Trusted friendship revisited: Pakistan-Indonesia

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Weekly Updates - Traders' Diary

On February 26, I was invited by the Islamabad Chamber of Commerce to meet its senior leadership and prominent businessmen from cities around the capital to review the current and future prospect in trade, especially in terms of exports from Pakistan. While each one was fully aware of the capacity of the Asean region to serve as the growth engine in the matrix of Asian century, along with China, Australia and India, many of them did not know that within Asean, Indonesia took the lead with 6.5 percent growth when the global economy has yet to recover from deep seated slow down.

On top of it, they fondly recalled the golden Sukarno-Ayub era of friendship and wondered why after the fall of President Sukarno, both countries could not sustain the momentum of goodwill and friendship. Un-hesitantly, the blame was placed on the Pakistan Foreign Office for neglecting a country which stood by Pakistan in the 1965 war. None of them was prepared to accept that bilateral relations are shaped in the light of strategic needs, interests and priorities. Ultimately, some blamed a particular super power for bringing a change in Indonesia and unremittingly extending support for President Suharto to the detriment of relations with those friendly countries which occupied top priority in Sukarno era. Some people talked about the friendship between ZA Bhutto and Sukarno and why the same was not revived in the context of state to state relations in past five years.

Surely, the business community represents people at large, and the questions they raised must be bothering the general public who refuse to see or acknowledge Indonesia without Sukarno. For them, the identity of Sukarno and Indonesia is inter-twined; neither is complete without the other. Since the meeting was inappropriate for political talk and even for a little bit of complicated piece of history, we moved on to emphasize how huge reservoir of goodwill built by our leaders in 50s and 60s is good enough to construct an impressive edifice of tangible co-operation for the next 20 years. Nevertheless, each participant felt that both the government as well as the business community should pay more focused attention on the growing opportunities for Pakistani exports in the Asean region, especially in Indonesia.

Not many government agencies dealing with promotion of trade are aware that Indonesia has recently emerged as the top slot for Pakistani exports in the Far East region. Malaysia, which enjoys Free Trade Agreement, direct PIA flight connection and huge number of Pakistani investors, as well as workers, has lost out to Indonesia. In 2012, for the first time bilateral trade reached $1.65 billion, registering an increase of 44.4% from the same period of 2011. Imports from Pakistan grew by 32.5% reaching $273.2 million. In imports, cereals comprised 40.4% ($109.6 million) of total imports, leaving behind cotton ($78.7 million), copper and articles thereof ($30.9 million), fruits and nuts ($7.1 million), raw hides and skins and leather ($6.8 million), fish and fish preparations ($6.4 million), aircraft, spacecraft and parts ($4.1 million). An analysis of bilateral trade and top 15 export/import products will divulge that Pakistan has been able to introduce new products.

Today Pakistan is selling wheat, wheat flour, completely broken rice, cutlery items and home-textile etc. Prospects exist that the import of Kinnow can move upward from $7.1 million to $15 million next year due to zero tariffs under the Preferential Trade Agreement. A cursory market survey in Jakarta will reveal that 70 percent food items at retail shops are from other countries. Indonesians prefer to consume multi-coloured fruits and nuts. Currently, the country is importing around 70% of all the food and food products sold in the hypermarkets. In the first half of last year, Indonesia imported 4.4 million tons of cereals worth $ 1.5 billion, which included wheat 2 million tons, rice 844,000 tons, soybeans 750,000 corn 657,000 tons and wheat flour 207,000 tons. If we dream up new products, like roasted garlic, onions, green and red chilli, pears and orange as well as mango pulp, dates and processed Halal chicken meat, we can certainly increase our exports by $ 6-9 million. If we are getting man-made staple yarn, we need to think that it is our raw material, and we must add real value to the final product, not use all of it in shalwar qameez. The material can be used in sport and fashion wear as the yarn contain more than 24 fibres which make the thread appear as soft as real silk.

There is ample scope for Halal cosmetics and creams. These can be prepared from imports from Indonesia, such as vegetable fats. Palm oil provides raw material for soap and other cleaning material. These products can be produced under global brands with Halal stamp and exported to Indonesia. Of course, our businessmen will have to get licenses to manufacture brands. We should not lose sight of the fact that Indonesia with 87% Muslims will ever remain a big market for Halal products, including meat, chicken, rabbits and dairy products. Pakistan needs to overcome foot and mouth disease among cattle and sheep to qualify as an exporter of beef or mutton to Indonesia. We can also sell easily frog legs for consumption by Chinese Indonesian. Another related bonanza is the Muslim dress, especially for ladies, which sells like hot cake. The potential is so huge that we can easily enhance our textile exports by $5 to 7 million if we can substitute more expensive prayer rugs from Turkey. We don’t need to seek additional concessions in market access in Europe for our textile products. Only our exporters have to be competitive and take good care of designs and dye.

Leather is another item where we can excel. Indonesia need raw and processed leather in big quantity to produce footwear, travelling luxury bags, ladies hand bags and purses. It is interesting to know that export of leather, which was only worth $2.5 million in 2009, reached $13.27 million in 2011. That healthy growth reflected the success of the exposure of Pakistani leather in the Indonesian market. However, our exports dropped to $6.78 million in 2012, apparently due to lack of interest by our stakeholders. Enhanced and regular participation in leather exhibitions would prove helpful in boosting Pakistan’s leather exports to Indonesia.

Mackerel, crab, crab meat and fishmeal may find good market in Indonesia. One of the leading Indonesia’s sea food groups has evinced keen interest in importing crab, crab meat and fish meal. Pakistan exported fish and fish products to Indonesia worth $8.3 million in 2010, which declined to $6.7 million in 2011. Our exports in this category remain stagnant amounting to $6.4 million in 2012. At least four consignments of fish (mackerel) imported from Pakistan contained formaldehyde and were returned, leaving a question mark on our food security standards. Relevant authorities in Pakistan must take appropriate steps to ensure strict compliance of international standards for food security to avert decline in export of this commodity to Indonesia.

The trade is clearly in favour of Indonesia and is likely to remain so due to our strategic need for palm oil, coal, rubber and man-made staple fibber etc. However, we can follow Indonesia and impose monthly quota on imports of less wanted goods to promote local products and also to some extent balance the trade.In exports from Indonesia, palm oil comprised 54% ($745.2 million) of total exports. Other major products included mineral fuels and mineral oils ($151.2 million), man-made staple fibres ($103 million), paper and paper board ($76.6 million), edible fruits and nuts ($68.2 million) and rubber and articles thereof ($ 29.8 million).

Pakistan and Indonesia formally signed a Preferential Trade Agreement (PTA) on February 3, 2012, in a bid to boost bilateral economic cooperation. Upon completion of ratification formalities, Indonesia unilaterally enforced the PTA on January 19, 2013. Pakistan could not do so due to discrepancies in some tariff lines of Indonesia’s Offer List transposed to HS 2012 from HS 2007. Pakistan is expected to implement it immediately upon settlement of the issue. Under the agreement, Indonesia has offered reduced tariffs to Pakistan on 216 tariff lines, including fresh fruits, cotton yarn, cotton fabrics, readymade garments, fans, sporting goods, and leather goods. Pakistan, on the other hand, has extended preferential rates on 287 tariff lines of Indonesian products, such as crude palm oil and its derivatives, sugar confectionery, cocoa products, consumer goods, chemicals, tableware, kitchenware, rubber products, wood products, glassware products and electronics items. This is an important development for both parties to put real meaning and substance in Indonesia- Pakistan relations. It will be pity and an outright wastage of opportunity if businessmen from both countries fail to make use of this agreement to enhance their respective exports. The next station is the Free Trade Agreement.

Both governments must play their due facilitating role by relaxing visa regime and not erecting non tariff barriers. On priority basis, they should sign mutual recognition agreement (MRA) to allow unhindered trade of agro based items from each other. Today everyone acknowledges that the shift in economic gravity from West to East continues, and by 2020 Asia will be putting three dollars of new demand on the global table each year for every dollar from the US (DBS Group Research 2011). Within this, a country of 242 million people, Indonesia has a robust growth outlook, with a forecast of 6.7% in 2013 by the bank of Indonesia, its fastest growth since 1996. Indonesia now has the second fastest economic growth in Asia after China. More than before, Indonesia offers growth and real opportunity to our business community. The World Bank sees it as the 7 largest economy in the world by 2030.

Fortunately, the situation has started changing for better only now. The recent successful visit of Trade Minister Gita, who accompanied the president to Pakistan in last week of November, will certainly have a salutary effect on growth potential of bilateral trade. The support extended by two presidents to promote engagement in all areas of common interest, including investments, agriculture, fishery, industry etc will no doubt positively contribute to deepening of economic content in the relationship. One major achievement of the presidential visit was Indonesia’s decision to operate Garuda flight between Jakarta and Karachi.


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