Saudi Arabia eyes major investments in Pakistan’s Gwadar

There has been a flurry of high-level visits by Saudi officials and business leaders to Pakistan.
Sunday 13/01/2019
A container is loaded onto a ship in Gwadar port. (Reuters)
Strategic gateway. A container is loaded onto a ship in Gwadar port. (Reuters)

DUBAI - Saudi Arabia is lining up investments in Pakistan’s Gwadar port and industrial area that have been described by Pakistani Finance Minister Asad Umar as the “biggest foreign investment” in the country’s history.

Pakistan and Saudi Arabia are reportedly finalising a series of investment packages ahead of a visit by Saudi Crown Prince Mohammed bin Salman bin Abdulaziz in February when memorandums of understanding are to be signed.

Crown Prince Mohammed’s visit follows a recent stop by Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan, his first official trip to Pakistan in 12 years. The United Arab Emirates extended an assistance package to Pakistan identical to the Saudi one announced in October.

Among deals being finalised by Riyadh is the construction of a large oil refinery and petrochemicals manufacturing complex in Gwadar to be owned and operated by Saudi Aramco. The refinery is touted to have a capacity of 100,000 barrels per day and will represent one of the most modern and largest refinery plants in Aramco’s international portfolio.

Haroon Sharif, chairman of Pakistan’s Board of Investment, estimated Aramco would inject $6 billion-$10 billion “within the next three years” into projects in Pakistan. Saudi Arabia’s ACWA Power, a developer, investor and operator of power generation plants that has assets in the United Arab Emirates, Jordan and Tunisia, is in advanced planning to enter Pakistan’s renewable energy sector.

With the country having suffered from acute electricity shortages for decades, Pakistan’s energy sector represents an appealing proposition for investors, especially in renewables considering the potential of wind, solar and hydraulic sources around the country’s highly varied topography, if adequate security and better economic management could be assured.

There has been a flurry of high-level visits by Saudi officials and business leaders to Pakistan. Delegations were led by Ahmad al-Ghamdi, adviser to the minister of Energy and Mineral Resources and another by Omar Rajeh, an adviser at the Saudi Exports Development Authority.

Saudi Ambassador to Pakistan Nawaf Saeed al-Maliki said Gwadar’s emergence under the China-Pakistan Economic Corridor presents opportunities for trade and investment that the Saudis are “eager” to take advantage of, especially with the new Pakistani government promising special incentives to Saudi investors.

Gwadar port commands a strategic location overlooking the Arabian Sea and can accommodate super-sized vessels that many regional ports have limited capacity to handle.

That is highly advantageous in the context of Gwadar port together with Pakistan’s new economic corridor providing access to western China and Central Asian countries, a region promising significant economic expansion.

Pakistan’s population of 215 million represents a sizeable market that, if the country can engineer an economic turnaround, will have demand for energy resources grow rapidly. Pakistan consumes approximately 600,000 barrels of oil per day and its domestic refining capacity has not been able to meet demand for many years.

Another factor for Saudi interest is that Pakistan has proven to be an internally unstable but otherwise trustworthy partner in the wider Middle East, with Riyadh providing economic and political support on numerous occasions.

Pakistan’s economy was confronting severe troubles by the time Imran Khan’s government assumed charge. A spiralling trade deficit sent Pakistan’s foreign exchange reserves into serious deterioration and its currency lost almost one-third of its value against the dollar over the past year.

Economic assistance packages from Saudi Arabia and the United Arab Emirates provided critical relief when it was most needed and their significance for Pakistan in stabilising a crisis scenario with its economy cannot be understated.

Riyadh committed $3 billion as a cash deposit to assist Pakistan, $2 billion of which has been provided, and a $3 billion deferred payment facility on the purchase of oil, which is expected to begin imminently. The United Arab Emirates followed up with the same and reports suggest China could be extending a short-term package.

The focus is shifting to building a stronger economic partnership and Pakistan-Saudi trade has potential to grow. In 2017, Pakistan’s exports to Saudi Arabia were estimated at $400.8 million against imports from Saudi Arabia, largely related to oil and petrochemicals, of $2.7 billion.