Sunday, March 20, 2011

Pakistan and Japan Bilateral Economic Relations

Pakistan and Japan Bilateral Economic Relations

Majyd Aziz
Vice President and Founder
Pakistan Japan Business Forum

Government-industry nexus, a strong work ethic, commendable expertise in high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary rapidity to the status of second most technologically powerful economy in the world after USA, and the third-largest economy in the world behind USA and China if measured on purchasing power parity (PPP) basis.

It is reassuring that Japan and Pakistan have traditionally been enjoying superb relations. Both Pakistan and Japan are connected through various economic and trade forums such as Pakistan Japan Business Forum, Pakistan Japan Ministerial Commission, etc. Japan is acknowledged as a major supporter of Pakistan’s economic development and is giving formidable economic assistance in the shape of grants, suppliers’ credit, and project loans. Japan is providing support through JICA, JETRO, and other agencies, under technical training and assistance programs. After Pakistan’s nuclear test of May 1998 Japan imposed economic sanctions that were lifted after Pakistan joined the US-led coalition as a front-line state post-9/11. Japan also approved US$ 340 million in grants to Pakistan and agreed to reschedule Pakistan’s debts. However, it is ironic that in this era of economic diplomacy, interaction in economic sphere is not commensurate with excellent and historic bilateral relations. The level of overall trade between the two countries is much less than the desired potential.

An analysis of bilateral trade reveals that the volume of Pak-Japan trade was US$ 1968.65 million during 2005-06. Pakistan’s exports and imports during 2005-06 were US$ 128.10 million and US$ 1840.55 million respectively, with balance of trade over the years continuously in favor of Japan. Considering that the Japanese global trade volume was US$ 1111.825 billion during 2004-05, Pak-Japan trade is peanuts. In the year 2004-05, share of Pakistan in Japan’s global imports of US$ 516.075 billion was a mere 0.032 percent while Japan’s share in Pakistan’s global imports of US$ 20.60 billion was 7.04 percent.

As a basis for comparison, it is important to mention the trade relationship between India and Japan. Bilateral trade between India and Japan is expanding in the recent years. Japan-India bilateral trade rose to $6.6 billion during 2004-05 with India exporting US$ 2.5 billion and importing US$ 4.1 billion with balance of trade in favor of Japan. Japanese private sector’s interest in India is rising, and currently about 350 Japanese companies have branches in India. This figure has expanded by 50% in the last three years. Both countries have also signed a joint statement "Japan-India Partnership in the New Asian Era” and issued “Eight-fold Initiative for Strengthening Japan-India Global Partnership”.

Pakistan-Japan trade relations can be enhanced and strengthened through joint ventures, technology transfer, and investment cooperation. There is a large potential of joint ventures in the field of textile as this is the core industrial sector in Pakistan. Pakistan’s textile industry is well placed given the raw material base and vertical integration across stages of production to continue to be a major textile and clothing producer. However, to maintain a strong export position, it would require matching the competitors in terms of technology, skills, designs, and quality. Pakistan also needs to produce more value-added and utility-specific textile products that are much in demand. Others potential areas for collaboration and joint ventures are automotive, agriculture, information technology, oil and gas, infrastructure, religious tourism, fisheries, engineering, and chemicals.

Pakistan presents impressive opportunities for trade and investment. Pakistan is strategically placed to be a genuine gateway to South Asia and Central Republics with which Pakistan is integrated through two regional arrangements, namely, South Asian Association for Regional Cooperation (SAARC) and Economic Cooperation Organization (ECO).

Pakistan surely offers great growth potential due to a vibrant population of 160 million, abundant natural resources, and a universal determination to become a developed country. Its huge market potential is bolstered by its strategic location on the cross-roads of South Asia, Central Asia, and the Middle East. Japan can take advantage of Gwadar Port by establishing a production base (exclusive export processing zone) and tapping the burgeoning markets of South Asia, Central Asia and Middle East. In this context, a US$ 6 billion National Trade Corridor (NTC) is being developed over a period of six years that would encompass modern ports, railroads, road network, and aviation system. World Bank and Asian Development Bank have already pledged US$ 1 billion for NTC for providing transit facilities for trade with Central Asian countries, Western China, Afghanistan, and Iran. Initially, NTC would connect Karachi-Gwadar-Kunjaribi section at a cost estimated at US$ 2.8 billion.

Another landmark development has been the recent inauguration of 10,000 ft. high altitude Sust Dry Port, jointly built by Pakistan and China, near their border. This would not only facilitate bilateral trade, but also make possible the realization of Pakistan’s potential as the hub of intra-regional trade. A Trade Energy Corridor is being developed by Pakistan for Pak-China and CAR inter-connectivity in terms of energy and trade that includes improvement in KKH, development of railway link, installing gas and oil pipelines, road linkages, and even fiber-optics connectivity.

Pakistan Railways is in the process of developing and modernizing railway network both in terms of infrastructure and equipment. The emphasis is to increase the share of freight traffic of railway sector from existing 5.5 billion tonne kilometers to 10 billion tonne kilometers by 2010. Railways have a definite and unmatchable edge over roads for long and bulk haulage, being safe, pollution-free, and most economical, as compared to any other transportation mode.

Both the Government and Private Sector are making concerted efforts to develop infrastructure to boost trade. Sialkot International Airport, a unique self-help basis initiative by the exporters and enterprising business community of Sialkot, was undertaken in 2003 to increase cargo exports as well as handle passenger traffic.

Human Resource Development is imperative for Pakistan as there is a huge gap between demand and supply of human resources and technical skills for setting up and operating the business ventures. The Government of Pakistan wants to maintain GDP growth rate at nearly 8 percent during the next 15-20 years so that employment opportunities can be generated for poverty alleviation. To arrest the growing inequality, it is proposed that the low income group should be provided access to quality education by improving sectoral institutions, fellowships for quality education in the private sector, enhanced technical and vocational training facilities by updating labs, syllabi and teachers training. The Government of Pakistan has established a number of institutions that impart training and skill development. These institutions, such as, Pakistan Institute of Management Sciences (PIMS), Technical Training and Vocational Authority (TEVTA), Provincial Vocational Training Councils, Government Universities, and various other support institutions have however not made an impact in shaping human resource development for industrial sector. Japan can assist by initiating the training and vocational programs specifically for industrial sector so that skilled manpower could be pragmatically utilized for Pakistan’s industrial development.

Currently, the Japanese population growth rate of 65 years and over is higher than the other developed and developing countries. The share of population 65 years and over is 20 percent of the total population of the country as compared to 4.9 percent of India and 4.1% of Pakistan. The export of young and skilled manpower from Pakistan could help Japanese Government to overcome this deficiency.

Pakistan has vast resources suitable for fishing. It provides tremendous opportunities to develop aquaculture both on land and in the sea. However, Pakistan has not been able to make any significant development in the fisheries sector. During 2004-05, the total fish production was estimated at 566,200 tonnes of which share of marine sector were 400,500 tonnes and 165,700 tonnes of inland sector. In 2005-06, the overall production increased to 581,000, an increase of 2.6% of the previous year. The export earnings from fish products were US$ 196.2 million during 2005-06 of which US$ 10.27 million was from Japan, indicating tremendous potential for fish exports to Japanese market. With a planned improvement in processing technology, marketing and branding, Pakistan can substantially boost fish exports to Japan.

The ‘My Karachi Oasis of Harmony’ Exhibition organized by Karachi Chamber of Commerce and Industry would be held on June 1-3, 2007 at the Karachi Expo Center and would be an International Exhibition. So far exhibitors from ten countries have expressed their willingness to participate in this prestigious event. The exhibition is expected to be visited by over 500,000 people. The participation of Japanese companies in the exhibition would provide an excellent channel to promote Japanese product lines and a favorable avenue to display and sell their products to thousands of visitors and consumers.

The Federal Government recently handed over twin islands of Bundar and Buddo located close to Port Qasim having 12,000 acres of land to the UAE firm, Eimaar, for the construction of state-of-the-art cities at a cost estimated at US$ 55 billion. These cities will be developed with modern infrastructure and will fulfill the requirements of a futuristic world. The development of these cities will not only enhance the current pace of economic growth but it will also attract new foreign direct investment in the country.

It is imperative that Pakistan and Japan exchange trade delegations for active contacts and on-the-spot studies of each other’s market. The challenges faced by foreign investors seeking to establish or enhance their presence in Pakistan are being addressed seriously by the government. All in all, Pakistan is fast developing into an attractive destination for investment, an ideal commercial and industrial base, and a great place to live and work.

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