Subchapters:
- Business Relationships
- Foreign direct investment
- FTAs and Treaties
- Development Cooperation
- Prospective fields of study (MOP)
Business relations
Trade relations with the EU
The EU is Pakistan’s second most important trading partner, accounting for 14.3% of total trade in 2021. The European Single Market is the final destination of 28% of Pakistan’s total exports, mainly textile products (82% of exports to the EU). The high growth in Pakistan’s exports since 2014 (86%) is due to duty-free opportunities offered by the EU’s Generalized System of Preferences (GSP+). European products are considered a quality standard in Pakistan, companies and individuals have confidence in them and expect high quality and reliability from them.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| Exports from the EU (million EUR) | 5,365.60 | 4,818.60 | 4,782.40 | 3,856.00 | 5,594.40 |
| Imports into the EU (million EUR) | 5,334.30 | 5,530.10 | 6,082.70 | 5,518.10 | 6,640.90 |
| Balance with the EU (million EUR) | -31.3 | 711.5 | 1,300.3 | 1,662.1 | 1,046.5 |
Source: European Commission
Trade relations with the Czech Republic
In 2020, the Czech Republic was the 51st largest destination for Pakistani products, and the 12th largest destination within the EU. Pakistan exports an even larger share of textile products to the Czech Republic than to the EU, and the balance tilts in favor of Pakistan year after year, thanks to GSP+. The total import to the Czech Republic is 1.7% of the total import to the EU. Czech exports to Pakistan increased by a third between 2011 and 2021, from EUR 27 million to more than EUR 37 million. Reactors, boilers, mechanical devices are stable export items and constituted the strongest Czech export to Pakistan in 2021. While the export of paper decreased, the export of wood increased. Czech iron and steel saw higher interest from Pakistani traders in 2021. In 2021, Czech exports recovered after a slight decline due to the pandemic. Pakistani exports were not affected.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| Exports from the Czech Republic (billion CZK) | 4.4 | 1.1 | 1.5 | 0.9 | 1.6 |
| Imports to the Czech Republic (billion CZK) | 2 | 4.2 | 5 | 5.1 | 5.9 |
| Balance with the Czech Republic (billion CZK) | -3 | 3.1 | 3.4 | 4.2 | 4.3 |
Source: businesscarriers.com
Trade relations with countries outside the EU
Pakistan is a stable import economy and the negative balance of €36 billion in 2021 is a record number so far. Exports are slowly increasing. The destinations of Pakistan’s exports to countries outside the EU include the USA, China, the UK, the UAE, Afghanistan, Bangladesh and other countries in East and South-East Asia.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| Exports from countries outside the EU (million EUR) | 12,911.1 | 15,085.9 | 15,187.5 | 14,826.2 | 18,477.6 |
| Imports to countries outside the EU (million EUR) | 43,355.4 | 45,512.4 | 36 148.7 | 33,423.8 | 55,047.9 |
| Balance with non-EU countries (million EUR) | -30,444.3 | -30,426.6 | -20,961.2 | -18,597.7 | -36,570.3 |
Source: EIU, Eurostat
Foreign direct investment
Foreign direct investment (FDI) in Pakistan experienced strong growth prior to 2008 due to increased government incentives and greater policy consistency. However, investment inflows fell sharply and have since remained limited due to domestic political instability and ongoing current account tensions. Total FDI in Pakistan stood at US$3billion at the end of 2020, more than US$19.4 billion in the similarly sized Bangladeshi economy. During the pandemic, investment has been relatively resilient, but has fallen slightly from $billion in 2019 to $ billion in 2020. In the coming years, it is expected to average $ billion annually, half of wants the government from 2020 with an ambitious target of 5 billion investments by 2023. The new strategy refers to five priority sectors: automotive, food, IT, logistics and value-added textiles.
According to the Pakistan Board of Investment (Board of Investment), the energy sector was the largest recipient of FDI in 2020/21, followed by O&G, finance, IT and construction. The biggest contributors to FDI in 2020/21 were China, Hong Kong, the USA, the UK and the Netherlands. In 2022, two subsidiaries of the Kuwait Investment Authority (KIA, the sovereign wealth fund) agreed to invest USD 750 million in projects in Pakistan focusing on infrastructure and technology. This agreement follows the recent financial support provided by the governments of the Persian Gulf countries to the new Pakistani government to alleviate serious fiscal and foreign exchange problems. However, Pakistan’s myriad domestic problems suggest that investment prospects (with the exception of CPEC projects) will remain relatively weak.
FTAs and treaties
Treaties with the EU
The EU and Pakistan are important political partners. The Delegation of the European Union to Pakistan represents the EU on a wide range of issues, including development cooperation, trade, humanitarian aid, security and counter-terrorism, energy, environment, health, transport, migration and climate change. The bilateral relationship is formed on the basis of the 2019 EU-Pakistan Strategic Engagement Plan.
The European Union’s GSP+ allows Pakistan to sell most of its produce on the European market duty-free or with a minimal tariff burden. This measure is primarily aimed at supporting the development of this country. At the same time, there is speculation about the temporary suspension of GSP+ benefits in the context of human rights violations. MIP is part of the relations between Pakistan and the EU (see the next chapter on development cooperation).
Contracts with the Czech Republic
In the economic and trade area, the most important agreements concluded are the agreement on the avoidance of double taxation and the prevention of tax evasion in the field of income tax (Prague, 2 May 2014), further discussions are ongoing on the mutual protection and support of investments, in connection with the follow-up to European legislation.
The draft agreement on economic cooperation was mutually agreed upon by both the Czech Republic and Pakistan at the expert level, and the agreement should be signed in 2022, which will become an important tool for supporting mutual economic and trade relations between the two countries. The proposal envisages the creation of a joint economic committee (Joint Commission), which will be chaired by a representative of the Czech Ministry of Industry and Trade, and a representative of the Pakistani Ministry of Economic Affairs. The committee will meet alternately in Pakistan and the Czech Republic at regular intervals.
Developmental cooperation
The basic instrument of development cooperation in Pakistan is the “EU-Pakistan Multi-annual Indicative Program (MIP) 2021-2027”. The current MIP 2021-27 focuses on supporting ecological and sustainable growth, supporting an economy with high employment, which will be characterized by economic, social and territorial cohesion, as well as supporting the rule of law and human resources. Other sectors are the development and promotion of resilience, peace and security, as well as digitization. These goals basically correspond to the sectoral priorities of the ZRS CR – digitization, social development, support of democracy, human rights and social transformation. These priorities are aligned with the UN’s Sustainable Development Goals (SDGs) and more specifically with key sectors of EU development cooperation in line with the 2030 Agenda, as well as the European Consensus and Pakistan’s Vision 2025.
Since 2013, the Czech Republic has continued to engage in Pakistan only through so-called small local projects (MLP) of foreign development cooperation. The Czech Republic also provides aid in the framework of humanitarian aid (Czech Hospital Arandu) and transformational projects focused on human rights. The representative office of the Czech Republic in Islamábád recommends Czech companies to participate in annual small local projects in cooperation with a local implementer. At the beginning of 2022, with the help of WERO Energy and Bata Pakistan, a water treatment plant was successfully put into operation in a Lahore hospital.
Prospective fields of study (MOP)
Energy industry
In 2021, the government approved legislation to expand refinery capacities worth up to 90 billion Czech crowns. The country also has a network of gas pipelines reaching 145,000 km. According to forecasts, the consumption of oil and natural gas in Pakistan will increase by annual averages of 3% and 3.6% during the next decade. The government is also based on expanding the share of energy from renewable sources until 2030, which represents additional opportunities for Czech companies specializing in this sector. The energy sector means a great opportunity for Czech companies in the form of projects to restore oil, gas and electricity pipelines. measuring equipment, as the current infrastructure is relatively weak.
Electrotechnics
Electrical engineering is one of the fastest growing markets in Pakistan, accounting for more than 1% of the country’s GDP with a value of over 75 billion crowns. Demand in the local market is mainly found for small particles of LED accessories, especially in the residential sector. The government plans to expand the market with a focus on building more software technology parks or cloud data centers. Czech companies can offer their services or products in the areas of e-government, game and animation studies, fin-tech, ed-tech, e-commerce, cyber security, blockchains, artificial intelligence or machine learning.
Defense industry
In the last year, Pakistan increased its defense budget to almost 200 billion crowns, which represents a roughly 6% year-on-year increase, and ranks as the 10th largest importer of defense products in the world. There is an opportunity to follow up on the signing of a bilateral intergovernmental agreement in the field of defense industry. Prospective for the coming year is the air force, radars, army and armored vehicles, weapons, modernization of tanks and rearmament of the army.
Construction industry
In Pakistan, about 4 million new residents are added every year, which represents a significant and growing demand for more housing units. The country lacks almost 12 million units and the construction sector is the most supported by government incentives. Construction makes up 2.5% of the country’s GDP, and the local Board of Investment predicts that the total value of the construction industry will increase by a full 290% by 2029, from 120 billion crowns in 2020 to 344 billion crowns. Czech companies can use a complete offer for the construction of residential units.
Water management and waste industry
In the last year, there has been a lot of talk about future water security for the whole country. Climate change is a major problem for a population of 220 million people. At the same time, with its growing population, Pakistan produces approximately 49.6 million tons of waste annually, increasing by more than 2.4% annually. Pakistan lacks waste management infrastructure, which creates serious environmental problems. In the north and east of the country there are areas with hundreds of canals, while the potential of small hydropower plants needs to be used. In the south of the country, technologies focused on sewage, water treatment plants or waste processing are needed.
Healthcare and pharmaceutical industry
Healthcare services and medical devices are in high demand in Pakistan, especially in the growing private healthcare market. In the fiscal year ending June 2021, the Pakistani government spent approximately 17 billion crowns on health care. Private hospitals and clinics are expanding rapidly, especially in cities, to meet the needs of a rapidly growing middle class. There are relatively few doctors per population in the country, and with a population growing by several million every year, there is potential for Czech medical devices and products. Overall, the market for medical devices in Pakistan is estimated at around 12 billion crowns.
Rail and rail transport
The total length of the railway network in Pakistan is 7,791 km. Pakistan Railways operates approximately 200 freight stations and has 16,436 freight wagons that transported 5.63 million tonnes in 2017. Overall, transport contributes to 22.3% of the country’s GDP. Pakistan Railways issues tenders for all kinds of parts for trains and machines, as well as for the production of entire wagons in Pakistan, up to several hundred pieces. Success depends on a solid local partner who will represent the Czech side.
