Greater Indonesian-Pakistani economic cooperation likely
Greater Indonesian-Pakistani economic cooperation likely
By Salman Farooqi
Pakistani Prime Minister Benazir Bhutto's visit to Indonesia is taking place at a time when bilateral relations between the two brotherly Moslem countries are to be weighed in the context of the new wave of globalization of economy.
Much has changed since the Bandung Conference 40 years ago, but the spirit of Pancasila, which brought the two countries into the fold of the Non-Aligned Movement in the subsequent decades, is still guiding their political and economic relations. The essence of Pancasila is peaceful coexistence, which has gone much beyond in connotation in these four decades to more meaningful and tangible ties developed in the international context through their association in the group of 77 and later in the system of the World Trade Organization.
In the regional context, Pakistan's relations with Indonesia will find a new perspective in the context of its approach towards the ASEAN of which Indonesia is a core member and of which Pakistan is already a sectoral dialog partner, while it is seeking the status of a full dialog partner.
Bilaterally, Pakistan and Indonesia are enjoying good relations politically, while there is a big scope for expanding economic relations. Presently, Pakistan's total annual trade with Indonesia (exports and imports) US$200 million or less, which is very insignificant in the context of Indonesia's foreign trade of over $68 billion. Main articles of export are limited to rice, fruit, raw cotton and cotton goods, while main imports are tea, fruit and nuts, paper and paperboard, and pulp and waste paper.
With this restricted trade in the background, the visit of the strong contingent of Pakistani businesspeople and industrialists accompanying the prime minister to Indonesia, offers them a unique opportunity to diversify the import and export of their products. It will help in opening new vistas of cooperation in the fields of cotton textiles, agrofood products, timber and plywood, rubber processing, engineering goods, palm oil refineries, and petrochemical, cement and sugar plants. Pakistan has a standing offer of supplier's credit of $50 million for its engineering goods to Indonesia, particularly cement and sugar plants.
It is to be mentioned in this connection that in complying with its commitment to the World Trade Organization, Pakistan has opened its trade extensively with the elimination of paratariff and nontariff barriers and the reduction of tariffs under a phased reforms program. While Pakistan offers an attractive array of products and services, its products are being manufactured strictly according to international standards and they meet European and North American specifications. Indonesia and its sister countries in ASEAN represent the world's fastest growing market and it offers Pakistan excellent trade prospects. The team of Pakistani businesspeople accompanying the prime minister represents businesses covering a wide range of products, and contact with their Indonesian counterparts will be helpful in identifying new products of trade.
As regards to cooperation in investment, the prospects of investments from Indonesia and other ASEAN countries in Pakistan are to be seen in the fact that with the liberalization of trade and investment, Pakistan has become a haven for foreign direct and portfolio investments. This has been recognized internationally with the declaration of Pakistan by the International Finance Corporation as one of the seven emerging markets in the world. While this is true for all sources of foreign direct investment, industry and service specific incentives and opportunities provided by Pakistan can attract substantial investment from Indonesia and other ASEAN countries, for two obvious reasons. First, the experience and expertise gained in the entrepreneurship of industries and services in Indonesia and other ASEAN countries can be utilized gainfully, while investing in the same industries and services in Pakistan. Second, as Pakistan is a base of a number of market outlets in the region, particularly in the Gulf and Central Asian countries, ASEAN investors who develop production bases in Pakistan will find expanding markets beyond its borders with lesser marketing and freight costs than their home-based ones.
Investors from Indonesia and ASEAN countries will also find a very attractive investment environment in Pakistan. Private sector investment is safe in Pakistan. One reasons is the relevant law which provides protection to private sector investment against nationalization. A second reason is that all political parties in Pakistan are committed not only to protect, but also to make private sector investment fully market-oriented. With this political commitment, the facilities, opportunities and incentives provided by the government for foreign investment, are highly attractive, often more attractive than those in neighboring countries and parallel economies. The incentives begin with the facility of repatriation of capital and profits, besides tax reliefs.
Indonesia and ASEAN investors can take part in Pakistan's infrastructure projects which have been opened to foreign investment. These projects include energy, port development, road and rail development, oil and gas development and the tourism industry. Joint venture projects can also be set up in the palm oil industry, hotel industry, plantation and agriculture, cotton textiles, timber and plywood, rubber processing and tire industries, small ships and aircraft, pulp and paper and modern furniture industry.
Indonesia is exporting large quantities of coal to various countries and is perhaps finding difficulty in exploring new markets. Indonesian entrepreneurs can set up joint ventures with the private sector in Pakistan for power plants, using Indonesian coal. A Hong Kong investor has already established such a plant in Pakistan.
However, prospective areas of investment can be identified in an organized manner by launching detailed studies bilaterally. Pakistan has taken a number of initiatives for pooling investment information at bilateral levels. It recently appointed commercial counselors in all ASEAN countries' capitals. The job of amassing investment information could also be facilitated by the inclusion of Pakistan's economic ministries and their commercial offices abroad in the e-mail network, while their inclusion in the Internet is at different stages of progress. This is occurring at a time when information networks are being fully liberalized in Indonesia and other ASEAN countries.
For ready reference, Pakistan has conducted a study on the present status and future prospects of cooperation between Pakistan and Indonesia and other members of ASEAN. Covering the main four areas of trade, industry, investment and environment, the study will be available in the form a book at the time of the visit of the Pakistani prime minister to the Indonesian capital.
Secondly, Pakistan is holding investment conferences in the capital cities of ASEAN countries. Two such conferences have already been held. One in Kuala Lumpur and the other in Singapore last year. The next one is being planned for Indonesia. There are also proposals for holding investment conferences, in cooperation with the ASEAN secretariat, both at the regional and bilateral levels.
During her visit to Jakarta, the Pakistani prime minister, her ministers and senior officials will sign a number of agreements and memorandums of understanding with the Indonesian government to facilitate the commercial and economic cooperation between the governments and businesspeople of the two countries. These agreements and memorandums relate to protection of investment, economic and commercial cooperation, cooperation in agriculture, banking and trade in specific items.
There is also the Indonesia-Pakistan Cultural and Economic Cooperation Organization which, set up in 1965 following joint declaration of the two governments, is the main instrument to boost trade relations. Regular meetings of this organization could play a key role in this regard. It is, however, unfortunate that its last meeting was held some six years ago. It is necessary to make it an annual event, as originally designed.
Indonesia hosts a number of exhibitions every year and Pakistan's participation in them could help introduce Pakistani products like carpets, engineering goods, real and imitation jewelry, surgical instruments, table cutlery, building materials, sanitary fittings, modern furniture etc. which have started to break ground in other markets of the world. Pakistan is holding a single-country exhibition in Jakarta during the prime minister's visit. This participation could be more meaningful with the mutual cooperation between the businesspeople of the two countries through their top representative bodies like the Indonesian Chamber of Commerce and Industry and the Federation of Pakistan Chambers of Commerce and Industry.
There are, however, certain constraints of trade between the two countries because of the geographical distance. The distance between them makes both business trips and cargo shipments expensive. There is no direct two-way shipping line between Pakistan and Indonesia. There is no doubt that a direct shipping line would greatly enhance bilateral trade. Shipping companies of the two countries could discuss the possibility of direct shipping for trade and business expansion. Similarly, there are shortages of direct flights which also hinders contact. But, while these facilities can be planned, they may emerge when demand is created by the expansion of business contact between the two countries. Here, businesspeople and industrialists of both countries can do a lot with their initiative and expertise.
It is needless to say in this connection that frequent visits of trade delegations can help in furthering bilateral trade relations. During 1995, five commercial and trade delegations from Pakistan visited Indonesia and succeeded in developing useful business contacts. Similarly, visits of delegations from Indonesia to Pakistan can also provide good opportunity to explore new avenues of bilateral trade and investment.