Saving Afghanistan’s Economy: A daunting challenge

Saving Afghanistan’s Economy: A daunting challenge
English: Spanish army paratroopers from the 3r...

Spanish army paratroopers from the 3rd Bandera exit a CH-47 Chinook helicopter at Bala Murghab Forward Operating Base (Photo credit: Wikipedia)

With NATO troops scheduled to leave Afghanistan by the end of 2014, questions remain on whether the country can support itself economically. 

The fledgling democracy will still receive large aid flows, but these flows tend to be funneled through corrupt Afghan ministries or localities.  NGOs are also active in promoting development around the country, but their efforts typically have little focus on building the private sector. Afghanistan was the world’s fastest growing economy in 2009 and had real GDP growth of 5.7% in 2011.  During this period of significant expansion many Afghan businesses profited greatly.  The reality, however, is that most of these companies succeeded by providing services to NATO forces such as construction and security.  As ISAF forces leave the country the main driver of Afghan private sector growth will take a dramatic hit.

Two main ideas for supporting the Afghan private sector after the withdrawal of ISAF have emerged, but both face serious hurdles.  The first is known as the New Silk Road Strategy. This strategy entails transforming Afghanistan into a transportation and trading hub for central Asia, much the way it use to be in centuries past. It is supported by prominent American officials including former CIA director and ISAF commander David Petraeus and prominent academics. Afghanistan is tucked between oil and gas rich northern neighbors, the massive populations of India and China to its south and east, and the Indian Ocean (via Pakistan or Iran) to its southwest.  Yet despite significant new investment in Afghan infrastructure, the country remains decades away from realizing its goal of being a regional hub.  There are only three main motorways in Afghanistan (the outside ring road, the North-South road, and the East-West road) and Afghanistan only just reopened its rail system in an extremely limited section of the country.  It will take years and billions of dollars to improve infrastructure in Afghanistan in order to realise this strategy.

A more publicized, but perhaps equally unrealistic option for the Afghan economy is the tremendous mineral wealth reportedly held in the nation.  The U.S. Geological Service believes Afghanistan may have 1 trillion USD worth of minerals (while Afghan officials suggest it is closer to 3 trillion USD).  Yet challenges abound in terms of actually extracting these minerals.  Most of the deposits lie in western Afghanistan, meaning the only real options for export are via ports in Iran and Pakistan.  Although, the Office of Foreign Asset Controls has carved out some exceptions to the Iranian sanctions for western Afghan companies, it is unlikely that significant mineral movement would ever be allowed.  The other possibility is to transport minerals via Pakistan to ports at Gwadar or Karachi.  The Gwadar port is being constructed by the Chinese and is also home to occasional outbursts from the Baluchistan separatist movement.  Karachi is further away and is currently strife with sectarian violence.  Either option would involve transporting minerals through the lawless Afghan-Pakistan border area.

2010 saw the signing of the Afghanistan-Pakistan Trade and Transit Agreement, which should allow greater movement of Afghan goods to Pakistan ports and to India.  However implementation has been spotty and high “unofficial” taxes are frequently levied at the border by corrupt officials.  The agreement also did not address the more pressing issue of security.

There is no shortage of interesting ideas to save the Afghan economy.  However, it appears that none of these ideas are close to becoming a reality.  The drawdown of ISAF forces seems likely to devastate the Afghan private sector and could have dramatically destabilising effects across the region.

About Author

Evan Abrams

Evan was previously a strategy consultant with Anant Corporation, where he helped companies streamline and grow their online operations. He has interned at the United States Senate, the U.S. Department of Commerce, and SRI World Group. He is particularly interested in international monetary and trade policy. Evan also closely follows the private space sector, on which he completed a master’s thesis. He is currently pursuing a Juris Doctor at the Georgetown University Law Center. He holds a master’s degree in international relations from the London School of Economics and a bachelor’s from Georgetown University’s School of Foreign Service.