Pak-German Trade Relations
Germany and Pakistan have been engaged in development cooperation since 1961 when the Federal Ministry for Economic Development and Cooperation (BMZ) was founded.
Germany's development cooperation with Pakistan mainly focuses on governance, energy, and sustainable economic development, whereas, it is one of the largest importers of Pakistani goods. German investment in Pakistan exceeds € 2.3 billion, making it Pakistan’s fourth-largest trade partner. In addition, Germany has provided around 4 billion euros to Pakistan in donation since 1961. That makes Germany the fourth largest bilateral donor as well.
Pakistan and Germany got independence in the space of two years following the turmoil of different nature. Pakistan was established in 1947, while Germany got independence in 1949 after World War II.
On the eve of their independence, both countries lacked resources. There was almost no industry in Pakistan, and its population was predominantly illiterate. The industries in Germany were razed to the ground, and the occupied countries took most of their machines. That, however, did not affect the greatest asset of Germany—its human resource. They rebuilt their industries from scratch. The industrialisation process in Pakistan was nevertheless slow and restricted to a few sectors.
His Excellency Bernhard Schlagheck, the Federal Republic of Germany Ambassador, has rightly pointed out that Pakistan and Germany were born under challenging circumstances. He was speaking at a function recently organised by Friedrich Naumann Foundation for Freedom Pakistan.
Energy Sector Cooperation
The German NGOs introduced the concept of an energy audit in Pakistan, because of which the German energy experts audited many small and large industries. The audit revealed that most industries were wasting up to 25 per cent of energy because of placement of machines needing heat and cooling side by side, inadequate air outlets, inefficient motors, and using substandard wire for rewinding. All these deficiencies increased power consumption.
The corrective measures suggested by German energy experts enabled many textile mills to reduce their energy consumption by 15 per cent without any investment and up to 25 per cent on minor investment recoverable within a year. As a result, mills saved from Rs 1 to 2.5 million per month in the cost of production. On the German experts' advice, the Pakistan Textile Mills Association (APTMA) set up an “Energy Cell” in APTMA House, Lahore. Such transfer of technologies has been one of the significant contributions of Germany to Pakistan.
A protracted energy crisis impedes Pakistan's development. To improve the situation and reduce Pakistan's dependence on imported oil, Pakistan is expanding the use of renewable energy. Germany has come forward to support these efforts and is providing assistance in the usage of alternative energy sources such as solar, wind, and hydropower.
Another beneficial contribution of Germany relates to imparting modern skills to the Pakistani youth. German NGOs helped vocational institutes in imparting modern skills needed by local industries. In 2015, Pakistan and Germany agreed to make "Sustainable economic development" a new priority area of their cooperation. This new vision aimed to cooperate on vocational training, employment promotion, development of the private sector, and social protection.
The current GSP+ status goes so far in only lowering tariffs on goods exported to Europe from Pakistan; however, high tariffs are paid on imports from Europe into Pakistan. Introducing free trade in both directions can cure this anomaly.
GSP+ Status of Pakistan
The German missions in Pakistan are constantly deepening the economic ties between both countries. The local market is dynamic, growing, and offers some exciting opportunities for German companies and investors. The recent visit of the business delegation of German companies in Pakistan in mid-September underlined this interest. However, some difficulties, such as the downgrading of Pakistan to a frontier market, created a negative perception for the country. The current GSP+ status goes so far in only lowering tariffs on goods exported to Europe from Pakistan; however, high tariffs are paid on imports from Europe into Pakistan. Introducing free trade in both directions can cure this anomaly.
Germany is a major trade partner of Pakistan, with trade volume rising to 3.34 bn USD in 2020. It was a slight increase of 2% from 2019—despite the COVID-19 pandemic. It is interesting to note that Pakistan is one of the very few countries with which Germany has a trade surplus. Pakistan exported goods worth 2.12 bn USD to Germany and imported goods worth 1.21 bn USD in 2020. More than 1.8 bn USD of Pakistani exports to Germany are in clothes and related items. A major part of German exports to Pakistan comprises machinery, chemicals, and pharmaceutical products. The German economy is the largest in the European Union and runs a trade surplus with most trade Partners.
GSP+ is a European Union scheme to support bilateral trade with partner countries. Germany has been its staunch supporter. The introduction of GSP+ to Pakistan has indeed boosted Pakistani exports in the European Single Market. However, this preferential status comes with a caveat—Pakistan is obligated to implement certain international human rights and labour rights conventions to remain the recipient of this GSP+ status. The resolution adopted by the European Parliament in April 2021 was critical of Pakistan's performance in this regard. Now that Pakistan's GSP+ status is up for review for renewal, it would have to prove its eligibility. Germans want the Pakistani authorities to address the issues highlighted in the EU resolution to continue the facility of the GSP status.
German Companies in Pakistan and Trade Fairs in Germany
More than 40 German companies are present in the Pakistani market. Some of the well-known German companies based in Pakistan include BASF (Chemicals), BMW (Automobile), Daimler AG (Automotive), DHL (Courier), Lufthansa Cargo (Cargo airline) (Not currently flying to Pakistan), Merck Group (Pharmaceutical), Metro Cash and Carry (Wholesale), and Siemens (Conglomerate). In addition, the German Development Organization GIZ has extended its cooperation to complete several development projects in various sectors of Pakistan.
Germany organizes some of the largest trade exhibitions in the world. Pakistan’s textile exporters get most of their orders at the textile fair organized in Frankfurt every year. Carpet exporters also look towards Hanover fair to book carpet orders from the world. Similarly, auto mechanica is an excellent source to get auto-part orders.
Some exciting progress has also been seen in human resource development. Over 1200 students have got scholarships for education in Germany. The German Labour market needs around 400,000 workers annually, and Germany has recently softened its visa restrictions for skilled workers. This new development has created a new window of opportunities for skilled Pakistani workers.
Pakistan and Germany need enhanced bilateral cooperation for a smooth journey on the path of economic development. However, the ball is in the court of the Pakistan government. As a highly developed economy, German investors want to work in an environment with consistent economic policies and a sustainable governance structure. This is the only route through which Pakistan can make its strategic geographic location advantageous for its German business partners for establishing the state of the art industries in the country.