Market Access Series 2024-25: The Kingdom of Sweden

The report on “The Kingdom of Sweden” is part of the Pakistan Business Council’s Market Access Series for 2024-25. The report provides an overview of Sweden’s economy, trade patterns, and Pakistan – Sweden bilateral trade & investment.

Economic and Trade Overview of Sweden:

In 2023, Sweden’s GDP stood at $593.27 billion with a per capita income of approximately $56,300. Goods exports in 2023 grew by 3.41%, outpacing import growth of 1.55%. This helped reduce the trade deficit by $5.3 billion, resulting in a surplus in goods trade. Major export items in 2023 included mineral fuels, motor vehicles, and medicaments, while imports consisted of similar mineral products, motor vehicles, Atlantic salmon, and smartphones.

Pakistan–Sweden Bilateral Trade Overview:

As shown in the figure below, Pakistan’s goods trade with Sweden has been negative since 2019, with the highest negative value of -$117.34 million in 2021. In 2023, Pakistan exported $140.00 million to Sweden and imported $148.42 million, resulting in an $8.42 million deficit. Pakistan’s major exports to Sweden include cotton bedlinen, semi/wholly milled rice, cotton trousers and ensembles, toilet linen and kitchen linen, gloves/mittens, while imports include chemical wood pulp, turnings and shavings, sack kraft paper, and coniferous wood.

The bilateral services trade figures show that Pakistan exported $113.68 million and imported $12.79 million in services from Sweden in 2023, resulting in a $100.89 million surplus. Most exports were business services ($58.87 million), while transport services made up most imports ($8.74 million).

Pakistan’s Export Potential to Sweden in Goods:

Pakistan’s total export potential to Sweden at the HS-02 level in 2023 was $14.40 billion. The main categories with the highest export potential to Sweden include textiles ($5.37B), foodstuffs ($1.28B), and metals ($1.20B).

Sweden’s Export Potential to Pakistan in Goods:

Sweden’s total export potential at the HS-02 level is $39.19 billion, which includes categories like mineral products ($14.95B), machinery/electrical ($6.19B), and chemicals and allied industries ($5.32B).

Pakistan’s Export Potential in Services to Sweden:

Export potential in the services sector is around $6.64 billion. Primarily in Classification 9, Telecommunications, Computer, and Information Services, with a potential of around $2.54 billion.

Opportunities for Pakistan to increase Trade with Sweden:

• Textiles: Pakistan can capitalize on existing demand in home textiles like bedsheets and towels, as well as opportunities in other products like carpets, blankets, and throws.
• Information Technology and Digital Services: Pakistan has a young, skilled workforce that can offer services like software development and digital solutions. Infrastructure upgrades can improve competitiveness. Gaming is another area with potential.
• Agriculture: High-quality exports like rice and pulses can grow with better packaging and quality control.
• Niche Exports: Sports Goods and Surgical Instruments: Sports goods (e.g., footballs, ice hockey gear) and surgical goods can contribute to export diversification.
• Mining Sector Potential: Strong potential in mining sector offers opportunities for investment in extraction and infrastructure.
• Ceramics Potential: Pakistan has the raw materials to make products like ceramic sinks and bathroom/kitchen fittings, but the industry is underdeveloped. Investment could boost product diversity.
• Tourism Potential: Northern Pakistan can contribute to tourism growth if infrastructure (roads, hotels) improves.

Opportunities for Sweden:

• Climate Change, Renewable Energy, Green Investment, and Electrical vehicles (EVs): Sweden can support Pakistan in renewable energy, EVs, and sustainable technologies due to its expertise in environmental policies and investments in solar, wind, and rare earth minerals. Sweden is also recognized for its green initiatives.
• Technology, IT and High-Tech Industry: Sweden is known for its tech innovation, showing potential for collaboration in areas such as civil/military technology & IT services. Companies such as SAAB and Volvo can bring valuable expertise, while Sweden’s expertise in digital solutions can help boost local startups and young entrepreneurs.
• Agriculture & Wood Industry: Sweden’s advanced agriculture and management of its forest reserves present opportunities for collaboration with Pakistan’s evolving agri-tech sector.
• Vocational Training: Sweden’s highly developed vocational training system can foster partnerships and support Pakistan’s industrial development.
• Sustainable Development, Innovation, and Capacity Building: Sweden can help Pakistan strengthen R&D, entrepreneurship, and institutional capacity. Pakistan can also learn from Sweden’s efficient housing systems.
• Ease of Market Entry: Pakistan allows full foreign ownership in businesses without requiring a joint venture.
• Machinery: Sweden can export machinery such as electrical generators, and other machinery for commercial appliances and chips.
• Healthcare and MedTech: The growing demand for telemedicine and medical devices in Pakistan offers opportunities for Swedish MedTech collaborations.

Challenges for Pakistani Exporters:

• Energy Crisis and High Utility Costs: High energy costs make it difficult for Pakistani exporters to remain competitive. The slow shifts to renewable energy worsens the situation, increasing the risk of losing out on exports.
• EU Legislations, Sustainability, Compliance, and Traceability: Strict EU rules related to clean energy, recyclability, water usage, and stringent SPS measures for food, traceability, and environmental and labor standards. Pakistan currently lacks the framework to implement these regulations, therefore it risks losing out on exports.
• Infrastructure Gaps in Tourism: Poor infrastructure, such as bad roads and limited reasonably priced lodging options, hinders growth.
• Internet Reliability and IT Services Challenges: Unreliable digital systems prevent the IT sector’s growth. Pakistani companies cannot function fully remotely; they need backend support.
• Security Perception Gap: Negative perceptions related to security issues prevent foreign investment from coming to Pakistan.

Challenges for Swedish Companies operating in Pakistan:

• Lack of Regulation in the Dairy Sector: The lack of clear laws, safety standards, and infrastructure in the dairy sector discourages investment in this crucial sector.
• Inconsistent Policies and Infrastructure Gaps: Unpredictable regulations, weak IP protection, and the absence of long-term frameworks hinder sustainable business planning. Infrastructure gaps, such as transport and energy supply, affect the efficiency of businesses.
• High & Unpredictable Taxation: High taxes, including import duties, inconsistent tax treatment, and refund delays increase business costs and risks.
• Economic Instability & Government Commitments: Currency depreciation, delayed payments, and broken commitments hurt investor confidence.
• Bureaucratic Hurdles: Slow and complex procedures for approvals and NOCs create operational friction for businesses.
• Negative Perception: Despite its potential, Pakistan is seen as a high-risk market compared to regional competitors with more stable systems.

Recommendations:

• Strengthen Engagement: Pakistan should proactively initiate business delegations, supported by embassies and chambers, and market itself to untapped buyers in Sweden.
• Bridge the IT Sector Gap: Invest in youth training, provide financial support, and improve digital infrastructure to grow IT exports.
• Boost Industrial Competitiveness: Reduce energy costs, support the renewable transition, educate exporters on EU standards, and diversify exports by investing in underdeveloped sectors like mining.
• Improve the Business Environment: Simplify regulations, reduce bureaucratic barriers, ensure timely tax refunds, and create stable policy frameworks for business growth.
• Improve the Taxation Framework: Streamline and simplify taxes, expand the tax base, and promote fairness to support formal sector’s expansion and competitiveness. Enhance investor confidence through incentives in Special Economic Zones (SEZs), including tax breaks and profit repatriation.
• Improve Pakistan’s Global Image: Combat negative perceptions through coordinated efforts to promote a business-friendly image of Pakistan.
• Streamline Trade and Customs Processes: Lower duties, adjust taxes, speed up customs clearance, and ensure more transparency to ease business operations.
• Encourage Partnerships with Swedish Companies: Foster partnerships between Pakistani startups and Swedish firms for tech transfer, quality improvement, and for attracting investments.
• Support Sustainability and Compliance: Develop a national plan and incentives to help businesses meet EU sustainability standards through training and financing.
• Grow Selective Tourism: Enhance tourism infrastructure and market Pakistan to niche travel groups via embassies, influencers, and social media.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

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