THE RATE OF MULTIBILLION dollar investment by Indian and Chinese firms into the Middle East over the past two years has been impressive. Now, in an effort to improve energy security in their respective nations, state-owned oil and gas companies in each country have invested in both upstream and gas processing ventures. To date the bulk of trade has been from China to Saudi Arabia. However, there are indications that investments are beginning to flow more strongly in the opposite direction, as the kingdom seeks to build on growing ties with the rest of Asia and also to diversify its portfolio of overseas investments; a series of oil export deals with Asian countries are expected to be signed during the course of 2006.
This month, a delegation of Saudi business leaders will visit Pakistan in order to discuss a raft of investment opportunities in sectors including IT, property, telecoms and tourism, while contracts on infrastructural development are also likely to be drawn up. Pakistan's prime ministerial adviser on finance, Salman Shah, commented: "We see avenues for greater Saudi investment--worth billions of dollars--in Pakistan. This additional Saudi capital will be flowing into Pakistan as a result of strengthening political and economic relations between the two countries."
As a precursor to the planned foreign direct investment (FDI), a succession of bilateral arrangements have been agreed, including double taxation and duty deals. The fact that such arrangements, which are standard practice among trading nations, had not previously been drawn up indicates that trade between the two nations has previously been limited. At present, oil exports and the presence of over a million Pakistani workers in Saudi Arabia dominate economic ties between the two countries.
In addition to the non-oil projects under discussion, talks are expected to be held on a proposed oil refinery and improving Pakistan's gas pipeline infrastructure. As in the case of India, FDI in Pakistan is likely to be tied to bespoke oil supply deals. In order to cushion Pakistan from the high price of crude oil, a special financing arrangement (SFA) is being considered that would enable the country to import Saudi oil under a long-term deal at a slightly lower price. A long-term oil supply contract with India is also likely.
An earlier SFA was agreed between Saudi Arabia and Pakistan after most of the world's largest economies imposed sanctions on Islamabad in 1998 as a result...