German Review


Pak-German Economic and Trade Relations
by Prof. Dr. Noor Ahmed Memon, Dean, KASBIT

Pakistan and Germany have enjoyed warm friendly relations since the establishment of their diplomatic ties in 1951. Pakistan was one of the first Asian countries to establish relations with Federal Republic of Germany (West Germany). These relations are based on shared values of democracy, pluralism, and respect for human rights, cultural and religious diversity and economic liberalism. Ever since 1951, Pakistan-German relations have been on an upward trajectory.

Germany is Pakistan’s largest trading partner within the European Union, accounting for 20% of Pakistan’s total exports to the EU and 21% of Pakistan’s total imports from the EU.

Germany maintains a healthy diplomatic presence in the country, with an embassy in Islamabad, a consulate in Karachi and honorary-consulate in Lahore, Peshawar, and Quetta.

Presently, Germany is the eighth largest investor in Pakistan and several German multi-nationals are operating in Pakistan. Germany has also extended active support to Pakistan's initiatives with the EU for providing greater market access to Pakistani exports to EU.

Pakistan is also one of the first of Germany’s partner countries to make use of innovative development funding instruments. Under the so-called debt conversion scheme, the Pakistani government is rewarded for making public investments in contractually agreed development programs by debt cancellation worth twice the amount invested.

There is a lot of potential for German investors to invest in energy and power sectors of Pakistan. The GSP plus status attributed to Pakistan not only benefits Pakistan’s economy, but is also favorable for Germany in political and economic terms.

In Pakistan, German businesses are symbolized on the one hand by multinational corporations, which are mainly located in Karachi and Lahore, and on the other hand by Pakistani trading agents, who represent the majority of the German companies in the areas of machinery, chemical and pharmaceuticals, instruments, automotive, and related equipment and services. Approximately, 35 German multinationals are engaged in Pakistan.

The majority have their production plants and offices in Karachi and at least another five companies have merged with other multinationals being headquartered in the port city. Another five German companies are located in Lahore and one in Quetta.

The business activities of altogether 565 German small and medium-sized companies are represented by 231 Pakistani agents. Comprised of electric and textile machinery, 221 German companies are represented by 71 agents - indicating that one Pakistani agent usually represents more than one German company. The composition of the sectoral distribution reveals that the largest sector represented by the agents in Pakistan is the machinery sector. The second largest product group is chemicals and pharmaceuticals. In this sector 132 German companies are represented by 50 Pakistani agents. The third largest group is manufacturing, electronics, steel, iron, metal products and consumer goods. Cars and technical equipment constitute the fourth largest sector, in which on average one Pakistani agent represents at least two German companies. The service sector consists of banks, insurance, consultancy, shipping and freight & cargo sector the last and sixth sector constitutes the scientific, optic, and precision instrument sector.

Table 1: Region-wise share of German Textile Machinery Exports - 2016

Region

Share

  Asia

52.3 %

  Europe

31.1 %

  North America

8.6 %

  South America

5.7 %

  Africa

2.3 %

  Total

100.0 %

  Source: German Textile Machinery Association, VDMA.

However, during the past years, over 500 companies from Pakistan were represented in several worlds’ biggest trade fairs and participated in 16 different exhibitions which may have helped the export sector.

In the year 2015-16 Germany’s bilateral trade with Pakistan stood at US$ 2.16 billion. Whereas in previous years Pakistan had invariably recorded a slight surplus in trade with Germany, German exports to Pakistan amounted to US$ 938 million and German imports from Pakistan US$ 1.22 billion. Pakistan’s principal exports to Germany are textiles, leather goods, medical instruments, Basmati rice and jewellery. Pakistan’s main imports from Germany are chemical products, machinery, electrical goods, motor vehicles and iron goods. During the past six year’s balance of trade remained in Pakistan’s favour. Pak-German trade is given in Table 2.

Table 2: Pak - German Trade
                                                                       Value: US$ Million

Year

Export

Import

Balance of Trade

2010-11

1,216

947

+ 269

2011-12

1,151

1,175

+ 24

2012-13

1,024

974

+ 50

2013-14

1,171

987

+ 184

2014-15

1,215

895

+ 319

2015-16 1,217 938 + 279

Source: State Bank of Pakistan Annual Reports.

Germany is a good market for Pakistani textile products especially readymade garments, bed wear cotton fabrics and knitwear. The main items of exports included cotton fabrics, towels, synthetic textiles, carpet and rugs, cotton yarn, bed wear, cotton bags and other made-ups textiles, besides textile and clothing articles. Export of textile and other products from Pakistan to Germany are given Table 3.

Table 3: Export of textile and other products from
Pakistan to Germany
   (Major Items)
                                                                           Value : US$ 000

Items

2015-16

2014-15

2013-14

 Cotton fabric

99,781

108,881

108,424

 Readymade Garments

271,367

238,524

190,963

 Knitted

151,812

128,101

137,662

 Bedwear

192,086

216,895

204,044

 Towels

42,433

40,779

34,184

 Textile made ups. 28,567 29,762 22,507
 Tents and canvas. 813 1,059 1,195
 Art silk & synthetic textiles. 9,431 8,348 3,880

 Rice

7,735

11,026

10,603

 Leather tanned.

13,567

22,645

36,776

 Leather garments

77,968

99,097

110,683

 Leather gloves

23,386

29,563

25,694

 Footwear

23,117

30,751

31,964

 Sport goods

50,197

47,160

50,237

 Carpets and rugs

7,859

8,161

8,438

 Surgical instruments

48,972

48,202

45,780

 Fruits

17,025

22,083

33,212

 All other items

150,884

123,963

142,336

 Total

1,217,000

1,215,000

1,171,000

 Source: Trade Development Authority of Pakistan.

During the year 2016, German textile machinery exports to Pakistan worth 51.0 million euro. Major items of textile machinery in terms of rupees exported from Germany to Pakistan are given in Table 4.

Table 4: Export of Textile Machinery from Germany to Pakistan
(Major Items)
                                                                         Value : Rs. Million

Machinery 2015-16 2014-15 2013-14
 Carding Machines 795 548 1,418
 Textile Spinning Machines 627 173 597
 Drawing / Roving Machines 488 735 976
 Blow Room Machinery 256 326 925
 Preparing Textile Fiber 19 337 341
 Weft Winding Machines -- 124 301
 Textile Winding Machines 139 206 658
 Textile Fiber Machines 84 289 137
 Flat Knitting Machines 204 131 29
 Embroidery Machines 65 143 150
 Top and Flat Card Clothing 122 131 183
 Card Clothing 118 105 120
 Spindles Flyers Ring Travellers 221 259 235
 Dyeing Machines 47 301 310
 Stentering Machines 221 195 390
 Drying Iron Machines 404 158 475
 Source: Pakistan Bureau of Statistics, Government of Pakistan.

References

  1. Pakistan Bureau of Statistics.
  2. State Bank of Pakistan-Annual Reports.
  3. German Textile Machinery Association (VDMA).
  4. Trade Development Authority of Pakistan.

 

 
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