Pakistan’s Malaysia Pivot Is Promising

Spearhead Analysis – 10.04.2019

By Fatima Ayub
Research Analyst, Spearhead Research

When Pakistan’s Prime Minister Imran Khan last met Malaysian Prime Minister Mahathir Mohamad, praise for each other’s leadership and election victories took center stage. The incumbent Pakistani government continues to cite Malaysia as an export-driven success story in many of its appeals to the masses.

An investiture ceremony was held at the Aiwan-i-Sadr in the evening where the Malaysian prime minister was awarded a Nishan-i-Pakistan, the highest civil honour in the country. Mohamad was also the chief guest at the Pakistan Day parade.

A rich history of close cooperation – including historically Pakistan’s contribution to drafting Malaysia’s constitution – fueled prospects of a wide-ranging strategic economic partnership. But what these strategic interests are, has remained unclear for most part.

In March 2019, this changed. The two premiers inked five memoranda of understanding in the areas of telecommunication, information technology, and power generation, while also accelerating cooperation across agriculture, banking, and energy sectors. PM Khan’s Advisor on Commerce has estimated the signed memoranda at $900 million.

In the defense sector, Malaysia has reiterated its interest in acquiring JF-17 Thunder jets from Pakistan. Malaysia, along with Azerbaijan, is one of two countries seriously considering the joint Sino-Pakistani JF-17 fighter for procurement.

Prime Minister Mahathir was treated to an acrobatic performance by a group of JF-17 Thunder multi-role fighters. The aircraft is assembled in Pakistan and was developed jointly by the Pakistan Aeronautical Complex (PAC) and the Chengdu Aerospace Corporation (CAC).

The JF 17 gave a splendid performance in the parade. Previously in February the JF-17 was used to shoot down the Indian Air Force MiG-21 that intruded into Pakistan and another one that fell on the India side of the LOC in IOK. New Delhi alleged that Pakistan instead had used an F-16 but offered no evidence to back its allegation. Its claim that an F-16 was shot down has been conclusively debunked by US sources.

In the automobile industry, the leading Malaysian automobile company Proton has agreed to set up its first South Asian power plant in Karachi. Set to begin in June, the move adds to the impetus initiated by Pakistan’s Automotive Development Policy (2016-2021), in a bid to internationalize the country’s automotive industry.

These various bilateral agreements enjoy strategic significance on two levels. One, the lax industrial regulations enable Malaysian companies to target investment possibilities in Pakistan’s Special Economic Zones (SEZs), which was a key part of  Prime Minister Imran Khan’s investment proposal to Malaysian capitalists during his visit to Malaysia in November 2018. In his November visit to Kuala Lumpur, Imran Khan underlined a “four-pronged strategy” to set Pakistan’s economic deficit right: renewed foreign direct investment and increasing exports constituting its crux.

These SEZs zones are also tied significantly to the China-Pakistan Economic Corridor (CPEC), bolstering strategic access to West, South and Central Asia. Being given direct access to lucrative markets could play an important role in expanding Malaysia’s investment footprint in Asia.

For Pakistan, improved bilateral trade with a leading ASEAN country means incentivizing an underperforming domestic industry.

Though Pakistani exports continue to lag behind regional competitors, direct foreign investment have witnessed a significant uptick in the last year. Multi-billion dollar investment agreements with Saudi Arabia and UAE, with the former committing to an approximately $20 billion in energy, power and a petrochemical complex in the heart of Gwadar. It is sign of notable progress that some of the region’s biggest online payment ventures such as Paypal have also ended up valuing Pakistan’s microfinance banking services at $410 million.

Analysts therefore emphasize that for Pakistan, capitalizing on Kuala Lumpur’s desire for defense sales of the JF-17 Thunder jets and anti-tank missiles, Islamabad can establish leverage and an entry point into a burgeoning Southeast Asian trade environment.

There is also the colossal advantage of a possible pivot toward East Asia at a time when India recently hosted leaders of ASEAN states for its 69th Republic Day celebrations, reflecting its growing strategic profile. Trade and economic interactions between India and ASEAN have grown in the last two decades, from $2 billion in 1992 to $12 billion in 2002 and around $76 billion today.

Even with the prospective JF-17 defense deal, the Royal Malaysian Air Force is said to be evaluating not only the JF-17, but two of its competitors: The Indian-made Light Combat Aircraft Tejas and the Korean-made FA-50 Golden Eagle. The JF-17 has a decisive edge over both.

South Asian analysts are quick to point that Pakistan’s relationship with Malaysia enjoys symbolism and political linkages between the regimes that go beyond just bilateral trade. Both Prime Ministers have chosen to formulate Realpolitik-led national interests that are free of international pressures; Mahathir setting aside multi-billion dollar Chinese Belt and Road Initiative projects to protect his country’s debt-ridden economy, while Prime Minister Imran Khan looks to new bilateral credit deals to offset pressing IMF conditions.

For now, both nations have stressed the need to convene the Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA) Join Committee Meeting, at its earliest.

This is indicative of Islamabad’s desire to explore closer ties not just between the two government establishments, but also individual services. That makes sense for Pakistan not only in the context of the bilateral relationship, but also in deepening its engagement with other Asian states – as India seeks to do so as well – and playing up Islamabad’s role as a contributor to regional and global security in South Asia.