Baku, Islamabad step up cooperation with focus on preferential trade Caliber.Az review

The traditionally strong military-political relations between Azerbaijan and Pakistan, based on principles of strategic partnership, will soon be complemented by a strong economic component. In particular, following the recently held official visit of Pakistani Prime Minister Muhammad Shahbaz Sharif to Azerbaijan a number of agreements on the expansion of trade, and liquefied natural gas (LNG) supplies were signed, the future joint initiatives in the "green" energy and petrochemical industry were outlined. It is also planned to increase the number of flights and enhance cooperation in the field of education. In the foreseeable future, the two countries intend to establish joint ventures in pharmaceutical and garment manufacturing, the agricultural sector, etc.

Pakistan was the second state in the world to recognize Azerbaijan's independence more than thirty years ago and has consistently supported our country in the international arena. This unequivocal support was vividly shown during the 44-day war, when Islamabad along with Ankara demonstrated diplomatic solidarity with Baku, which fought a fair struggle for the liberation of the occupied territories. The two brotherly countries have been cooperating for many years and very successfully in the defence sector, particularly in the transfer of technology and licensed production of ammunition.

Over the last few years, Baku and Islamabad have further bolstered their bilateral cooperation in various areas and positive developments have been observed in the expansion of trade and economic relations. Trade turnover between the countries has been growing dynamically since 2015, increasing almost sevenfold - up to $14.792 million in pre-crisis 2019. Pakistan's export is dominated by textile and leather products, rice, tropical fruits, cotton fibre, and partly medicines, furniture, and sports goods. Azerbaijani supplies are mainly petrochemical products, polymer raw materials, rolled aluminum, some machinery, etc. Trade dynamics between the countries slightly slowed down during the pandemic crisis in 2020 and in 2021, but last year positive trends prevailed again and trade turnover between the countries reached $28.1 million - 1.4 times higher than the previous year. Nevertheless, the volume of trade turnover between Azerbaijan and Pakistan in general does not correspond to the high level of interstate relations. The involvement of the countries in joint projects is not satisfactory either: Pakistani investments in our country's economy reach just over $4.2 million.

In fact, this is why inter-governmental and inter-state talks between Baku and Islamabad have recently been increasingly focused on expanding trade and economic ties and investment cooperation. A considerable part of the talks during the official visit of Pakistani Prime Minister Shahbaz Sharif to Azerbaijan was devoted to these very issues.

"Azerbaijan and Pakistan will make every effort to expand mutual trade," Azerbaijani President Ilham Aliyev said in his statement to the press after talks with the Pakistani Prime Minister. "A significant step in this direction was the signing of the Memorandum of Understanding, which will allow to begin the preparation of a list of goods to be included in the list of preferential trade between our countries."

Speaking of promising directions, the Azerbaijani leader said there are great opportunities in the field of energy - both in the sphere of fossil fuels and projects related to renewable energy sources (RES), as well as in terms of increasing the number of flights between capitals and other cities of the two countries. "We have a full understanding on how to move forward and we have agreed that several delegations from Azerbaijan will visit Pakistan in the near future. One of the missions will focus on the development of trade and investment projects, another will deal with aspects of energy cooperation, and the third will cover cooperation in the defence industry," President Ilham Aliyev stressed.

The most important step for the implementation of the plan was the Memorandum of Understanding on trade cooperation signed between the Ministry of Economy of Azerbaijan and the Ministry of Commerce of Pakistan on June 15. This document covers relevant plans to deepen commercial ties, followed by the phased introduction of a preferential trade regime between the two countries, and its adoption will certainly give an impetus to the trade turnover.

It should be noted that the first step to simplifying customs procedures and other trade barriers between the countries was taken by Azerbaijan. "After the abolition of all duties, Pakistani rice is being exported to the Azerbaijani market unhindered. My representative is here, he is also working intensively in this area, so that we can increase the volume of rice exports, including such brands as basmati variety," Prime Minister Muhammad Shahbaz Sharif said.

Significant steps have been taken over the past two years to expand trade and economic ties between the countries: work has been intensified through a joint intergovernmental commission and joint working groups on trade and agriculture. And last year the Azerbaijan-Pakistan Chamber of Economic Cooperation carried out serious work on creation of new joint working groups in the field of energy, healthcare, IT sector, transport, and education. The Chamber was also engaged in the process of inviting Pakistani companies and contractors for the reconstruction of the liberated areas of Azerbaijan, business proposals are being considered in the field of agriculture, including rice and wheat cultivation with the support of Pakistani companies and specialists.

The effectiveness of the steps taken recently is quite high and has resulted in the implementation of certain projects. For instance, last March Pakistan International Airlines (PIA) established passenger flights from Karachi and Lahore to Heydar Aliyev International Airport in Baku. The most important result of the recently completed visit of the Pakistani Prime Minister to Azerbaijan was an agreement to further expand air links between the countries. An agreement has been reached to increase the number of flights between the major cities of the two countries, including Azerbaijan Airlines (AZAL) aircraft from Baku to Islamabad. Expanding transport links will help the friendly countries to implement new projects in the tourism sector, and this sphere is very promising: in the prosperous year of 2019, almost 30,000 Pakistani tourists arrived in Azerbaijan, and today the recreational sphere has seen a renewed growth in activity. Joint projects in the field of education are progressing very rapidly. At present, 750 students from Pakistan are studying in Azerbaijani higher education institutions, by comparison, a year ago their number did not exceed a hundred. In the future, the number of Pakistani students will increase even more, as well as the number of Azerbaijani citizens studying at universities in Pakistan.

"Pakistan is keen to cooperate with Azerbaijan in the petrochemical sector: we are in talks with Saudi Aramco in this regard and would be happy to have Azerbaijan join the process as well. We also have strong potential in solar energy, including a portfolio in the renewable energy sector reaching a combined capacity of 10 GW. We invite Azerbaijan to participate in such projects and we, for our part, are ready to provide full support," Muhammad Shahbaz Sharif stressed.

Energy and petrochemicals are the priorities of bilateral cooperation, and in particular, Baku has achieved progress on the project of liquefied natural gas (LNG) supply to Pakistan. According to media reports, Pakistan's Cabinet Economic Coordination Committee has approved the agreement with Azerbaijan, and state-owned Pakistan LNG Ltd (PLL) will soon enter into a framework agreement with SOCAR Trading on an intergovernmental basis for the supply of LNG purchased from third countries. The agreement will initially be for one year, with a one-year extension option.

There are strong commercial prospects for textile and pharmaceuticals localisation projects in Azerbaijan, given its geographical location and economic potential. Taking into account customs agreements with CIS countries as well as the preferential trade agreement with Türkiye, our country can play the role of a regional hub for introducing joint products to neighboring countries markets. Negotiations in this direction continue: in January this year the Agency for Development of Economic Zones of Azerbaijan (İZİA) and Pakistan's largest pharmaceutical company IBL Group discussed the prospects of attracting investment and know-how to establish pharmaceutical production in Pirallahi Industrial Park and other industrial zones of Azerbaijan.