28.62 million. Riding high at the moment on the radar of international investors are opportunities offered at the 'Greater Kuala Lumpur' and the Iskandar Malaysia Economic Corridor. Pakistani investors should explore the opportunities in these two (2) 'investment catchments area'.
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