Economy and business under Taliban
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With macroeconomic indicators fast deteriorating for Kabul and crumbling public confidence in the banking system, the Taliban administration seems mindful that they need deeper trade and investment relations with the region and beyond. The global community also aims to engage fast with Taliban through aid and trade linkages, however, also aims to use this as a carrot and stick strategy so that the new political regime behaves in a manner which is in the interests of Afghans and the region (a point already stressed by China, Russia, and Pakistan).
It is important to take a step back and understand what prior ‘doing business’ experience the newcomers in Kabul may have. In June, United Nations in a publicly disseminated report said that Taliban manage business operations totalling $1.6 billion annually. While some high worth activities include mine and mineral sector operations, according to the same report there could be some socially undesirable activities in the portfolio which could either see an upscaling or even a spillover into Afghanistan’s neighborhood.
This of course is not good news for countries such as Iran – already under sanctions, and Pakistan – trying desperately to achieve compliance with conditions laid down by the Financial Action Task Force.
Taliban also need to find new friends with deep pockets which are legitimate. There is a run on the currency and banks; current account deficit is projected to rise to unprecedented levels, and US has now blocked access to the much needed $9.4 billion international reserves of Afghanistan. The International Monetary Fund will also be suspending $460 million in emergency reserves.
During the fall of 2020, donors who came together in the Geneva meeting had pledged $12 billion in aid for Afghanistan to be disbursed in parts until 2024. This aid was linked with progress on peace and reconciliation, and improvements on the human rights front. These pledges may not see the light of the day with a fast-changing context and political economy in Kabul.
These are disappointing outcomes for the 90 percent Afghan population which is living on less than $2 per day and faces one of the worst bouts of inflation and food insecurity. To top all of this, there are risks of drought in parts of the country which cater to the staple food requirements. Almost 75 percent of the country’s public expenditure is funded through aid. A decline in this spending will naturally threaten the country’s progress toward the entire set of Sustainable Development Goals.
Taliban and the new government which may well include some newfound allies has a window of opportunity to rethink Afghanistan’s economic future.
Dr. Vaqar Ahmed
The trade profile of Afghanistan is already fragile. In 2020, the country’s total exports stood at $780 million which were 10 percent less than 2019. There is high dependence on Pakistan as notable exports such as carpets, rugs, fruits, and medicinal plants are either exported to or pass through Pakistan to reach their ultimate destination. On the import side, while Russia, Uzbekistan, and China remain active partners, Pakistan is the largest supplier of leading imports demanded inside Afghanistan including petroleum, food, machinery, and metals. Apart from bilateral trade, Pakistan is the shortest transit trade route for landlocked Afghanistan. Efforts to route transit through Iran and northern countries result in high transport and other logistical costs.
One should not forget that this is a country which amid its political and security crises has forgotten the costs imposed by one of the worst health crises in global history. Even if other aid inflows diminish, it will be a failure of the global community if Afghanistan doesn’t receive pandemic related support.
Taliban and the new government which may well include some newfound allies has a window of opportunity to rethink Afghanistan’s economic future.
First, it could come out clean and openly discourage the more than 50 percent of global opium production which originates from Afghanistan. The development community and neighboring countries who are affected by this would happily contribute toward alternative livelihoods.
Second, it is time to finally engage with Pakistan which could in turn open doors in terms of connecting Afghanistan through various initiatives under China Pakistan Economic Corridor (CPEC), incubate or host Afghan businesses in Pakistan’s border areas or special economic zones, and keep transboundary energy and connectivity projects on track. Economic gains will be more sustainable if Taliban have a vision for connecting with Central and South Asia in which Pakistan and other neighbors will be immensely helpful.
For Pakistan too, there is a space which may be short lived if expedient action is not taken. The new administration in Kabul will require all sorts of support to build capabilities in important institutions. A vast number of officials who were working in the Ghani administration in the legislature, judiciary, executive, and military space have either fled or are in the process of leaving their country. This void has to be filled in by those who are capable of giving Taliban and allies a more favorable profile, acceptable to those who engage and do business with this regime.
- Dr. Vaqar Ahmed is an economist and former civil servant. He tweets @vaqarahmed
