PAK-IRAN FRIENDSHIP SEMINAR

WHY DO BUSINESS WITH IRAN?-PAKISTAN'S PERSPECTIVE

AMANULLAH BASHAR
(feedback@pgeconomist.com)

Feb 27 - Mar 4, 20
12

The global economic recession has an adverse impact on the developing economies and Pakistan is not an exception. The situation calls for every positive effort to address the economic issues confronted to the country by utilizing all accessible resources within the country and in the region.

In the backdrop, the opinion leaders highlighted some significant and workable solutions to bring economic stability in the country at a seminar organized by Pakistan-Iran Friendship Association (PIFA) held at Iranian Consulate General last week.

The seminar was addressed among others by Excellency Agha Abbas Ali Abdollahi, Consul General of Islamic Republic of Iran, Iftikhar Soomro, Chairman PIFA, Mustafa Gokal, member Executive Committee of PIFA, Dr. Masuma Hasan, former diplomat and the Chairman of Pakistan Institute of International Affairs, Prof. Dr. Shahida Wizarat and a young business representative Khurram Saeed.

Speaking on the occasion, Mustafa Gokal explained reasons for trade development between Pakistan and Iran and pointed out following guidelines to boost trade ties between the two countries.

WHY DO BUSINESS WITH IRAN?

1. Iran is a rich market and able to pay and has natural rich resources in gas and oil, various derivatives, natural minerals and other raw materials: huge iron ore, copper, zinc & lead deposits.

2. Neighboring & Common border

3. Islamic country. Natural affinity.

4. Shared culture

5. Huge market: 75million plus, and a population with a relatively high purchasing power.

Iran's commerce falls under 3 categories:

Public organization (majority 60-70 per cent plus shareholding), private (30-40 per cent) and private merchants.

Public organization is usually larger business, takes longer time to materialize. Private organizations and merchants are usually quick. Usual care should be taken in making contracts due to language interpretation. No business should be conducted without a written contract.

WHAT IS REQUIRED FROM A PAKISTANI BUSINESSMAN?

a) Patience

b) Understanding of local regulations and local dynamics

c) Understanding of local culture e.g. Ta'arof.

WHAT ARE THE PRESENT DIFFICULTIES?

SANCTIONS: There is a need to understand what these are.

Many businessperson and organizations including banks in Pakistan just get scared reading the news about the sanctions in the media. They need to distinguish between US/EU sanctions, which are not obligatory on Pakistan, and sanctions by UN, which are obligatory on Pakistan. This is very important to know, as those who have business with US should avoid being caught in this rigmarole.

HOW TO CONDUCT BUSINESS UNDER PRESENT CIRCUMSTANCES?

A) Identify shipping companies that will carry the goods, as well as well as land transports over the borders. There are companies which despite the present situation will continue to service Iran market.

B) Find ways suitable to them to get paid. Each company has different situation. Iran is ready to pay cash in Chinese Yuan or in Russian Roubles for goods not necessary to be of Chinese or Russian origin.

C) Supplying raw materials to Iran and getting paid in finished products is possible. Of course, one has to negotiate who takes the first step, the supplier or the buyer. Mostly it is the Iranian buyer who takes raw materials first and pays back in finish products. Again, this depends upon one's relationship with the buyer.

D) Under the present circumstances, one has to find a "local" solution with your counterpart (buyer or seller). There are no ready frameworks to deal with such a dynamic problem. The more difficult, the more profitable.

While concluding his remarks, Mustafa Gokal said "Iran has proved profitable market for import-export business. This opportunity should not be lost by Pak businesspersons."

He also quoted President Asif Ali Zardari's statement carried by Dawn saying, "We need to be interdependent on each other. Our bilateral relationship cannot be considered or undermined by any international pressure of any kind."

Perhaps our trade associations taking hint from this should take a high powered delegation of businessman and bankers to study the situation first hand and reach some commercial contracts.

Prof. Dr. Shahida Wazarat while discussing the implication of sanctions on Iran said that one thing that needs to be borne in mind is that there is always a silver lining to every cloud. Sanctions can be turned into a blessing and bestow enormous benefits as happened to us during the Pressler sanctions imposed on Pakistan during the 1990s. These sanctions affected armaments and military hardware Pakistan buys from the USA and Europe. We could not even get spare parts for the equipment we had purchased from Western countries. This led to reverse engineering and

R&D activities in the country leading to technological change and advancements whose spillovers could be felt throughout the economy.

The Islamic Republic of Iran needs to initiate crisis management of its economy with a view to identifying the magnitude of imports and exports that will be affected as a result of the sanctions and the regions involved. The pronouncements by Russia, China, Japan, Pakistan, and India that they don't plan to abide by the sanctions are encouraging. It appears that the affect of sanctions will be limited to the USA and Europe. Once the regions have been identified we need to formulate a strategy to manage the balance of payments.

We need to identify Iran's exports going to the regions and imports coming from the regions imposing the sanctions. We also need to identify country by commodity export and import involved. Once these have been identified, we need to look for alternative markets for Iranian exports and alternative sources of supply for Iranian imports. In a scenario, when large economies such as Russia, China and Japan have already indicated that they would not abide by the sanctions, our efforts to find alternative export markets for Iranian exports and sources of supply of imports for the Islamic Republic will not be that difficult.

BARTER TRADE OR CURRENCY SWAP

We also need to identify other countries that are currently under sanctions. Some of them that come immediately to mind are Syria and North Korea. The economies of these countries need to be studied with a view toward identifying their trade pattern and the extent to which they can meet each other's needs. The economic union of these countries can start a barter trade amongst them, which by lowering the demand for the Dollar and the Euro can put these currencies under pressure, thus lowering their rates. We need to devise ways that will turn sanctions to the benefit of the countries on which they have been imposed and hurt the countries that are imposing these sanctions.

The fact that countries as large as Russia, China, Japan, Pakistan, and India will not abide by the sanctions will mean that more than half of the global economy will be operating outside the global economy. This will mean that an alternative global economy will emerge. There is a dire need for this to happen as the present international financial system has become extremely unfair, and unjust. As the balance of economic power is shifting from the west to the east, there is a need to bring about changes in the international financial system. The present system has outlived its utility as it is based on unequal exchanges in trade and aid between the developed and the developing world.

Time has come to change the international financial system and replacing it by a just, ethical, and fair system. The imposed sanctions on the Islamic Republic of Iran and their boycott by more than half the world economy could be the beginning of the end of the present international financial system and its replacement by an alternative system which does not create wealth through creating conflicts.

The international financial system which has become decadent will become irrelevant as the bulk of the world economy will be operating outside the system based on barter trade or using gold or some other exchange.