Cash-strapped Pakistan is looking to attract investment in its mining, energy, agriculture, and logistics industries, and its allies from across the Gulf are primary contenders to bolster economic ties.
Saudi Arabia and the United Arab Emirates (UAE), two of the biggest oil producers and exporters in the world, have already signed or are in discussions to sign deals with Pakistan to invest in its energy and mining sectors.
Pakistan Crisis
Pakistan, a nuclear nation of 240 million residents, has struggled with an economic crisis for years, but the crisis was exacerbated last year when energy prices spiked after the Russian invasion of Ukraine. Pakistan, dependent on energy imports, couldn’t afford to compete with Europe and the rest of Asia for LNG and couldn’t buy costly LNG with the little cash it had.
China Likely Tapped Its Crude Inventories In July
Early this year, almost all of Pakistan was left without power when a misguided energy-saving strategy by the government backfired. Skyrocketing inflation, a severely weakened domestic currency, and rapidly emptying foreign exchange reserves have left Pakistan on the brink of economic collapse.
Despite the much lower LNG prices this year compared to the record highs of August last year, Pakistan is being priced out of the LNG procurement market once again. The country has dropped plans to procure LNG cargos for next year after its tender only attracted two offers that featured a 30% premium to market prices.
Just last month, Pakistan reached a deal with the International Monetary Fund (IMF), which approved a $3 billion Stand-By Arrangement (SBA) for Pakistan to support an economic reform program that pledged immediate efforts to stabilize the economy and guard against shocks.
“A difficult external environment, devastating floods, and policy missteps have led to large fiscal and external deficits, rising inflation, and eroded reserve buffers in FY23,” the IMF said, announcing in July that the Fund’s immediate disbursement would be around $1.2 billion.
“Pakistan’s economy was hit hard by significant shocks last year, notably the spillovers from the severe impacts of floods, the large volatility in commodity prices, and the tightening of external and domestic financing conditions,” IMF Managing Director and Chair Kristalina Georgieva said.
“The authorities’ new Stand-By Arrangement, implemented faithfully, offers Pakistan an opportunity to regain macroeconomic stability and address these imbalances through consistent policy implementation.”
Saudi And UAE Investment Interest
While Pakistan struggles to keep the economy from further collapse and chaos, it is looking to attract investment in its assets. Saudi Arabia and the UAE are willing to negotiate such deals with a caretaker administration in Pakistan which is expected to govern until elections are held, probably next year.
Pakistan is an important ally for both Saudi Arabia and the UAE, which have spent years of extending funds to countries like Pakistan or Egypt.
Now the oil-rich monarchies in the Gulf want to invest in copper, refining, logistics, clean energy, and agriculture in Pakistan.
Saudi Arabia is interested in buying stakes in Pakistani mining projects, while the UAE looks to invest in green energy, logistics, and agriculture, officials and analysts have told The Wall Street Journal.
Earlier this year, Pakistan set up a Special Investment Facilitation Council to reduce the cost of doing business, streamline federal and provincial government, and create industry clusters.
The UAE has already struck an agreement in the logistics business. AD Ports Group signed in June a concession agreement with Karachi Port Trust (KPT), the Pakistani federal government agency that oversees the operations of the Port of Karachi, for a 50-year concession for the container terminal. A joint venture between AD Ports Group and UAE’s Kaheel Terminals will invest in infrastructure at the port, with the bulk of it planned for 2026.
Saudi Arabia, for its part, is interested in a copper mining project in Pakistan developed by Canada’s Barrick Gold, as well as in a project for what could be Pakistan’s largest refinery, sources and analysts told the Journal.
Barrick is developing the Reko Diq copper mining project in the Pakistani province of Balochistan, close to Iran and Afghanistan, which has seen violence in recent years.
Saudi Arabia’s sovereign wealth fund, Public Investment Fund (PIF), and Saudi state mining company Maaden have expressed interest in the project, the Financial Times reported this week.
Barrick Gold’s CEO Mark Bristow hopes the Saudi entities could become shareholders in the mining project, telling FT that sovereign wealth funds “come with a much longer horizon” for returns on their investment, unlike many Western firms that seek immediate or at least near-term returns.
Last week Saudi officials from the foreign, energy, environment, and agriculture ministries visited Islamabad for talks, and the Kingdom expressed interest in exploring investment opportunities in Pakistan, the foreign ministry of Pakistan said.
Saudi Arabia could also be “very close” to reaching a deal with Pakistan on a large refinery at the Arabia Sea port of Gwadar, Pakistan’s outgoing petroleum minister, Musadik Malik, told the Journal.
The Saudis and Pakistan are looking to seal the deal by the end of 2023, and construction could start early next year, according to the WSJ.
More deals with allies in the Gulf could help Pakistan’s economy in the long term, while the Middle East’s top oil producers could gain access to critical minerals and refining capacity in an ally just across the Gulf.
By Tsvetana Paraskova for Oilprice.com