Russia – Pakistan Trade & Investment Relations
The Pakistan Foreign Minister, Bilawal Bhutto Zardari, is in Moscow meeting with Russia’s Foreign Minister, Sergey Lavrov. They have plenty to discuss. Pakistan, despite the assistance of China, has been recovering from several crisis, both political and financial, and lurching from one problem to the next.
The economy has been suffering, priced out of the global energy gas market by the EU buying everything available, while national infrastructure is in dire need of upgrading.
The two countries have long held respectful relations, however Moscow is also close to Delhi – an issue that remains prickly in Islamabad. Smoothing over Pakistan-India relations and the pragmatic realities of Russia’s proven infrastructure building capabilities and its energy resources are likely to cover over the India relationship issues.
Since the Ukraine conflict, gas supply prices on the global market have shot up, mainly as the EU declined to purchase Russian supplies and went looking to other supply markets – inflating the spot prices as Brussels had not catered for long-term alternative supplies prior to closing off the Russian supply chains. The inflationary reaction to EU buying spot market gas has hit poorer nations hard – unable to afford higher prices. Pakistan is in the grip of winter, yet power cuts have extended for 12 hours a day the past month. Temperatures in the capital, Islamabad, have plunged to 4 degrees Centigrade during January.
This is slowly compounding the issue of the ‘unipolar’ versus ‘multipolar’ argument, where the United States and its EU allies wish to retain global leadership structures that are increasingly being seen as benefitting only themselves. China and Russia – and increasing numbers of other emerging and less powerful economies are looking to restructure global institutions to allow a fairer share.
The meeting between Lavrov and Zardari will be a cornerstone in shifting Pakistan’s allegiances further towards Beijing, long considered Pakistan’s closest friend and investor, and now Moscow, with its own infrastructure development prowess and of course energy supplies.
The immediate issue for Pakistan is securing energy supplies for the longer term, although to some extent the worst is over in terms of heating, as spring is around the corner, even in the Pakistan Himalayas. More pressing is the industrial sector, where China has long been assisting Pakistan industrialize, and sustainable power is a huge requirement to get national productivity levels up.
In fact, Pakistan’s productivity has risen in more recent years, partially as a result of improved manufacturing capabilities aligned with the ‘China-Pakistan Economic Corridor’ (CPEC). That is by far the single largest national investment China has made into any country and is currently standing at an investment of an estimated US$65 billion. This includes highways, rail, ports and other infrastructure expenditures that are designed to industrialize Pakistan and create trade corridors stretching from China’s Xinjiang Province, to Pakistan’s Gulf Ports.
It is also partially intended to act as an additional quasi-trade and investment corridor extension into Afghanistan and to eventually bring that country into the Central and South Asian trade and investment orbit.
Improving this further, however, requires energy. That ought to have been solved with Iran’s nuclear energy program, which would have seen Tehran supply power into Pakistan’s West. That being nixed on US and Israeli security concerns has left China funding infrastructure to a country that now needs to match China’s resources with energy infrastructure development and shorter-term imports. Hence the Russian card being played.
However, this does not mean that Pakistan needs long term supply contracts with Moscow – the country ought to be energy sufficient. It does mean that Russian assistance and in the short-term, energy supplies are required. Some of these needs are already being dealt with. The Russian-built “Poyas I Ddoroga Iinitsiativa” or ‘Pakistan Stream’ pipeline is already underway and will help get Pakistan’s energy resources gas to where they are needed.
Another discussion will revolve around Russian investment potentially being placed into Pakistan railways. This is something of a minefield – the sector is essentially a financial basketcase, with various regional Pakistani influences collectively wielding a hugely negative on rail development as corruption, politics and related issues have left the nation with a railway infrastructure that hasn’t been changed much since independence in 1947.
How finally getting Russia’s technical knowledge and investment into Pakistani rail and make it effective is a major issue. As is the payment issue, in which case Russia will probably need to arrange some sort of energy barter to allow Pakistan to pay in resources it already has, and for Moscow to arrange payment in kind for its railway construction businesses. It will be a difficult balancing act – made somewhat less predictable by the fragile status of Pakistani politics and a complaining Delhi. The Indian Government will not be especially happy to see an eventual renewed Pakistan appear to compete with India’s industrialists – meaning Russia and China will be pushing India to go increasingly hi-tech.
Elsewhere, there are trade opportunities in cottons and textiles, in addition to agriculture potential. However, it is a sign of Pakistan’s lack of domestic infrastructure and productivity that a major source of income to the country remains its labour force – workers from the Pakistan subcontinent being employed as laborers and drivers throughout South Asia and the Middle East. That creates demographic questions for Lavrov and Zardari in terms of when the Central Asian trade dividend is likely to result in less Central Asian workers finding employment throughout Russia. Should that dynamic change, it impacts on Russia’s own agricultural productivity. Pakistan’s massive overseas labour force may well in future find itself engaged in Russian harvests.
There is a lot to be considered as the regional geopolitics change. As of 2021, Pakistan exported just US$151.2 million of products to Russia, a minimal amount, while Russia exported about US$237 million of products. Bilateral trade, according to data from the State Bank of Pakistan (SBP) shows that the bilateral trade volume was worth US$388.492 million last year. These are small amounts for what are both significant markets.
However, the trend is probably going to be upwards; Pakistan’s previous Prime Minister, Imran Khan, signed a trade deal with Russia in March last year. The meeting between Lavrov and Zardari will therefore be looking on developing this – and dealing with complex investments that Islamabad will be looking for Moscow to become involved with. How far Lavrov wishes to dip his toe into Pakistani waters however remains to be seen. Deal structuring will be complex.
Related Reading
About Us
During these uncertain times and with sanctions in place, our firm helps Russian companies relocate to Asia. We also provide financial and sanctions compliance services to foreign companies operating in Russia. Additionally, we offer market research and advisory services to foreign exporters interested in doing business in Russia as the economy looks to replace Western-sourced products. For assistance please email russia@dezshira.com or visit www.dezshira.com
