Pakistan-Azerbaijan Economic Integration Model: An Expert Opinion

Analytics 16:30 22.04.2024

By the Executive Director of The Center for South & International Studies (CSAIS), and a regional expert on China, CPEC & BRI, Dr. Mehmood Ul Hassan Khan.

Economic ties and bilateral relations between Pakistan and Azerbaijan are getting momentum and gearing towards immense socio-economic integration very soon. Azerbaijan, the land of fire, fraternity, fertility and peaceful forces offers lots of opportunities to Pakistani businessmen and investors to make investments in the newly liberated areas of Karabakh.

Azerbaijan has strategic significance as a crossroad between Asia and Europe and abundant natural resources, positioning it as a linchpin in regional trade and transportation networks. There is an urgent need for diversification in product lines and avenues of cooperation to maximise bilateral trade opportunities with Pakistan.

Hopefully their model of economic integration would be stable, sustainable and solid in which visionary leadership of both countries would play a pivotal role to strengthen these ties. It would also be diversified and development oriented, promoting openness, qualitative industrialization, modernization, digitalization, green transformation technologies and last but not least, human capital nurturing.

Thus economic wisdom, economic diplomacy and economic development would be mantra of our states, policy makers, businessmen, investors and common people joint working to further strengthen government-to-government, business-to-business and people-to-people ties  creating befitting propositions in diverse sectors of economy, investment, business, trans-regional connectivity and ICT. Resultantly the volumes of bilateral trade will be further enhanced and integrated.

Moreover, during various high official meetings the two sides also agreed to improve mutual cooperation in the fields of trade, business, defense, security, energy, connectivity, tourism, Information Technology, education, culture, science & technology, space cooperation, agriculture, mining, infrastructure development, medical sciences, sports, cement, pharmaceutical, surgical instruments, and textiles especially in liberated areas of Karabakh.

Furthermore, bilateral cooperation in the defence sphere would also be strengthened through holding joint drills, training sessions, military production, drones manufacturing, fifth generation fighter plane, missile technology and last but not least, tanks and other modern war weapons in the future.

Most recently, interestingly both countries have vowed to work jointly to enhance global climate action and disaster resilience which is the first giant step towards controlling carbon footnotes and achieving the goal of carbon neutrality through mutual cooperation and hopefully the COP29 in Baku this year would further stimulate this cooperation. It would further foster mutual cooperation in green technologies mainly in solar, wind, hydrogen power generation, lithium batteries, EVs, and last but not least, green agriculture collaboration in the days to come. The meetings of Joint Working Groups would be a value addition in this regard.

In this connection, Azerbaijan’s ambassador to Pakistan H.E. Khazar Farhadov said achieving significant results at COP29 would require a joint effort by all stakeholders, including countries, international organisations and financial institutions. Definitely the resumption of direct flights between Azerbaijan and Pakistan by AZAL and PIA during 2023 will further broaden flight connectivity, ultimately justifying daily flights from various cities.

AZAL has started direct flights Baku-Lahore-Baku (since September 22 2023), Baku-Islamabad-Baku (since November 1, 2023) and Baku-Karachi-Baku (since April 18, 2024) twice a week in each direction. It will undoubtedly bolster mutual trade and tourism. However, the role of the private sector is pivotal in advancing economic ties between two countries.

Moreover, Pakistani citizens could obtain visa of the Republic of Azerbaijan within three hours or three days via online system and AZAL (Azerbaijan AirLines) direct flights more than 50,000 Pakistani citizens visited Azerbaijan in 2023, and it was great contribution to establishment of connectivity between the Republic of Azerbaijan and Pakistan, as well as people to people contacts.

A substantial rise in the number of Pakistani students studying in Azerbaijan is noted which is a good omen. Moreover, 7th Session of the Pakistan-Azerbaijan Joint Commission decisions must be pursued and implemented as soon as possible. It is the need of hour to replicate the Azerbaijan-Turkey economic model to explore market, partnership and reciprocal investments between the two countries. The establishment of preferential and transit trade agreements between the two countries and identified tourism as a promising area for collaboration would further facilitate mutual trade, investments and businesses between two countries.

The tenfold increase in direct and indirect trade turnover in the last two years, with contributions from SOCAR Trading and exemption of customs duty on rice imports from Pakistan until December 31, 2027, vividly reflects immense potential in two countries which should be further developed, diversified and dynamic. Interestingly, both countries signed an Inter-Governmental Agreement (IGA) on Cooperation in the field of energy. Azerbaijan’s government nominated “SOCAR Trading” Company which has immediately started its engagement with nominated Pakistani counterparts. Subsequently the “Framework Agreement on the purchase and sale of LNG cargoes between “SOCAR Trading” Company of the Republic of Azerbaijan and “Pakistan LNG Limited” Company” was held in Lahore on July 24, 2023 which further strengthened, systematized and streamlined mutual energy cooperation between two countries.

So far two consignments have been delivered to Karachi Sea port accordingly in December 2023, and in February 2024. It exceeded to US$ 100 million, increasing more than 3 times in 2023, compared to 2022 figures which also tripled 2021’s records. Accordingly, there has been a 9 times increase in the last 2 years.

Thus, this collaboration opened new opportunities for mutually beneficial cooperation and its broadening, sustainable supply and increasing the volumes of LNG cargoes are extremely important. Moreover, on November 24, 2023, the Economic Coordination Committee (ECC) of the Cabinet of Ministers of Pakistan decided to import 220,000 tons of urea (worth US$85 million) from Azerbaijan on a government-to-government (G2G) basis which lessened farmer’s worries in the country.

Since Azerbaijan is a business and investment’s friendly country it offers numerous incentives and exemptions to foreign investors in 6 industrial parks, 5 industrial districts and 51 agricultural parks in its country. These are exempted from VAT, customs duties, and land tax for import of machinery, technological equipment and facilities for production purposes. Besides, holders of investment promotion documents pay income tax with 50 percent reduction opening a new window of opportunity for Pakistani businessmen and investors and private sector to avail unlimited privileges. In summary, it is estimated that Pakistan private sector and companies should make investments in Azerbaijan’s diverse sectors of macroeconomy not confined to infrastructure development, green energies, digitalization, e-commerce, artificial intelligence, quantum technologies, big data, community development, SMEs, Micro-Financing, hand-crafts industries, marble, cement, fertilizer, pharmaceutical, horticulture, fishing, public health, vaccines, disaster management, money/treasury markets and last but not least, civil aviation, religious tourism, conventional & Islamic banking, education(with dual degrees), hybrid farming and dairy, So Pakistani businessmen and investors must avail this opportunity and make investments in Azerbaijan.

The Azerbaijan-Pakistan Technology Forum held in Baku has further established strong ties between the IT companies of Pakistan and the state and private partners in Azerbaijan. Representatives from 35 companies from Pakistan that operate in the fields of artificial intelligence, blockchain, cloud technology, and a number of areas of the ICT sector participated in the forum which is good omen for both the countries. It is suggested that Pakistani IT companies have great scope to invest in the liberated territories of Azerbaijan. The smart cities, villages in the liberated territories have the potential to make investments in these regions.

Pakistan's IT sector is very big, and there is great potential to expand cooperation in the IT sector. It is hoped that the forum will move to active cooperation in the coming months and that Azerbaijani companies will visit Pakistan to get to know Pakistan's IT sector and seek investments in renewables sectors.

Close liaison between tourist operating organizations, ministries of culture, tourism, history and civil aviation of both countries to further enhance bilateral tourism cooperation in which private/corporate sector of Karachi, Lahore, Rawalpindi, Islamabad, Sialkot and Faisalabad, medical colleges/doctors, film industry and sport organizations can play an important role in the future. Grant and provision of Nomad visa should also be supported to promote mutual tourism.

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