Azerbaijan, Pakistan gear up for trade, business breakthrough Caliber.Az review

Over the past three years, the trade and economic relations between Azerbaijan and Pakistan have undergone rapid development. Progress has been made in the fields of energy and tourism, and today joint breakthrough initiatives in preferential trade, transport corridors, and investments in joint ventures are on the agenda.

Recently, at the 24th meeting of the Council of Heads of State of the Shanghai Cooperation Organization (SCO) in Astana, the Presidents of Azerbaijan and Türkiye, along with the Prime Minister of Pakistan, expressed readiness to expand trilateral cooperation across several fronts. During the same period, in Islamabad, a delegation from the Ministry of Foreign Affairs of Azerbaijan held talks with Pakistan's Federal Minister of Commerce, Jam Kamal Khan. According to Pakistani media reports, an investment portfolio of $2-3 billion has been developed for joint initiatives.

The historically friendly and allied relations between Baku and Islamabad, further strengthened during the 44-day war for the liberation of Karabakh, have today been supplemented with qualitatively new options, allowing for a manifold expansion of mutual trade turnover and entry into investment cooperation. These trends are vividly demonstrated by the rapidly growing dynamics of bilateral trade: just relatively recently, in 2020, Azerbaijan-Pakistan trade turnover amounted to $13.283 million. Two years later, this figure more than doubled, exceeding $28.1 million. Moreover, in the past year, the trade locomotive reached its maximum speed: as noted in April by Azerbaijan's Ambassador to Pakistan, Khazar Farhadov, trade between the countries in 2023 exceeded the landmark of $100 million.

The driver behind such rapid growth in bilateral trade figures has been intergovernmental energy agreements. During the official visit of Pakistan's Prime Minister Muhammad Shehbaz Sharif to Azerbaijan in June of 2023, intergovernmental agreements were reached. According to these agreements, SOCAR Trading has established supplies of liquefied natural gas (LNG) purchased from third parties and supplied to Pakistan LNG Ltd (PLL) at preferential prices. Under the terms of the agreement, Pakistan will purchase one LNG cargo each month and retains the right to refuse delivery without any penalty sanctions. It is noteworthy that Pakistan's economy, under pressure from high oil prices, faces a chronic gas shortage, and LNG shipments via SOCAR Trading with a 30% price discount have significantly alleviated the energy crisis in Pakistan.

The energy track is by no means the only area where the two countries have been able to make a qualitative difference. Pakistan's population has now reached 221 million people, and this very capacious market has a considerable demand for food, nitrogen fertilizers, polymers, methanol and other products of Azerbaijan's petrochemical industry.

In the future, Azerbaijan plans to export rolled products and other products of non-ferrous metallurgy, instrumentation, power equipment, optical and power cables, some types of construction materials and other products manufactured in Azerbaijani industrial clusters. Pakistan is equally interested in expanding supplies to Azerbaijan of its cotton fabrics and clothing, synthetic colour dyes, polyvinyl chloride (PVC), car tyres, medicines, tropical fruits and, especially, rice.

Moreover, by a decision of the Cabinet of Ministers of Azerbaijan of November 22, 2022, an agreement was reached on duty-free import of Pakistani rice to our country for the period until December 31, 2027, which multiplied the trade in this product.

To expand Azerbaijan-Pakistan trade relations, where significant untapped commercial potential still exists, the relevant agencies of both countries have been working since last year on agreements for Transit Trade Agreements (TTA) and Preferential Trade Agreements (PTA). In July of 2023, a Memorandum of Understanding was signed on Azerbaijan-Pakistan cooperation to deepen trade relations: under this document, the parties began compiling a list of goods to be included in the preferential trade list. These crucial initiatives for developing trade and transport links are largely completed, and it is likely that corresponding agreements will be concluded this year.

In general, the two friendly states intend to accelerate the adoption of the necessary legal framework in trade, develop transport corridors, and expedite efforts in investment cooperation. In particular, Pakistan's Prime Minister Muhammad Shahbaz Sharif has instructed the development of a comprehensive strategy to strengthen economic cooperation and trade-transport partnership with Azerbaijan: “Pakistan geographically offers a natural economic corridor to the Indian Ocean for Central Asian states, including Azerbaijan.”

Pakistan's freight forwarders and carriers are gradually joining the opportunities of the Middle Corridor: for instance, in June of this year, a Pakistani logistics company organized a freight caravan from Karachi, Pakistan. As part of a multimodal transit scheme, the cargo travelled through Afghanistan and Uzbekistan and was delivered to the Baku International Sea Trade Port in Alat, Azerbaijan, via the Kazakh port of Aktau.

Significantly, the first successful steps in this direction were taken in October 2021: as part of a pilot project, Pakistan's National Logistics Cell (NLC) organized a test delivery to Baku using two heavy-duty trucks.

Conversely, the procedure has recently been initiated for the Islamic Republic of Pakistan to join the international North-South Transport Corridor (NSTC). “We are aiming to revive the historical Silk Road. The first batch of Pakistani citrus fruits was delivered to Dagestan (in Russia's south) through Iran and Azerbaijan. This new route opens up opportunities to increase the trade volume,” stated Muhammad Khalid Jamali, Pakistan's Ambassador to Russia, during the second half of June at an international forum held in Khanty-Mansiysk.

In order to develop transportation logistics in Azerbaijan, the efforts undertaken by Baku and Islamabad to conclude TTA agreements are crucial. As part of enhancing transit cargo handling, Pakistan is expanding its overland routes to neighbouring countries, including establishing an extensive network of important national highways in Balochistan. This includes organizing overland truck routes transiting through Iran to Azerbaijan, which promotes trade, industry, tourism, and more. Once transit agreements are concluded, such freight routes can be streamlined, becoming a key basis for expanding trade from both sides.

Over time, Azerbaijan could potentially become an intermediate hub for transit or re-export of certain Pakistani goods such as marble, silk, rice, and textiles. This is a very realistic prospect, considering customs and trade agreements with the Commonwealth of Independent States (CIS) countries, as well as the Azerbaijan-Türkiye preferential trade agreement.

Discussions on the readiness of Baku, Islamabad, and Ankara to cooperate in business collaboration were raised again during the recent meeting in Astana at the 24th Summit of the Heads of State of the Shanghai Cooperation Organization (SCO). Azerbaijani President Ilham Aliyev, Turkish President Recep Tayyip Erdoğan, and Pakistani Prime Minister Muhammad Shehbaz Sharif exchanged views on the prospects for developing trade and economic ties in a trilateral format, in line with the spirit of political relations between their countries. They also discussed expanding cooperation in innovation, energy, agriculture, humanitarian aid, tourism, and other sectors.

In recent times, cooperation between Azerbaijani and Pakistani tourism companies has been progressing quite successfully. With simplified visa procedures and an expanded number of flights and destinations by Azerbaijan Airlines (AZAL) and Pakistan International Airlines (PIA), Azerbaijan welcomed 55,000 Pakistani tourists in 2023, a number that continues to grow in the current year.

Baku and Islamabad have set a goal to expand cooperation in establishing joint ventures (JVs), particularly in light industries such as garment and textile manufacturing, as well as pharmaceuticals, with plans to export jointly produced goods to neighbouring markets. It's relevant to note that Pakistan's pharmaceutical industry is one of the largest globally, comprising 800 companies producing over 30,000 different types of medicines, with annual pharmaceutical exports exceeding hundreds of millions of dollars.

Initial steps in this direction have already been taken: in January 2023, representatives of Pakistan's largest pharmaceutical company, IBL Group, discussed investment prospects and know-how exchange for establishing joint production ventures in Baku. Similarly, in November of the previous year, executives from Pakistani pharmaceutical companies Searl and Mercury ME DMCC discussed with the Agency for Development of Economic Zones (ADEZ) the prospects of localizing pharmaceutical production in Azerbaijan.

“Pakistan attaches great importance to its relationship with Azerbaijan. We must continue to advance our cooperation in various sectors, including tourism, transport, energy security, and defence, though this requires additional efforts," stated Federal Minister of Commerce, Jam Kamal Khan, during a recent meeting with an Azerbaijani delegation led by Deputy Foreign Minister Samir Sharifov in Islamabad.

He also emphasized the need for an early conclusion of the Preferential Trade Agreement (PTA) and Bilateral Transit Trade Agreement (BTTA), as well as holding B2B meetings either in Pakistan or Azerbaijan.

Overall, Baku and Islamabad are focused on swiftly resolving procedural formalities to address regulatory gaps in the near future that govern business relations between the two countries. The need for this is substantial, and as reported by Pakistani media these days, Pakistan has prepared an investment portfolio estimated at $2-3 billion to finance joint business projects with Azerbaijan.