If the Afghan economy is going to succeed in the coming years it will be due to its exports. The country is too poor to engage in consumption led growth and capital markets are virtually non-existent, preventing potential domestic investment. The real hope for Afghanistan lies in cross border trade.
Perhaps somewhat surprisingly, Afghanistan has quite a bit the rest of the world wants. Afghan carpets have always been coveted, and these handmade masterpieces can often sell for thousands of dollars. The dried fruit and nuts industry has significant potential and has been a focus of the DOD’s Task Force for Business and Sustainability Operations. Gas rich Central Asian countries would love to pipe natural gas south, through Afghanistan, to the Indian Ocean. A 1990s project led by Unocal, known as the Trans-Afghanistan Pipeline, illustrates just how lucrative western companies see Afghanistan to be. Afghanistan is also home to an abundance of minerals with the U.S. Geological Service estimating their total value at one trillion USD. Some sources have called Afghanistan the “Saudi Arabia of Lithium.” Finally, the New Silk Road strategy favored by General Petraeus and others involves turning Afghanistan into a regional transport hub, much the way it was in centuries past.
As I have written in a previous article, there is no shortage of ideas to save the Afghan economy. While these ideas are rather diverse in nature, a common theme is that all of these plans are export related. The challenges of exporting from Afghanistan are great. Security issues, especially in the south and east, make moving goods highly difficult and U.S. sanctions on Iran limit the potential for the trans-shipment of goods. Yet, rather than help themselves, the Afghan government has shot themselves in the foot. Instead of streamlining the export process, Afghanistan has become one of the world’s most difficult places to engage in cross border business.
According to the World Bank’s Ease of Doing Business 2013 report, Afghanistan ranks a miserable 168th. Given the potential avenues for economic growth, easing cross-border trade should be a priority in Afghanistan. Yet, according to the World Bank cross-border transactions are Afghanistan’s second biggest weakness after investment protection. Selected progress in reducing regulation has been made and Afghanistan ranks an impressive 28th in ease of starting a business. However, the regulation surrounding the export industry is abysmal and is dramatically constraining any new companies that open. Exporting one container from Afghanistan requires 10 documents, 74 days, and 3,545 dollars. These numbers are shocking compared to OECD standards, but also compared to Afghanistan’s neighbors in South Asia where goods can be exported twice has fast and at half the cost.
The nature of the Afghan economy means that reducing export regulation must be a priority for future growth. Issues like infrastructure and security will take time to resolve, but reducing regulation is low hanging fruit that could have a large and immediate impact. President Karzai and the Afghan parliament should move quickly to address this tangle of regulation and unlock the country’s vast export potential.